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Google TV Conjoint Analysis Study

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Our MBA Pricing Strategy final project analyzed the Internet TV set top box market We surveyed 50 consumers and segmenting the respondents based on their utility values for a series of features for Apple and Google TV devices. From these results we projected each vendors market share and recommending product and pricing strategies.

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Google TV Conjoint Analysis Study

  1. 2. Objective <ul><li>Analyze & segment the Internet TV set-top box market </li></ul><ul><li>Determine the important feature preferences per segment </li></ul><ul><li>Project market share and profitability </li></ul><ul><li>Recommend pricing strategies </li></ul>Pricing Strategy, Fall 2010
  2. 3. Pricing Strategy, Fall 2010
  3. 4. Internet TV Set Top Box Market Pricing Strategy, Fall 2010
  4. 5. Five Forces Internet TV Set Top Box Pricing Strategy, Fall 2010 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
  5. 6. Our Approach Pricing Strategy, Fall 2010
  6. 7. Attributes for Conjoint Analysis Pricing Strategy, Fall 2010 Brand Logitech Google TV Sony Google TV Apple TV Price $99 $199 $299 $399 Picture Quality 720p 1080p Download-able Apps Yes No Seamless Search Yes No DVR Yes No HD Video Calling Yes No Full Web Browser Yes No
  7. 8. Current Product Comparison Pricing Strategy, Fall 2010 DVR Search App Market Browser 1080P Support HD Video Calling Price $299 $199* $99
  8. 9. Sample Survey Card Pricing Strategy, Fall 2010
  9. 10. Survey Respondent Profile Income Profile TV Service Subscription Profile <ul><li>54 completed responses </li></ul><ul><li>80% between ages 30 to 39 </li></ul><ul><li>58% have kids </li></ul><ul><li>Avg expenditure on TV per month - $56 </li></ul><ul><li>Avg hrs spent watching TV/DVD per week – 10.5 </li></ul>Pricing Strategy, Fall 2010
  10. 11. Segment Analysis Pricing Strategy, Fall 2010
  11. 12. Segment 1 – Price & Features Utility Function Observations <ul><li>Price and Feature conscious </li></ul><ul><li>19 Respondents – 39% </li></ul><ul><li>Lower end of household income (~140K) </li></ul><ul><li>> 40% don’t have kids </li></ul><ul><li>Watch TV 9.8 Hrs / Wk </li></ul><ul><li>Pay most for TV - $64 </li></ul>Pricing Strategy, Fall 2010
  12. 13. Segment 2 – Most Price Sensitive Utility Function Observations <ul><li>Most price sensitive </li></ul><ul><li>18 Respondents – 38% </li></ul><ul><li>Logitech still has highest utility </li></ul><ul><li>Middle range household income (~170K) </li></ul><ul><li>> 60% don’t have kids </li></ul><ul><li>Watch TV 12 Hrs / Wk </li></ul><ul><li>Pay least for TV - $45 </li></ul>Pricing Strategy, Fall 2010
  13. 14. Segment 3 – Feature Hungry Utility Function Observations <ul><li>Least price sensitive </li></ul><ul><li>12 Respondents – 23% </li></ul><ul><li>Want more features – see Apple TV utility </li></ul><ul><li>Highest household income (~250K) </li></ul><ul><li>85% have kids </li></ul><ul><li>Pay high for TV - $60 </li></ul>Pricing Strategy, Fall 2010
  14. 15. Market Share Calculation <ul><li>Set rho=0.5, 1, 1.5 </li></ul><ul><ul><li>↑ rho ↑ leader’s Market share </li></ul></ul><ul><li>Set market share = 0 for neg. utility </li></ul><ul><ul><li>Apple in Segment 3 </li></ul></ul><ul><li>Set Sony=$199 & $299 </li></ul>Logitech leads all cases except price sensitive Segment 2 Pricing Strategy, Fall 2010
