Strategic Marketing Management / WEMBA11

TiVo Case Analysis

Warsaw Executive MBA, XI Edition

STRATEGIC MARKETING MANAGEMENT

WARSAW, DECEMBER 2005

WARSAW SCHOOL OF ECONOMICS (SGH)

Author:
Rafał Kowalczyk

Document: SMM_TiVo_Case_Analysis_RafalKowalczyk, upd25.03.2006.doc Date: 2006/03/25

Version: V1.3.

Owner: Rafał Kowalczyk Status: Final

Subject: Strategic Marketing Management Page 1 of 10
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1 21.01.2006 Chapter 1&2
1.1 22.01.2006 Chapter 3
1.2 24.01.2006 Chapter 4
1.3 25.01.2006 Final Review

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Document: SMM_TiVo_Case_Analysis_RafalKowalczyk, upd25.03.2006.doc Date: 2006/03/25

Version: V1.3.

Owner: Rafał Kowalczyk Status: Final

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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

Document: SMM_TiVo_Case_Analysis_RafalKowalczyk, upd25.03.2006.doc Date: 2006/03/25

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Owner: Rafał Kowalczyk Status: Final

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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.

Document: SMM_TiVo_Case_Analysis_RafalKowalczyk, upd25.03.2006.doc Date: 2006/03/25

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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 “30-
Hour” 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
 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)
 lack of competitive advantage (sales low growth symptom)
 inadequate marketing compaign (sales low growth symptom, low profitability)
 high cost of operations and distribution (low profitability)
 high production costs (low profitability)
 low entry barrier (low profitability, price wars)
 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)
 customer value management (CEO, Marketing Manager)
 operation management (Operation Manager)
 marketing strategy (Marketing Manager, CEO)
 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.

Document: SMM_TiVo_Case_Analysis_RafalKowalczyk, upd25.03.2006.doc Date: 2006/03/25

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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: SMM_TiVo_Case_Analysis_RafalKowalczyk, upd25.03.2006.doc Date: 2006/03/25
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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 Hi-
Tec 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.

Document: SMM_TiVo_Case_Analysis_RafalKowalczyk, upd25.03.2006.doc Date: 2006/03/25

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6. Sources

1. HBS TiVo Case materials.

2. “Marketing Management 12e” by Kotler and Keller.

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