marketing management - product outline
TRANSCRIPT
Final GP - Time Warner Cable: Revolutionizing Cable Television
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Time Warner Cable: Revolutionizing Cable
Television
(Introducing “a la carte” cable television program packages)
MKT 6301.002
Dmitri Kuksov
Final Group Project
Composed By:
Kevin Dunsmore, Brian Korver, Matthew Reynolds & Inga Shivers
Executive Summary: Time Warner Cable is in a unique position to revolutionize the cable television
industry by breaking the longstanding, and outdated mold of forced program packaging by offering “a la
carte” program packages, where customers can choose the individual channels they wish to subscribe to,
thus cutting their cable costs. Consumers are tired of paying for content they have no interest in, or
intention of viewing. Consumers are increasingly “cutting the cord,” discontinuing their cable services for
streaming devices that display content from providers such as Netflix and Hulu on demand.
Unfortunately, the makers of these various devices have been unable to provide “live” content due to the
various networks and broadcasters unwillingness to upend industry standards and programing contracts
they currently have with cable television service providers that provide large streams of revenue for all
parties involved. It is our belief that TWC will be able to negotiate new, reasonable affiliate fee contracts
with various broadcasters and networks, under this new model, by utilizing not only their current
subscribers as leverage, but also by proving the viability and profitability of this new content package
system over time, while slowly phasing out their traditional cable packages.
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The Company
Time Warner Cable (TWC) is a cable telecommunications company that offers cable television,
internet and home telephone services in the United States. Its development into the company that exists
today stems back to 1968, when the American Television and Communications Company (ATC) was
founded. In 1978, Time Inc. (a publishing company) acquired ATC. Then, in 1989, Time Inc. merged
with Warner Communications (owner of Warner Cable) to establish Time Warner Inc. In 1992, after a
multi-year merger, ATC and Warner Cable were combined to form Time Warner Cable, a subsidiary of
Time Warner Inc. Finally, in 2009, Time Warner Inc. spun out Time Warner Cable as an independent
company, allowing it to keep the Time Warner name under a licensing agreement. TWC is today the
second largest cable operator in the United States. (Time Warner Cable, 2015)
The mission of TWC today is “to connect people and businesses with information, entertainment
and each other and give customers control in ways that are simple and easy – to make a difference in their
lives.” (Time Warner Cable, 2015) Its competencies, that have allowed TWC to deliver on this mission,
lie in its well-established and technologically advanced infrastructure. In the telecommunications
business, if you’re not constantly and consistently advancing your technology, you’re falling behind the
competition. This progression can be seen in the development of the products they offer today.
TWC was originally solely a cable television service provider, however, only three years after its
establishment, in 1992, it branched out to become an internet service provider as well, through the
development of its cable modem and the use of fiber optics. This early leap into the digital world set the
stage, and created the capabilities needed, for the company’s later integration/convergence of digital
television, on-demand programming, digital phone services and cloud services. (Time Warner Cable,
2015) While this advancement in technology has been, and will continue to be, a strength of TWC, they
are by no means leaps and bounds ahead of the competition. The technology race is an unforgiving and
never-ending task.
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However, they do hold one strong advantage over their competition. TWC, unlike all of its
competitors, does not require contracts, annual or otherwise, on any of the services it provides. This is
extremely unique in the telecommunications world and not only establishes immediate trust with their
customers, but also holds TWC accountable for the quality of services they provide, due the fact that a
customer can leave at any time with no penalty if they are unhappy. This also supports another TWC
strength.
There is an odd, and most might say unfair, way that competitors in this industry divide up the
geographic marketplace. It is common knowledge that AT&T and Verizon, the main non-satellite
competitors, will not offer their services in the same area, meaning, in a dark backroom somewhere, they
have decided amongst each other who will get what. So, if a customer in an AT&T neighborhood is
unhappy with their service, TWC (or Comcast depending on your location in the U.S.) is their only other
option for cable and internet, unless they want to go with a satellite provider, in which case they would
have to find their internet somewhere else. The “no contract” benefit of TWC makes them all that more
appealing to a dissatisfied Verizon or AT&T customer when their contracts and special pricing expire.