  15. 16. Logitech Profitability Analysis <ul><li>2011 Internet TV Set Top Box Market </li></ul><ul><ul><li>Logitech 2010Q4 sales est. = 325K </li></ul></ul><ul><ul><li>We est. 450K 2011Q4 sales * 3 = 1.35M total year Logitech sales </li></ul></ul><ul><ul><li>1.35M* (1/46% Logitech share) = 2.93M Total Market </li></ul></ul><ul><li>Unit Costs </li></ul><ul><ul><li>AppleTV iSuppli est.= $64 </li></ul></ul><ul><ul><ul><li>Can make up profit w/video sales </li></ul></ul></ul><ul><ul><li>Logitech & Sony we est. $150, 50% margin </li></ul></ul><ul><ul><li>Assume COGS ↑ linearly. </li></ul></ul>Pricing Strategy, Fall 2010
  16. 17. Segment 1 – Price & Features Logitech share ↓, profit ↑ from $199->399 Pricing Strategy, Fall 2010
  17. 18. Segment 2 – Most Price Sensitive Sony leads. Logitech’s share ↓↓ $299->399, profit ↑ Pricing Strategy, Fall 2010
  18. 19. Segment 3 – Feature Hungry Apple 0% share. Logitech share ↓, profit ↑↑, $199->399. Pricing Strategy, Fall 2010
  19. 20. All Segments ↓ Price = $134 mil profit ↓, ↑ Price = $110 mil ↑ Pricing Strategy, Fall 2010
  20. 21. Recommendations for Logitech Pricing Strategy, Fall 2010
  21. 22. Segment Recommendations <ul><li>Since Logitech most feature rich, strongly target Segment 3 at $299 </li></ul><ul><ul><li>Emphasize browser & search </li></ul></ul><ul><li>If unit costs ↓ as share ↑ & profitability ↑: </li></ul><ul><ul><li>Offer cheaper versions for Segments 1 & 2 </li></ul></ul><ul><ul><li>Reduce features valued by Segment 3 </li></ul></ul><ul><ul><ul><li>No 1080p: ↓ processor & memory costs </li></ul></ul></ul><ul><ul><ul><li>↓ app storage : ↓ memory cost </li></ul></ul></ul><ul><ul><ul><li>No video call option : ↓ sales of video cameras </li></ul></ul></ul><ul><ul><ul><li>Need other features for Google TV compatibility </li></ul></ul></ul>Pricing Strategy, Fall 2010
  22. 23. Competitive Strategy <ul><li>Sony has Blu-Ray, ↓ price from $399 -> $299 </li></ul><ul><li>Logitech shouldn’t ↓ price </li></ul><ul><ul><li>Not practical to offer Blu-Ray </li></ul></ul><ul><li>Instead bundle & emphasize EVC </li></ul><ul><ul><li>Bundle video camera for discount </li></ul></ul><ul><ul><li>Subsidize w/DISH TV subscription </li></ul></ul><ul><li>Networks blocking content </li></ul><ul><ul><li>Limits full browser feature </li></ul></ul><ul><ul><li>Favors bare-bones competitors </li></ul></ul><ul><ul><li>Logitech should offer reduced feature versions </li></ul></ul>Pricing Strategy, Fall 2010
  23. 24. Possible Error Sources <ul><li>Selection bias </li></ul><ul><ul><li>Mostly MBA peers </li></ul></ul><ul><ul><li>~90% CA </li></ul></ul><ul><li>Survey design </li></ul><ul><ul><li>User fatigue </li></ul></ul><ul><li>Product universe </li></ul><ul><ul><li>Missing competitors </li></ul></ul><ul><ul><li>Sony Blue-Ray not in survey </li></ul></ul>Pricing Strategy, Fall 2010
  24. 25. Pricing Strategy, Fall 2010 [email_address]
  25. 26. Pricing Strategy, Fall 2010
  26. 27. Attributes for conjoint analysis Pricing Strategy, Fall 2010
  27. 28. Google Business Model Pricing Strategy, Fall 2010
  28. 29. Google Revenue Model <ul><li>∑ A i * CPC i (1 – S i ) + </li></ul><ul><li>∑ A i / 1000 * CPM i (1 – S i ) </li></ul><ul><ul><li>A = Ad Impressions </li></ul></ul><ul><ul><li>CPC = Cost per Click </li></ul></ul><ul><ul><li>CPM = Cost per 1000 Impressions </li></ul></ul><ul><ul><li>S = % Partner Revenue Share </li></ul></ul>Pricing Strategy, Fall 2010
  29. 30. Pricing Strategy, Fall 2010

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