Tivo Case Essay

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Memo#1
TiVo Case

Marketing Management
Cheng Zhang

QUESTION ONE: Briefing the CEO
TiVo is adding subscribers at healthy pace, but faces some serious issues that need to be resolved if the company is to move forward or remain viable. I believe there are three crucial areas that we should address: revenue enhancement, marketing, and research. The first issue is revenue enhancement - to generate positive cash flow. Due to competitive pressures and the general inertia potential customers have toward becoming subscribers, we cannot necessarily increase our subscription fees. We need to create additional revenue streams from what we already have and do. A quick analysis of our financials will suggest the urgency with which we must address revenue. Without offering a solution, we can see the difficulty in generating positive cash flow by making some assumptions (unrealistic) and then seeing how the existing figures are impacted. Here are the assumptions: 1. That TiVo cease all Research & Development.

2. That all Marketing Parties (the majority of marketing expenses) are eliminated. 3. That costs (such as Cost of Services) do not increase. This is definitely unrealistic, because we see this cost increase as the number of subscribers increase. 4. That General and Administrative Costs do not increase. Again, very unrealistic. We see these costs increase as the number of subscribers over time increase. With the above assumptions, what does the cash flow picture look like using the most recent company financials: January 2002 (Jan-02)? Revenue:$6,753

Cost of Services:($4,830)
Sales and Marketing:($2,649)
General and Administrative: ($4,486)
Interest Expense and Other:($1,845)
TOTAL COSTS & EXPENSES:($13,810)
Net Gain (LOSS)($7,057)
The above analysis puts our financial picture into perspective; if we do not increase costs, if we cut out the majority of our marketing expenses, if we eliminate all research and development, if our variable costs do not increase, we would need to double the number of subscribers just to break even. The immediate solution would seem to be “add subscribers”. But looking at our costs, simply adding subscribers isn’t enough. No doubt, we do need to add subscribers, but we need to find new avenues for generating revenue. Essentially, we need to look at what we have and squeeze out additional revenue – without increasing the cost to our subscribers. The second issue is marketing - to create a broader, more universal, appeal for our product. It would seem, and the data suggests, that TiVo appeals to very specific segments of the US population. If we are to expand the number of subscribers, our product needs wider appeal. This involves educating the market and connecting our features to the benefits that trigger deep emotional responses that motivate potentials customers to take action and become subscribers. We need to better understand the broader TV viewing audience. We want TiVo to have universal appeal. Based on our existing research, we know that TiVo is more than just another electronic gadget – that it actually adds value and improves our subscribers’ lifestyles and relationships. The question is how do we transfer that knowledge to the general TV viewing market? A third issue is more actionable research, as well as conducting useful research that doesn’t simply repeat or mirror data we already have. I would agree with Mr. Brodie Keast, our Senior Vice President and General Manager of Media and Services, that we have studied our customer in depth and need to ferret out actionable results and use what we have to better determine what research we need to do next. We now have the data we need to understand our customer. I would strongly encourage support of the new group dealing with viewer behavior. That information is not only valuable to TiVo, but to our partners and advertisers as well. The data mined from viewer...
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