Unfortunately, within the accountability aspect of the “no contract” benefit lies their greatest
weakness. TWC has not taken this accountability seriously over the years, which has led to their customer
service level in the industry being rated the worst as of June 2015. (Morran, 2015) This is not a stellar
endorsement of the company since most, if not all, telecommunication companies rate fairly low on the
customer service satisfaction scale. Since this issue has become increasingly public, TWC has been
putting extreme efforts into remedying these problems and repairing their image. They have done so by
restructuring their customer service apparatus and addressing common complaints against all
telecommunication companies, such as the “whole day installation appointment window,” by offering
one-hour appointment windows. They are carrying these messages to the public through large advertising
campaigns that bring humor to the problems customers have faced over the years, while promising they
are no longer issues. The results of these changes and this campaign are yet to be determined.
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The Competition
There are five main competitors in the cable television service provider industry; TWC, Comcast,
AT&T/Direct TV (recently acquired by AT&T), Verizon and Dish Network. TWC and Comcast stem
from the original cable television providers, whereas AT&T and Verizon stem from the later
telecommunications industry move into the home entertainment realm with the advent of the internet.
Dish Network is the only remaining, sole satellite-based provider. TWC and Comcast divide the
geographic marketplace much like Verizon and AT&T do, as was mentioned previously. Meaning, where
there is one there is usually not the other. Dish Network is available in almost all geographic locations
within the United States, but it is the only competitor that does not offer internet services except through
non-Dish Network entities (usually more expensive with data limits), which they will setup and
conveniently bundle within a single bill.
The pricing comparison between these competitors is very fluid and fluctuates greatly based on
the service address/zip code, and whether you have your cable service bundled with your internet and/or
telephone service. However, in general, basic cable television services will cost from as low as
$50.00/month for very basic packages to well over $200.00/month for channel packages that include
premium programing. Most of these companies offer extremely enticing “new customer” rates that
require one to two year contracts, after which, the price skyrockets and your options are limited. This gets
back to the enticement of the TWC “no contract” option for those whose contracts and special pricing
with Verizon or AT&T expire.
Aside from the customer service issues related to all of these competitors, the advantages of one
over the other usually boils down to pricing specials, as they all try to offer similar programming
packages. From a customer’s point of view, there is also the geographic/availability hurdle to contend
with, as you will usually only have three of the five options available to you. With all of the above in
mind, it is easy to surmise that maintaining a reasonably priced monthly cable bill requires a lot of
research and continued annual diligence and time to keep it that way.
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This brings us to the “new” streaming services competitors. These new streaming services are
add-on devices offered by multiple companies that offer easy access to online streaming content providers
such as Netflix and Hulu. They also allow you to stream content from some regular network/premium
channels, although you have to be subscribed to these networks through your current cable provider for
access, and the content is never live. Today’s main streaming device competitors currently consist of
Apple TV, Sony PlayStation Vue, Roku, Amazon Fire, Chromecast and Dish Sling. These devices range
in price from $50.00 to $150.00 each and require a reasonably fast and reliable internet connection. These
services are not seen as a current threat, or as competitors to the traditional television service providers, as
the percentage of defectors or “cable cutters” has not yet commandeered a significant portion of the
market. Most customers have chosen to have these devices/services in conjunction with their traditional
services, due to the limited access to certain channels and live television programming.
The Customer/Problem
Today’s television service consumer needs access to both domestic and international news. They
want access to a selection of entertainment programming that satisfies their personal tastes. They need
access to all of this for a reasonable price that doesn’t approach the cost of a car payment each month, and
that doesn’t need to be researched/negotiated on an annual basis.
The problem is that the current television service providers (all of them) see no need to change
their ways, forcing consumers to pay for content they don’t want or intend on viewing. To purchase a
cable package that includes the most commonly watched networks, from any service provider, requires
the consumer to subscribe to hundreds of channels they don’t need, and those channels aren’t free. This is
by design, and it generates a huge stream of revenue for the cable companies, broadcasters and networks
alike.
