SMM TiVo Case Analysis RafalKowalczyk WEMBA11, Upd25.03

Strategic Marketing Management / WEMBA11

TiVo Case Analysis Warsaw Executive MBA, XI Edition

STRATEGIC MARKETING MANAGEMENT WARSAW, WARSAW DECEMBER 2005 WARSAW SCHOOL OF ECONOMICS (SGH)

Author: Rafał Kowalczyk

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Rafał Kowalczyk Strategic Marketing Management

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Table of content 1. Preface...........................................................................................................................4 2. Situation Assesment......................................................................................................5 3. Defining Problem/Decision Area....................................................................................6 4. Identification and Evaluation of Alternatives..................................................................7 5. Recommended Course of Action...................................................................................9 6. Sources........................................................................................................................10

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SMM_TiVo_Case_Analysis_RafalKowalczyk, upd25.03.2006.doc Version: V1.3.

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Rafał Kowalczyk Strategic Marketing Management

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1. Preface The goal of this document is to present in proper evaluation form HBS TiVo Case analysis. In order to prepare this analysis author used information from HBS TiVo case given by SMM trainer and available on WEMBA Memento website. The document has the following logic structure: o

Chapter 1 Preface – general document information.

o

Chapter 2 Situation Assesment – synopsis and evaluation of TiVo current situation.

o

Chapter 3 Defining Problem/Decision Area – problems and managerial decision areas for the company.

o

Chapter 4 Identification and Evaluation of Alternatives – list of feasible alternatives.

o

Chapter 5 Recommended Course of Action – recommended steps to take to solve the problem.

o

Chapter 6 Appendix – this section contains addition data used in TiVo case analysis.

o

Chapter 7 Sources – bibliography.

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2. Situation Assesment TiVo company has developed and introduced into the market black-box hardware device that brings a whole set of new features to the classical TV, for example: pause, fast foward/rewind and replay in slow motion TV stream and much more (functionality of TiVo black-box is described in details in HBS TiVo case). In other words the product offers on-demand TV which is of course very attractive from the end user point of view. Price for end user per one box was established at 1,000 USD level. In short description TiVo device uses MPEG-2 compression/decompression algorithm to store TV streams on builded-in hard disk with 2 main capacities: “14-Hour” and “30Hour” box. TiVo device offfers four different quality categories: basic, medium, high and best picture quality. In order to produce and deliver reliable and resilience hardware alliance with Sony and Panasonic companies was established. According to information from TiVo case product was lunched in USA during Christmas 1999 and after fourteen months has signed up 42,000 subscribers, with growth rate of 14,000 new users per quarter. Of course TiVo prepared very aggressive marketing compaing (in mass media, direct marketing in stores, billboards etc.) and some of its ads was even amusing for some of potential business consumers/partners – for example so called “Network Executive” advertisement was badly perceived by CBS station. TiVo marketing team finds out that despite availability in many distribution channels (i.e.: major consumer electronics stores) and high customer satisfaction index the market penetration was only about 0,04%. Main competitors for TiVo products comes from Replay Networks(ReplayTV black box) and Microsoft(Ultimate TV). Especially Ultimate TV is a tough business enemy since it is bundled with satellite television and its features includes: access to electronic mail, Internet surfing, interactive television and personal video recording. In my opinion assuming certain point of time(year 2000) the main business challenges for TiVo are: 

achieve significant competitive advantage



attract business partners such as TV stations

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enhance market share and dig penetration



improve profitability

In this case analysis I will try to make some recommendation for TiVo executives that should help to achieve above listed business targets.

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3. Defining Problem/Decision Area Considering any business problem it is always a good idea to indicate key areas which need to be evaluated and improved. I believe that there are a lot of problems and their symptoms in TiVo (regarding the company situation in 2000). However some problem areas are worth to underline: 

high sales stuff turnover (sales low growth symptom, low profitability since high training costs)

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lack of competitive advantage (sales low growth symptom)

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inadequate marketing compaign (sales low growth symptom, low profitability)

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high cost of operations and distribution (low profitability)

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high production costs (low profitability)

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low entry barrier (low profitability, price wars)

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lack of product uniqueness functionality (low profitability, price wars, similar competition products)

According to the above list the following decision areas for TiVo managers was defined: 

sales and distribution strategy (Sales Manager)



sales stuff management (Sales Manager, HRM)



product enhancement strategy (Product Manager, CFO)

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customer value management (CEO, Marketing Manager)



operation management (Operation Manager)

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marketing strategy (Marketing Manager, CEO)

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business partnership strategy (CEO, Marketing Manager)



strategic planning (CEO, CFO, Marketing Manager)

Almost all of management areas are touched by problems that arised in TiVo. Of course all managerial changes should be properly integrated in order to develop consistent business solutions. Given lists illustrate only a high-view of problem/decision areas and should be treated only as a input for problem/decision breakdown structure. As an example we can use “sales stuff management”, which consists of such a rich subjects as: compensation plans, training and career development, evaluation/assessment methology etc. In author opinion in most business cases top-down problem definition methology is desirable one since we don’t lose problem target, genealogy and we can achieve any desired level of problem details as well.

