FUNDAMENTALS OF MARKETING

Case Study TiVo in 2002: Consumer Behavior

Group 13 M1

1. Background of the case

The case deals with the problems faced by TiVo (a creator of the personal video recorder) in 2002. This is with respect to the amount of sales it is able to acquire along with the fact that they have been operating with losses for the last few quarters. It also highlights the different measures TiVo has undertaken in the form of surveys and consumer research projects to understand the customer s perspective of their product. This research was aimed at seeking options as to how TiVo could increase their customer base. The below report showcases the problems faced by TiVo and the possible solutions TiVo can adapt to overcome the same.

2. Problems y Slower start in number of subscribers than originally forecasted

Compared to the forecasted sales, TiVo saw a surprisingly slow start. The main reason for this initially was assumed to be due to the lack of awareness. y Company facing financial problems TiVo was also continuously losing money. This was evident from the fact that the amount of money spent on Sales and Marketing greatly exceeded the total revenues that they were getting in return. The increased expenditure also did not contribute to increasing the sales. TiVo had not made a dime in the last few years. y Profile of subscribers remain narrow Majority of TiVo subscribers were married couples, high income families and middle aged consumers. Very small percentage of the subscribers comprised of singles, lower and middle income households, the young and elderly. This raised a question about TiVo s universal appeal. y Disparity between customer satisfaction and growth Post purchase attitude reflected high level of customer satisfaction but on the other hand the volume of sales was still lagging. This was contradictory to TiVo s expectation, of increasing sales volume through their existing customers. y Perceived Risk of Purchasing A small percentage of the purchasers were from the middle and low income groups. This was because, even though the awareness and intention to buy was rising, it did not translate into action. The main reason for this was that customers seek referrals from their friends and acquaintances prior to making any purchases. y Company s focus on sales, not evangelism Sales are good for a company but evangelism is good for customers. TiVo s big-picture marketing focused on promotional sales tactics rather than embracing enthusiastically outspoken customers who could influence sales on customer s behalf.

Pricing Issues In addition to the prices of the recorder which the customer had to pay, TiVo also increased the subscription fee to $12.95. This would make already-expensive monthly cable bills even more daunting.

3. Objectives of the Company

The main objectives of the company at present include: y Increase their dominance in the PVR industry o Close the gap between intention to buy and action o It was known that the product awareness, understanding and intention to buy was increasing and hence the company has to focus on influencing customers to purchase the high quality and high satisfaction product. o Penetrate a broader consumer market The company needs to increase their sales to singles, low and middle income households and the young and elderly. Also at the same time, they need to maintain strong relationships with current subscribers. Decrease the perceived risk The company needs to focus on producing a quality product and thereby on increasing customer satisfaction.

y y

4. Alternate Solutions
The options that TiVo could consider would broadly fall into one of the 2 categories i.e. either pricing options or promotional options. Pricing Options y Reduction of prices

Because of the high entry cost, many consumers were not willing to buy TiVo. By reducing the prices, TiVo could attract more buyers thereby increasing its customer base. It would also increase the cash flow for them. The short term loss in profits would invariably lead to greater growth and opportunity to maintain customers. y Financing

One more option can also be to offer the product to the customers through installments. This will help TiVo increase its sales among the low and middle income households. y Rebates

Special schemes which would give rebates in the form of a year s subscription for free in return for 3 years fees in advance could also be provided by TiVo. This could be done during the festival seasons like Christmas, Easter etc. They can also provide limited time offers (10-15% reduction for one quarter).

Promotional Options y Free Trials

TiVo could look at providing free trials which would help to promote the awareness and also at the same time would provide an experience to the customers and help to eliminate the perceived risk. y Refer a friend awards

From the case facts, we see that most of the customers bought once they were influenced by their friends. TiVo should increase their focus on embracing this customer community. For a product with such fervent customer evangelism, a unified and concentrated focus on word of mouth would surely increase the sales. Customer evangelism is driver of all strategies and tactics. To promote this further, they could offer rewards to customers who

refer TiVo to their friends and relatives and influence them to buy the same. This would act as an incentive. y Money back guarantee

To increase the customer confidence on the quality of the product, TiVo can look at using a scheme of money back. This would encourage the customers to buy and test with the product and given that the quality is good, this would increase the sales. y Forging relationships with cafes and sports bars

Given that games like the Super Bowl was watched by most of the customers, TiVo could look at forging strategic alliances/tie-ups where such games were broadcasted. This would help to increase the awareness among the potential customers at a dramatic pace. y Costumer Plus Delta

In addition to their core product, TiVo should aim at creating an online community feedback system. This would help to solicit customer inputs and use it to make company decisions. Also the same could be used by TiVo to address any concerns that customers had which would in turn strengthen the relations with the customers.

5. Solution
Criteria for selection: y The primary criterion for selection of the best solution is that it should be the most effective in addressing all of the problems stated. Other criteria include: - Cost effectiveness - Ease of implementation - Long term advantage

Solution: In the short term, the most effective solution according to us is in fact a combination of the best features of the alternative solutions. We believe the best way for TiVo to solve their problems would be to use a combination of a pricing and a promotion option. The ones we consider which would work the best in conjunction are Rebates & Financing and Refer a friend award . By using the pricing option, TiVo would be able to attract more customers from the low and middle income groups etc which would help to increase their customer base. This would in turn increase their sales thereby providing a solution to their low sales and net loss problem. On the other hand, with the promotion option, they would be able to attract more customers through their existing customers. This would solve the remaining problems they are facing like perceived risk, disparity between customer satisfaction and sales.

In the long term, the best option we believe would be for TiVo to create partnerships with cable companies. By doing this they can promote package deals which would act as an incentive as well for customers. At the same time they have to make a strong effort to maintain good relationships with subscribers who would in turn market the company by word of mouth.