Every channel has an affiliate fee associated with it that is charged per subscriber. These fees
range from approximately $0-6.00, and the cable companies (the consumers portal), the broadcasters (the
cable companies portal) and the networks (the creators of content) all generally receive a cut. (Molla,
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2014) So, the ramifications of upsetting this system are vast. Not only is there the potential loss of
revenue for all parties involved, but there is also the chance that multiple low-end networks might not be
able to survive without this income from consumers who have no intention of watching their
programming. One could easily argue that that is the way business works…supply and demand, however,
one should also be able to see that breaking this long established pattern of behavior will be no easy task.
A few of the “new” streaming content competitors have been trying to tackle this problem for
several years to no avail. Apple TV has been promising the “television of the 21st century” for a several
years now. Unfortunately, they have run into exactly the problems mentioned above regarding the affiliate
fees, largely due to the contracts networks and broadcasters have with cable providers that would be
undermined by any move against the status quo. Sony PlayStation Vue has been the most successful with
breaking the mold, however, while they are offering smaller channel packages, they are still forcing the
consumer to purchase channels that aren’t desirable within those packages.
The Opportunity
TWC is in a unique position to be the first traditional television service provider to make a move
against the status quo, while also positioning itself beyond not only its main competitors, but also the new
up-and-coming streaming content competitors. TWC already has established contracts with, and
connections to broadcasters and networks. They also hold a substantial share of the market
(approximately 11 million subscribers out of 79 million) that could provide leverage in any market-
changing negotiations. (Industry Data, 2014) Their subscriber base has been in a period of decline for
several decades now due to the introduction of Verizon, AT&T, Dish Network and Direct TV into the
cable television services market. And while addressing their shortfalls against their current competitors,
such as customer service, is a great first step, looking toward the future and finding a way to distinguish
themselves from both their current competitors and future competitors is a much more viable plan.
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The Solution
The solution lies in TWC breaking the mold and creating an integrative solution to today’s
consumer wants and needs. We are proposing the creation of a new set-top box (viewing device) similar
to that of Apple TV with comparable features to that of all of the new streaming content add-on devices.
However, this new device is only the portal for innovating the cable television industry. The true
innovation lies in the offering of customized, live television program packages or “a la carte” television
programming.
The new set-top box will be available and useful to all consumers, thus directly competing with
not only the traditional television service provider competitors, but also the new streaming content device
competitors. A consumer does not have to have any external contract or internet service solely through
TWC. They only need the device, which will offer the use of streaming content from providers such as
Netflix or Hulu, as well as a special TWC app that will allow them to subscribe to a customized “a la
carte” live television channel package.
The basic package will start with twenty channels individually chosen by the consumer from the
entire regular program list, excluding premium channels such as HBO, Showtime, Cinemax, etc. After the
basic package is purchased, they will be able to either buy additional channels individually, or increase
their package size in multiples of twenty channels. These channel packages will be more useful and
substantially cheaper than the current alternative to getting the specific channels a consumer wants.
It is our belief that TWC will be able to negotiate reasonable affiliate fee contracts with various
broadcasters and networks, based not only on their current subscriber leverage, but also on proving the
viability and profitability of this new content package system over time, while slowly phasing out their
traditional cable packages.
Product
Stream is Time Warner Cable’s new TV streaming service, delivered straight to the Stream Box.
Stream allows consumers to do what they’ve never been able to do before; pick the channels they want
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and ignore what they don’t want. Consumers may purchase different subscription plans, or purchase
channels ‘a la carte.’ This is all wrapped up in the Stream Box, an elegantly designed set-top box that is
required to access Stream. The box has been specifically designed to look and feel premium thanks to its
charcoal-colored aluminum finish. Consumers will be able to plug the box straight into their TV via
HDMI, connect to the internet (Wi-Fi or LAN), connect their TV’s remote, easily purchase the channels
they want, and begin streaming live Television. In addition, Time Warner has partnered with Google
(YouTube), Amazon (Prime), Netflix, and Hulu to bring those apps to all users.
The core benefit of Stream is that users will be able to watch the live programming they want.
