google tv pricing stategy

Objective

• Analyze & segment the Internet TV set-topbox market

• Determine the important feature preferencesper segment

• Project market share and profitability

• Recommend pricing strategies

Pricing Strategy, Fall 2010 2

Internet TV Set Top Box Market

• We project 2.935 M Unit sales in 2011Market Size

• Sony Google TV

• Logitech Google TV

• Apple TVKey Players

• Web Enabled TV / Blu-ray players

• Media PCs

• Gaming ConsolesSubstitutes


Five Forces Internet TV Set Top Box

Internal Rivalry – HIGH

Aggressive Price Cuts

Large key players

Limited product differentiation

Entry - HIGH

Low barriers to entry for existing TV/ DVD / game console manufacturers

Substitutes & Complements -HIGH

TV Manufacturers expanded into space

High availability of substitutes

Supplier - HIGH

Software and App programmers

Hardware components

Vertical Integration

Buyer – MEDIUM HIGH

Direct - MEDIUM

Via Resellers/ Service Providers - HIGH


Our Approach

Conduct market survey for Conjoint Analysis

Identify customer segments by Cluster Analysis

Identify attribute utility for each segment

Recommend features and pricing by customer segment


Attributes for conjoint analysis


Attribute Choices

Download-able Apps

Yes

No

Seamless Search

Yes

No

DVR

Yes

No

Brand

Logitech Google

TV

Sony Google

TV

Apple TV

Price

$99

$199

$299

$399

Picture Quality

720p

1080p

HD Video Calling

Yes

No

Full Web Browser

Yes

No


Current Product Comparison

DVR SearchApp

MarketBrowser

1080P Support

HD Video Calling

Price

$299

$199*

$99


Survey Card


Survey Respondent ProfileIncome Profile

54%

20%

2%

18%

6%

Cable DISH Direct Free Antenna Others

TV Service Subscription Profile

6%12%

28%

36%

18%

< 50K 50 - 100K 100 - 150K 150 - 250K > 250K

• 54 completed responses

• 80% between ages 30 to 39

• 58% have kids

• Avg expenditure on TV per month - $56

• Avg hrs spent watching TV/DVD per week – 10.5


Segment 1 – Price and Feature

0

1

2

3

4

5

6

7

Apple ($99) Sony $(199) Logitech ($299)

4.04

5.69

6.61

Comparative Utilities

Utility FunctionObservations

In…

S…

L…

7…

H…

B…

A…

S…

D…

$…

$…

$…

2.15

-0.99

-0.15

-0.32

0.63

0.96

0.66

0.99

0.61

2.21

1.32

0.76

• Price and Feature conscious

• 19 Respondents – 39%

• Lower end of household income (~140K)

• > 40% don’t have kids

• Watch TV 9.8 Hrs / Wk

• Pay most for TV - $64


Segment 2 – Low Price or BustUtility FunctionObservations

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5


1.95

3.874.3


Intercept

Sony

Logitech

720P

HD Video Call

Browser

App Store

Search

DVR

$99 Price

$199 Price

$299 Price

-0.81

-0.11

0.1

-0.37

0.49

1.47

0.42

0.95

0.52

3.13

1.43

1.15

• Most price sensitive


• Logitech still has highest utility

• Middle range household income (~170K)

• > 60% don’t have kids

• Watch TV 12 Hrs / Wk

• Pay least for TV - $45


Segment 3 – Feature HungryUtility FunctionObservations

-4

-2

0

2

4

6

8

10


-2.91

7.95

9.57


Intercept

Sony

Logitech

720P

HD Video Call

Browser

App Store

Search

DVR

$99 Price

$199 Price

$299 Price

-1.01

-0.13

0.42

-2.75

1.6

2.73

1.73

1.98

1.48

0.85

1.17

0.65

• Least price sensitive


• Want more features – see Apple TV utility

• Highest household income (~250K)

• 85% have kids

• Pay high for TV - $60


Market Share CalculationSet rho=0.5, 1, 1.5

• ↑ rho ↑ leader’s Market share

Set Sony=$199 & $299

• $199 accounts for Blue Ray player

Set market share = 0 for negative utility

• Apple in Segment 3

Logitech leads all cases except most price sensitive Segment 2


Logitech Profitability Analysis2011 Total Internet TV Set Top Box Market

• Logitech 2010Q4 sales est. = 325K

• We est. 450K 2011Q4 sales * 3 = 1.35M total year Logitech sales

• 1.35M* (1/46% Logitech share) = 2.93M Total Market

Unit Costs• AppleTV iSuppli est.= $64

• Can make up profit w/video sales

• Logitech & Sony we est. $150, 50% margin

• Assume COGS ↑ linearly.


All Segments Market Share & Profit

48.05%

46.41%

42.81%

40%

41%

42%

43%

44%

45%

46%

47%

48%

49%

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000

$199 $299 $399

Logitech Profit & Mkt Share

Increasing price elasticity from $199->399, bigger profit ↑ from $199->299

Apple, 11.25%

Sony, 45.18%

Logitech, 46.41%

Mkt Share - Logitech $299


Segment 1 Market Share & Profit

42.40%

40.45%

37.53%

37%

38%

39%

40%

41%

42%

43%

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$199 $299 $399

Logitech Profits & Mkt Share

Consistent med. price elasticity from $199->399, but profits ↑ steadily

Apple, 24.74%

Sony, 36.52%

Logitech,40.45%

Mkt Share – Logitech $299


44.00%

42.46%

35.06%

34%

35%

36%

37%

38%

39%

40%

41%

42%

43%

44%

45%

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

$90,000,000

$100,000,000

$199 $299 $399



Very high price elasticity from $299->399, profits still ↑

Apple, 19.26%

Sony, 43.20%

Logitech,42.46%



55.95%

54.64%

52.90%

51%

52%

52%

53%

53%

54%

54%

55%

55%

56%

56%

57%

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

$90,000,000

$100,000,000

$199 $299 $399



Apple 0% share. Low price elasticity from $199->399, strong ↑ profit

Sony, 47.10%

Logitech, 54.64%



Great Analysis !!!

So what should Logitech do ???


Segment Recommendations

• Since Logitech is most feature rich it should strongly target Segment 3 w/current product at $299

• If ↑ mkt share will ↓ unit costs & ↑ LT profitability, Logitech should offer cheaper versions for Segments 1 & 2– Reduce features highly valued by Segment 3 but less important for 1 & 2

• Lower app storage – ↓ RAM cost

• Offer only 720p – ↓ processor & RAM costs

• Remove video call option – minimal ↓ costs, ↓ sales of video cameras

• Need to maintain other features for Google TV compatibility


Competitive Strategy

• Sony includes Blu-Ray and has ↓price from $399->299

• Logitech should not reduce $299 price– Logitech can’t compete directly w/Blu-Ray

• Instead offer ↑ functionality & EVC– Bundle video camera for $50 discount

– Subsidize $120 discount w/DISH TV subscription


Google Business Model


Google Revenue Model

∑ Ai * CPCi (1 – Si) +

∑ Ai / 1000 * CPMi (1 – Si)

A = Ad Impressions

CPC = Cost per Click

CPM = Cost per 1000 Impressions

S = % Partner Revenue Share