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4. Identification and Evaluation of Alternatives In order to answer the question how TiVo have possibly enhance their business capacity and improve market situation author has recognized the short list of available managerial decision strategies: 1.

Stay on the market as one of the many personal video recorder company (PDR) producer

At first look it may seems not to be very sophisticated managerial decision to stay on the market average position but it can also be a challenging task when like in TiVo cases financial results are declining. From HBS TiVo case Exhibit 3 we can see that not only sales growth are declining but net loss is still growthing. So if TiVo executives wants to stay on average they must concentrate on operations optimizing and they should compress marketing investments (marketing compaing expenses in mass media for example) since their will be enough customers awareness to buy PDR generated by other companies ATLs and BTLs. So in TiVo case I would recommend to minimize: “Sales and marketing-related parties” and to optimize “General and administrative” expenses. Well there should be made some smart decision about R&D investments since we are not interested in become innovation leader but rather to achieve nice almost flat stream of profit. In this field I would suggest to minimize R&D as well and to sustain general accepted and required by customers product innovation index. Of course this strategy (Red Strategy) assumes a massive war prices so only core business must stay in TiVo company and all others (especially production and logistics) should be outsourced. Low profit production means in many cases massive scale in order to achieve shareholders targets so TiVo would be interested in gaining market share via low prices. This strategy should ensure generating high entry and exit market barriers for potential competitors. It is a must to establish strategic business partnership with big retail chain stores and develop internet sale channels as well. Main disadvantage of this strategy will be most probably low ROIC ratio and after some time shareholder and stakeholders might be interested to move to another business area. Key business areas which must be taken into account during implementation are: Operation Management, S&D strategy, Business Partnership and Strategic Planning. 2.

Improve market position and try to become the PDR business leader

Of course this plan is definitely not easy one since not only TiVo inner optimization will be necessary but deeper and broader market penetration and product uniqueness gaining are the key elements. The balance between R&D investments and sales expenses must be well defined. In this strategy we need to achieve meaningful competitive advantage using unique product and service offering. I would suggest add some really valued services like: free-of-charge internet user tips and tricks, guideline for newbies, free in-house installation, central help desk etc. On the other hand we need product that is more sophisticated and valued than others but easy-to-use on the same time. TiVo could sales some really complex PDR products for high-end customers (expensive one) but still have some medium-price products with better than avarage quality and functionality. Definitely sales and marketing compaign in this plan should be well designed, i.e.: addressed to proper customer segment like yuppies for example (ads only in popular magazines, clubs etc). Human resources management must be improved as well in order to sustain best workers for job and to ensure that there is rational workforce turnover especially in R&D and sales department. Core business in Document:

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this case would be defined by: Product Enhancement, Value Management, HRM, R&D and S&D areas. 3.

Leave the PDR market and search another business opportunities

It might not be so easy at might sound at first – of course if we want to get enough assets to start invest in another business. First of all TiVo management should try to get from current business as much as possible, for example: selling know-how for big HiTec company, rights for brand (Lenovo – IBM example). Refining and improving financial condition thru operation optimization and investment cutting could improve the company market to book value ratio and increase probability for acquisition or merge with another Hi-Tec bigger corporation. Basing on previous business experience TiVo could invest in interactive internet TV for example and some advanced consulting services for other Hi-Tec companies as an additional profit stream. Of course TiVo could try just to sell at best price their assets but I would rather say that this is suboptimal solution because their main assets are based on intangible assets like know-how and established brand name. Core business areas would be: Operation Management, Value Management and Strategic Planning.

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5. Recommended Course of Action Basing on prepared assessment and described managerial alternatives author would suggest to implement second strategy, i.e.: “Improve market position and become the PDR business leader” and if its fail than go for third one: “Leave the PDR market and search another business opportunity”. My recommendation is sourced by idea that the company should always looks for the best alternatives because in other case shareholders will move their equity to more attractive opportunities. Flat self-growth strategy like the first one is only good for companies that do not want to manage higher risk in order to achieve better financial results. We could see a lot of such examples in real life – clones of really innovative products but still they do not have to invest in R&D which of course from financial point of view is advantage (ordinary MP3 player and iPod for example). These companies are playing their business roles on so called Red Ocean – when competition is based heavily on the price. Still they can have excellent results like Wal-Mart for example – but in order to achieve this they have to be masters of operations management. Another companies based mostly on innovation will be looking for Blue Ocean markets and trying to build product and service uniqueness (Apple for example) and author strongly recommends for Hi-Tec company to look for such one since electronic production heavily moved to Asia countries and only new design/quality/functionality could be a solid source of the company profits.

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6. Sources 1. HBS TiVo Case materials. 2.

“Marketing Management 12e” by Kotler and Keller.

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