They are no longer bound to the high prices of traditional cable packages. Consumers choose and pay for
exactly what they want. The Stream Box is the conduit for this experience. Here is a breakdown of the
specifications and costs associated with each part (Note: these are estimates based on current data and the
production costs of competing devices). The model, textures, and app design were all designed and
created by Kevin Dunsmore: Next Page
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Specifications Cost
Size and Weight
Height: 1 inch Width: 4.8 inches Depth: 3.9 inches Weight: 16 ounces
-
Storage Capacity 32GB Internal Storage
$51.20
Processor MediaTek Quad-core up to 2 Ghz Dual-core @ 2.0 GHz + Dual-core @ 1.6 GHz
$26
Ports &
Interfaces
802.11acc Wi-Fi with MIMO 10/100 Ethernet HDMI OutPut IR Receiver External Power Supply
$6.50
Memory 2GB DDR2 SDRAM $4.50
Cloud Storage Yes, Requires internet subscription with Time Warner Cable
-
Compatible Apps Hulu, YouTube, Amazon Instant Video, Netflix
-
Output Resolutions
4K @ 30fps 1080p/720p @ 60fps
-
System Requirements
Internet Connection (5 mb/s Minimum) High-Definition or 4K Television with HDMI output Power Outlet
-
Total Cost $ 88.20
In total, we are estimating that it will cost about $88 to produce each Stream Box. In the next
section, we will explain how exactly we are going to make a profit, and that the money is expected to be
made from selling the different channels a la carte, and as packages.
Price
Time Warner Cable is sailing into uncharted waters with Stream and Stream Box. A service of
this magnitude has never been attempted before, meaning it is up to us to set the price point for all future
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competitors. To do this, we will examine competitor pricing for set-top boxes, channel subscriptions, and
the cost of core and premium channels.
Set-top Boxes
The streaming media landscape has seen a huge influx of devices for TV streaming. Though only
a few offer live TV streaming options, it is necessary to examine their prices to set Stream Box’s:
Amazon Fire TV PlayStation Vue Apple TV Roku Nexus
Player
Fire TV
($99.99)
Fire TV
Gaming
Edition
($139.99)
PlayStation 4
($349.99)
PlayStation 3
($249.99)
Amazon Fire TV
iPad (starting at $269)
iPhone (starting at
$450)
32 GB
(149.99)
64GB
($199.99)
1 ($49.99)
2 ($69.99)
3 ($99.99)
4
($129.99)
$99
In general, premium set-top boxes tend to cost around $100. PlayStation consoles, iOS devices,
and Apple TV can get away with higher prices because they offer more functionality for the price.
PlayStation consoles are primarily used for playing games, iOS products are typically used for
productivity, and Apple TV offers a wide range of apps. Taking this into account, a $99 pricetag for
Stream Box fits right into consumer expectations.
Channel Subscriptions
To pick our subscription fees, it is important to look at what the competition is offering. Is it too
much? Too little? With Stream, we have to strike the right balance to where the consumer is getting what
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they want at a comfortable price. Here’s a breakdown of every major service, including the only two Live
Streaming services (PlayStation Vue and Dish Sling):
Time Warner Cable Verizon Fios
Pricing
Starter TV ($20/month) Standard TV ($40/month) Preferred TV ($50/month)
Preferred TV HD-DVR Service ($65/month)
Preferred TV Whole House Service ($80/month)
Preferred HD ($75/month + $30 after
Year 1) Extreme HD ($80/month
+ $30 after Year 1) Ultimate HD ($90 + $30
after Year 1)
Channels
Starter TV - 20+ Standard TV - 70+
Preferred TV - 200+
Preferred HD - 245+ Extreme HD - 325+ Ultimate HD - 435+
AT&T Uverse Dish Sling
Pricing
Select ($20/month for 12 months with 24-month agreement) Choice ($30/month for 12
months with 24-month agreement)
Ultimate ($40/month for 12 months with 24-month
agreement)
Best of Live TV ($20/month)
HBO ($15/month) Additional Channels
($5/month)
Channels
Select - 145 Choice - 175
Ultimate - 240
Best of Live TV - 20
PlayStation Vue
Pricing
Access ($50/month) Core ($55/month) Elite ($65/month
Channels
Access - 50+ Core - 60+ Elite - 85+
AT&T Uverse and Verizon Fios charge the most, and force consumers into two year contracts.
