Archive for the ‘Netflix’ Tag

Traditional media companies reboot

When I was growing up, watching TV was a family affair. We gathered around one cathode set at the same place at the same time to watch the same shows as everybody else. How times have changed. Nowadays adults spend more time online and on mobile devices than they spend watching TV, listening to the radio or reading the printed word.

Yet some things have stayed the same: We’re still watching TV shows. Only now we’re not necessarily watching the same shows, or watching them at the same time, or even watching them on TV. This trend, which shows no signs of abating, has significant implications for traditional TV cable and content providers, says David Purdy, Rogers Communications Inc.’s senior vice-president, content.

“We’re playing in a market now that has a solid mix of traditional cable subscribers, a growing group of ‘cord shavers’ — those who are tuning in less to traditional cable and more to online sources for TV and movies — and ‘cord nevers,’ many of which are Millennials.”

The move toward the digital consumption of television content is spurring a series of watershed developments in the industry, such as:

  • The rise of high-quality original programming exclusively available on streaming services (e.g. Netflix)
  • Increasing competition from vendors that historically haven’t offered professionally produced content (e.g. YouTube)
  • Increased crowd sourcing to determine which shows get produced, cancelled or resurrected (e.g. Amazon)

Traditional media companies and cable providers should be concerned. All of these developments reflect the fact that more consumers have relinquished cable and forgo live programming, opting instead for cheaper online services.

Rogers is transforming its business to address these shifts, says Mr. Purdy. “We recently partnered with Vice Media to bring more compelling content to the Canadian market. We also invested in and launched Shomi, a video-streaming service.”

How will these trends change advertising?

Online video is changing the way people interact with each other and relate to sponsoring brands. As a result, media companies are facing flat — and in many cases reduced — advertising spending, as ad buyers shift their dollars from well understood TV to new (and unproven) digital formats.

In some ways, however, advertising will become more valuable as TV watching becomes more, not less, social. For example, a growing number of people are having real-time conversations on Twitter about the shows they’re watching. Some viewers have even begun purchasing products they find appealing right from a show, with eBay and other sellers offering apps that enable viewers to browse and buy items related to what they’re watching.

But in other ways viewers are becoming less engaged with programming, and thus with ads, as fewer people watch the same shows (with the notable exception of live sports and a few big television productions such as Canadian Idol). This could translate into more complicated ad buys, more fragmented marketing strategies and harder times ahead for traditional broadcast media companies.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.  Follow me on Twitter @MitchellOsak

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Create categories and profits

Many CEOs grapple with a fundamental problem:  how do you profitably build revenues in low growth, hyper-competitive markets?  Grabbing business from a competitor is a difficult and expensive proposition.  Raising your prices — unless delicately handled — can be risky.  Driving incremental product innovation is a common strategy but one with low odds of success when the value-add is minor and the product remains comparatively undifferentiated.  There is a better approach to reigniting growth:  create your own category.

Pursuing incremental innovation is a tough road to travel.  Various estimates put the success rate of each new product or upgrade at only 10%-20%, resulting in wasted investment, unhappy customers and damaged careers.  However, there is a superior alternative for exploiting innovation.  It is called Category Making (CM).  This proven innovation approach combines cutting-edge product and business model innovation to create an entirely new offering, which by itself establishes a new category. There have been many successful examples of CM including ultra-low-cost, portable ultrasound machines for the Chinese market (GE), Minivans (Chrysler), Xbox Live Gaming system (Microsoft), Greek-style yogurt (Chobani) and iTunes/iPad (Apple).

According to research published in the Harvard Business Review, category makers generate much higher financial returns than incremental innovators.  Specifically, 13 ofFortune’s 100 fastest-growing U.S. companies between 2009 and 2011 were considered category creators.  They alone accounted for 53% of incremental revenue growth and 74% of incremental market capitalization growth of the top 100 over those three years.

Category creators do many things right to produce their industry-leading returns.  First and foremost, they appeal to consumers by:

  • Providing a unique offering that delivers compelling packaging, convenience, functionality or experiential benefits.  Xbox, for example, enables friends to play each other over the Internet.
  • Creating a new pricing model that is attractive to consumers.  For example, iTunes allows consumers to buy only what they want (i.e. individual songs) at a low price.
  • Re-engineering how a product is delivered and distributed.  Consider how Netflix revolutionizes the delivery of movies by leveraging internet-based, home delivery.

Secrets of their success

As a go-to-market strategy, pursuing CM innovation makes a lot of sense for companies:

Less competition

Most incremental innovations launch into existing categories — and right into the teeth of competition.  Category makers seek to outflank competition by introducing a new product into new market space.  This enables the innovator to secure ‘first mover advantage,’ thereby rapidly attracting customers while establishing barriers of entry around distribution, brand image and business partnerships.