Prices increase after the first year, though AT&T don’t reveal how much the price will go up. Both offer a
ton of channels, but most will never be watched. Dish Sling offers few channels, though its price is nice.
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PlayStation Vue offers plenty of channels for a base price of $50, but like Dish, they aren’t exactly the
most desired channels.
Taking competitors into account, we can introduce an ‘a la carte’ system that allows them to
choose 20 channels for $25. Increased packages of 40 ($35) and 60 ($45) channels will be included, or the
consumer can buy additional core channels ‘a la carte’ for $1 a piece. We estimate channels costing
between $0-6, with the median sitting around $0.14. Premium channels will cost $15 extra a month.
Here’s an example set of offered channels:
Core Channels ($1/month each)
Premium ($15/month each)
ABC ABC Family CBS FOX HBO
NBC AMC Animal Planet BET Starz
Boomerang Bravo Cartoon Network CNBC Showtime
CNN Comedy Central Discovery Disney Channel
Disney XD E! ESPN ESPN 2
Food Network Fox Business Fox Sports FX
MTV National Geographic Nick JR Nickelodeon
Nicktoons OWN Oxygen Syfy
TBS Teen Nick TLC TNT
Travel Channel TCM USA
Stream and Stream Box will be sold to consumers in the following ways:
Stream Box purchased for $99, or rented for $9.95 a month. This is in line with the competition,
with premium aluminum build outclassing the matte Amazon Fire TV
Stream is needed to use the box. The different plans and ‘a la carte’ option match up with
competitor’s price, and gives consumers the feeling of control over what they are buying :
o Starter Pack - $25, pick 20 core channels of your choosing (mandatory)
o 40 Channel Pack - $35, pick an additional 20 core channels
o 60 Channel Pack - $45, pick an additional 20 core channels
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o Core Channels - $1/month each, add any channel to a subscription
o Premium Channels - $15/month each, add a premium channel to a subscription
Time Warner owns HBO: free for six months with purchase of a Stream Box and
Starter Pack subscription
These prices and plans match the competitors, but offer more variety and content. Though a few prices
are higher, we believe the ability to choose what you want to watch and premium build of the Stream Box
is more than enough to tempt consumers.
Promotion and Advertising
There are four different segments that have been identified through the life cycle of the set top
box with each being targeted during a certain phase of that process. The first of these groups are current
switchers. This segment is made up of individuals who already receive service with TWC. This group has
growing discontent with the current life cycle model of cable/satellite television and is ready to make a
change. TWC saw an approximate 1% drop in customers (110,000 customers) last year who cut cable all
together. The cable/satellite industry as a whole saw a 8.5% decline or 5,600,000 drop in customers who
decided to move away from the conventional cable model. In order to combat this loss of revenue stream,
there is a strong need to focus on this target in order to produce a strong retention rating. To build up a
brand image with this audience, we plan to focus on the major reasons why they have decided to leave or
on the verge of leaving TWC. We want to them to think customers are a priority and customer loyalty is a
strength of TWC. From past surveys, a common theme was the desire to limit the number of channels to a
select number of channels. Many customers are under the impression they are being taken advantage by
having to purchase large channel packages in order to receive just a handful of channels they have a habit
of watching. TWC, through the use of the set top box, will enhance our brand image by catering to this
want of having a more tailored selection of channels. This group will be a target during the introduction
phase of the product life cycle as this group represents a group of forward thinkers who are weighing their
options and entice them to stay with the promotion of the HBO GO six month free offering. Direct mail
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will be sent to current customers as well as a major internet marketing campaign will be underway in
order to increase brand awareness. TWC will have a major display at the International Consumer
Electronics Show (ICES) at the Los Vegas, NV event in FY16 and the Consumer Electronics Show also
in Los Vegas, NV in FY16 as well to showcase the new set top box and generate increased publicity and
public excitement about the new device.
A second segment is the defector group. This group is made up of individuals leaving the other
cable networks in search of better offerings. As mentioned above there has been a major drop in
cable/satellite enrollment nationwide and TWC sees this as a strategic opportunity to attract this
disenfranchised group of individuals by offering them something that has not been offered before by
another cable network. We believe that by successfully marketing the opportunities of the 20,40, 60
channel packages, HBO GO 6 month promotion, and stressing the attractive distinguishable features of
TWC’s all new set top box, we can pool in a number of this segment. This category can best be described
as early adaptors/early majority in the diffusion of new products cycle. They will look to the early
innovators to know what is a good deal before committing. Heavy advertising primarily cable/satellite
advertising will be used to increase brand awareness for these individuals. The desired brand image for
this segment is "superior deal and forward thinking".
The third segment consists of the educated defectors. This group has already moved away from
cable and have long cut ties with the main stream. With this group it will be stressed that we offer a set
top box that links all main stream streaming apps, and provides channel packaging options that are more
tailored to individual preferences. They will, along with the first segment the current switchers, fall in the
innovators/early adopters portion of the diffusion of new products and as a result will be targeted during
this phase. Product awareness derived from electronic consumer shows and a large online advertising
push will achieve the product awareness necessary to reach this group. The desired brand image is "the
customer is the priority." This group has largely left the current cable/satellite model because their wants
were not a priority of the industry (e.g. little selectivity in channel options as previously described)
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The final segment is the new starter group. This group comprises of the younger demographic
with more education than the average citizen. This group would typically make up the early entry to a
market. There are currently 20 million 20-25 year olds male and female in the US. 70% has some
college. As a result, there are roughly 14 million individuals that fit this profile. In addition to online
advertising, direct mail advertising will be aimed at this demographic to increase brand awareness, and
brand imaging will be increased by offering a product that has shown to possess features that are
attractive to this segment, and thus giving a perception of "forward thinking and innovative".
Promotional Budget for PLC
Introduction Phase
1 Trade Shows $2,000,000
2 Online Advertising $20,000,000
3 End-Cap Displays $5,000,000
4 Cable/Sat Advertising $20,000,000
Total= $47,000,000
Growth Phase
1 Online Advertising $15,000,000
2 Cable/Sat Advertising $20,000,000
Total= $35,000,000
Maturity Phase
1 Online Advertising $5,000,000
2 Cable/Sat Comparative Advertising
$10,000,000
Total= $15,000,000
Decline Phase
1 Online Advertising $2,000,000
2 Cable/Sat Advertising $5,000,000
Total= $7,000,000
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Place/Distribution
Distribution will be achieved through three methods. TWC has already numerous customer
support centers located in cities across the US. These locations can be used as distribution points for the
set top box. Customers can also purchase the set top box online through the TWC website as well as
online retail stores Amazon.com, Walmart, and Target. Finally, it will also be available for purchase
through physical retail stores Walmart and Target where end cap displays will be purchased at stores
across the country for 1 year.
Set top boxes will be stocked in the TWC centers in the early stages primarily for the current
switcher segment, as they are already familiar with TWC and their local support center they will be more
likely to use this distribution route. The defector segment and the educated defector group will utilize the
retail outlets and online shopping routes. The new starter segment will use all the established routes with a
special emphasis on online sales.
Long Term Plan and Profitability Projection
Disruption of the current TWC offering is time sensitive. We quickly want our new Stream “a la
carte” model positioned in the minds of current TWC cable subscribers, subscribers of our competitors,
and also those that have dropped cable services all together, due to unhappiness with their packages,
contracts, and/or pricing. In order to grow market share quickly, we will segment our first 200,000
customers.
Segments will include:
1. Current Switchers- TWC current subscribers who have switched over to our new TWC Stream
offering. We predict that most of our first 200,000 Stream customers will be our own TWC customers
who had been subscribers to our traditional cable offering. We already have a great deal of qualitative
and quantitative data on this segment, since they are currently our customers. We also routinely
collect data on their channel choices. Marketing to this group should be less costly and yield better
return than the other segments. Potential growth in this group: TWC currently has 11 million
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customers. We estimate 1/3 of the 11 million customers will switch to the Stream offering in the first
2 years.