Differentiated value

Incremental innovation often comes up short because it does not add enough extra value (or incentives) for consumers who are typically reluctant or unwilling to change behaviour.  On the other hand, category makers rely on a novel customer offering and value proposition. These products can more easily get the market’s attention and deliver compelling benefits previously unavailable.

Better use of scare capital & time

Often, the scope of innovation is dialed back in order to minimize capital outlays, limit market risk or because of managers’ risk aversion.   This  “penny wise and pound foolish” approach can hamper the initiative, reducing its chances of success. Category makers see risk but cope with it differently.  They focus on fewer but bigger ideas, and make sure they are properly supported by the organization’s culture and systems.  Raising the internal stakes ensures adequate investment, diligence and management attention.

Making it work

Becoming a CM requires firms to alter their visions, change the way they view risk, and allocate sufficient resources and capital.   Not surprisingly, they will look at innovation in a comprehensive fashion.  For example, category creators:

  1. Use financial, distributional or technological constraints as a catalyst for breakthrough thinking (GE)
  2. Investigate offerings that exist at the intersection of different but complementary technologies and business models  (Apple’s iPad).
  3. Look beyond existing consumer requirements to explore unmet or emerging needs, future trends and adjacent segments (Chobani, Chrysler, P&G).
  4. Seek out the best delivery and distribution model, either by building in-house, purchasing another company or partnering with a complementary firm.  It is not uncommon for organizations to leverage all three (Microsoft)
  5. Think creatively around how they generate profitable revenues without alienating consumers (Apple iTunes)

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Digital marketing: the power of social apponomics

One challenge continues to beset a large number of companies looking to generate higher returns from the Web:  How do you enhance your online business model to increase revenues and customer satisfaction while reducing costs?

According to strategy+business, a newsletter published by the consultancy Booze & Company, the secret lies in the development of a new go-to-market model called “social apponomics.” A new concept, SA is the blend of three compelling and symbiotic online developments: social media-powered community mobilization and interaction; the maturation of CRM-based e-commerce applications and; the emergence of powerful mobile functionality.  For firms that have discovered the SA success formula, the payoff has been impressive:  higher product sales & loyalty; an improved customer experience and; lower operating costs.

SA deployments are a work in progress in many companies.  However, some market leaders have got it right: 

Amazon

This e-tailing colossus ($31B 2010 revenues) has led the way in delivering a world class sales and customer experience platform.  Amazon’s shoppers are regularly exposed to useful features such as product recommendations, customer reviews and special offers.  With only one click, customers can purchase Amazon products directly or through a huge and governed third-party marketplace.  This market access is enabled through a variety of mobile devices including the Kindle, their own e-reader.   

Intuit

Intuit, a $3B provider of tax and accounting solutions for individuals, accountants and small businesses, brings its consumers directly into its product development and testing process.  Through Intuitlabs.com, the firm has been able to rapidly roll out more compelling product upgrades.  In addition, Intuit cultivates a vibrant user community by:  bringing together small businesses and entrepreneurs, offering local classified ads and providing an audience-driven wiki for educational purposes.

Netflix

A unique SA model has helped this online movie distributor attract 15 million North American members and generate $1.3B in revenues.  Netflix goes beyond customized interfaces, personalized recommendations and iterative filtering technology; the Company’s offering allows customers to access movies on-demand as well as manage lists, explore 3rd party reviews and add movies to their queues, all through variety of regular and mobile channels. 

Many lessons can be gleaned from these early SA adopters, including:

Humanize the experience

Customers are more likely to transact at a site that is focused on them versus corporate interests.  Firms like Amazon engage individuals in free and open dialogue, foster trust and feature unique, personalized service.  They also provide intuitive user interfaces, ease of support and aesthetically pleasing visuals.

Think local

Product and customer experience designers should heed research that suggests that local tastes, preferences and physical proximity are still important to customers in a virtual environment.  Moreover, firms should facilitate mobile consumers by providing location specific products, services and offers.  

Target micro segments

New web analytics tools allow companies to track customer need states in real time on a highly granular level.  Access to richer amounts of customer data enables marketers to target high potential, hitherto unexploited segments with tailored products, customized promotions and user experiences.

Recruit your customers

Firms now have the ability to inexpensively and rapidly enlist their customer as product reviewers, referral sources and support staff through the use of Crowdsourcing strategies that leverage “the wisdom of crowds” and reduce operating costs.  Market leaders like Apple have gained significant competitive advantage using Crowdsourcing programs.

The above examples suggest that there is no “one size fits all” SA solution.  How SA is exploited will depend on the firm’s business strategy, culture, partners and IT infrastructure.  Fortunately, there are now a number of best practices to learn from.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.