2. Defectors- AT&T/Direct TV, Verizon, Dish Network and Comcast subscribers who have switched to
our new offering. The total cable TV market is 79 million. When we subtract out the 11 million TWC
customers, that leaves 68 million potential customers. Our TWC in-person and online survey results
suggest that 117 respondents, that is about 45% of all respondents, were interested in subscribing to
only the” live channels they want to watch.” (Appendix) We predict that out of the 68 million
potential Defector Group members, we will be able to get ~10% as new customers over the next 3 to
5 years. Just 10% of this group would yield over 6.5 million new customers.
68 million X 10% = 6,800,000 potential new customers in the Defector Group
3. Educated Defectors- The competitors above, collectively had high customer loss last year. 8.2% of
customers left their relationship with the competitors above. This group of potential customers is
called the Educated Defectors Group.This group includes some current or previous customers of
Apple TV, Sony PlayStation Vue, Roku, Amazon Fire, and ChromeCast. This group has the potential
of adding over 5 million new customers to our Stream offering over the next 2 years.
68 million X 8.2% = 5,576,000 potential new customers in the Educated Defectors Group
4. New Starters- This group includes new subscribers who have no association with any previous cable
company. We are acutely aware of the potential customers who have been overlooked in the cable
market place. These potential customers maybe could not justify purchasing a cable package in the
past because lower cost packages failed to offer preferred channels. Our Stream offering fills that
gap.
We will be using marketing research techniques such as big data evaluation, qualitative and
quantitative research, surveys, and values and needs analysis, to drill down into the characteristics,
motivators, and descriptors for the groups above. We will be looking at how the groups are the same and
how they are different to ensure we get specific information that will help us put together a number of
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target markets. The target market groups will represent our “best” possible customer. We will
aggressively pursue them for their business.
This target market has an average customer lifetime value of $1,100.
Other ways we will increase or sustain market share growth has to do with decreasing the number of
our own TWC customers we lose yearly. TWC has been in a slump lately. Last year we lost 1% of our
own customers. If we can plug that hole and retain our own TWC defectors, we have the potential to keep
over 100,000 customers yearly.
11 million X 0.01 = 110,000 customers
Change in the number of networks and network expansion will be an ongoing stream of revenue for
our “a la carte” offering. If new networks end up with hit shows, and/or new channels people are willing
to pay for, our customers will be driven to add channels to their Stream accounts. Oprah Winfrey wrote
the blue print for how to start a network. We can expect new networks that customers are willing to pay
for, to spring up in the near and distant future. With every new network, TWC will use it as an
opportunity to approach customers to sell them new channels. Our profit will grow based on industry
growth through new networks. For instance, a customer who has paid for 20 channels will have to pay $1
for an additional channel. If 10% of our current TWC customers were in the Stream program and added
one channel at a charge of $1, TWC could make over 1 million dollars in revenue, per month, following
the addition.
11 million X 10% = 1,100,000 customers
1,100,000 customers X 1$ per month = $1,100,000 per month in revenue
The break-even formula: Break-even volume = fixed cost/(price – variable cost), was used to
calculate the break-even volume for Stream. (Kotler, 2012 and TWC annual report 2014) Our projected
numbers look like this: fixed costs of $3,000,000, variable cost per unit of $18.00 and average selling
price per unit of $32.50.
Break even volume of 206, 897 units
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The break-even volume gives us the number of customers we have to sell to in a given month, in
order for sales revenue to equal total costs. This allows us to gage our financial success. Penetration
pricing, the practice of offering a new product at a low price, will be used when our new offering is
brought to market (Parikh, 2015). The benefit of initially using penetration pricing is it allows TWC to
quickly gain market share. The initial low price for our Stream offering, coupled with the customized
channel line-up, and versatile Stream Box, allows customers to make a change to our new offering with
little or no buyer’s remorse. While we strive to increase market share as quickly as possible, we are
acutely aware of the cannibalization that will result from our new product offering. We expect many
current TWC customers to switch to the new offering. Cannibalization is expected and welcomed. Our
long-range goal is 100% cannibalization, within four to five years. We want all current TWC customers to
eventually switch to Stream, if Stream shows a trajectory towards success in the first 18 months.
Our Stream plan will move towards a planned price increase after the first six to eight months, if we
determine our penetration pricing efforts can be shifted and the market indicators support a price increase.
Our planned price increase is shown in the table below. (Kotler, 2012)
Table
Profits Before and After a
Price Increase
Before After Price $25 $26.75 ( 7% price increase) Units sold 100 100
Revenue $2500 $2600 Costs - $2300 -$2300
Profit $1720 $1820 ( 8.75% profit increase)
Our survey found most respondents watch 11 to 20 channels. (Appendix) The table above shows,
profits before and after a price increase. For our Stream choice of 20 channels, a 7% increase in price,
will yield a 8.75 % increase in profit. We anticipate that this increase in price will have no effect on sales.
Likewise a price increase for the other channel groups would yield a price increase, but not as great as the
20-channel Stream channel package.
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We anticipate 3 million new customers over the first 12 to 18 months. Our 5 year product life
cycle growth is estimated to be : 5 to 8 % growth in year 1, 8 to 10% growth in year 2, 5 to 7% growth in
year 3, 3 to 5 % growth in year 4 and about 3% growth in year 5.
Current competitors Comcast, AT&T/Direct TV, Verizon Fios, and Dish Network, all have very
deep pockets. We expect one or more of them to attempt to copy our “a la carte” channel offering.
Because we will be first to the market, we plan to continue to use advertising, blogging, and direct
marketing to further solidify our positioning as the premier “a la carte” channel provider. The structure of
the industry will help us timewise with our efforts to keep these current competitors from attempting to
compete with us directly, for about twelve months or more. These competitors have to negotiate or
renegotiate their contracts with networks and broadcasters in order to become an “a la carte” channel
provider.
Once we bring our “a la carte” channel selection product to market, we will be opening ourselves
up to competition from new competitors. These new competitors are Roku, Chromecast, Apple TV,
PlayStation Vue, Amazon Fire, and Dish Sling TV. These competitors are more likely to try to compete
on price. These competitors lack cable service provider contracts with networks and broadcasters. This is
a hurdle that keeps them from producing our same offering. Customers will not consider them a strong
alternative to our offering.
We are the first “a la carte” channel service on the market. With that will come an added layer of
exploration, since there are not paths already in place for us to follow. We are, in fact, making up the path
in as we go along. We want to be smart about it. Even though this is new territory, there are tools we can
use to help us increase the success of our “a la carte” channel service and the long term goals, associated
with it. Marketing controls offer us valuable tools for ensuring reasonable steps be put in place, followed,
examined and reexamined, for cost containment, company growth, product success, and shareholder
satisfaction. It is more important than ever that we use marketing controls to ensure we are staying on task
with our marketing goals and objectives. After six months and, and then annually, we will complete an
annual-plan control, to ensure our company is on track and remains on track for sales, and profit goals.
Final GP - Time Warner Cable: Revolutionizing Cable Television
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This control is the primary responsibility of upper management. We will also be completing a profitability
control, to measure the profitability of our “a la carte” channel service. The profitability control will allow
us to better pinpoint profitability from various territories, groups, and segments. This information can
help us determine if there is low hanging fruit, in the form of customers, we can more easily tap into for
profit. We will also be using efficiency control procedures and controls to monitor our ethical conduct as
a company. (Kotler, 2012)
Stream, paired with the Stream Box are the total solution for carving out maximum market share
in the cable and streaming arenas, for TWC. We have completed a pre-market survey that suggests
potential customers are ready for our “a la carte” offering. (Appendix) Our tailor made product is much
needed. Our survey showed the majority of respondents consider channels they do not watch a waste of
money. No one likes to waste money! The current state of TWC, with regard to losing market share,
suggests the timing is spot-on to roll out our Stream offering. The multitasking Stream Box, will ensure
TWC is a sustained fixture in homes, even if our customers move on from our channel services. The
marketing plan for Stream “a la carte,” including distribution channels, segmenting, marketing strategies,
product life cycle predictions, product design, target market research, financials, and projected growth, all
indicate TWC will be a major player in an increasingly competitive market.
Final GP - Time Warner Cable: Revolutionizing Cable Television
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