Marketing Management - Product Outline

Final GP - Time Warner Cable: Revolutionizing Cable Television

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industry by breaking the longstanding, and outdated mold of forced program packaging by offering “a la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.


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.


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.


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.


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,


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.


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


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


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


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


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.


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


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


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)


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



Total= $35,000,000

Maturity Phase


2 Cable/Sat Comparative Advertising

$10,000,000

Total= $15,000,000

Decline Phase



Total= $7,000,000


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


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


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


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.


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.


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.


References

"AT&T UVerse." AT&T Uverse. N.p., n.d. Web. 01 Dec. 2015. <https://www.att.com/shop/u-

verse/offers.html>.

"Industry Data." NCTA. N.p., n.d. Web. 01 Nov. 2015. <https://www.ncta.com/industry-data>.

Fortune. (2015) Cable Consumers Keep Cutting the Cord. Can Anyone Blame Them? Web.

http://fortune.com/2015/08/18/cable-consumers-keep-cutting-the-cord/

Kotler, P. and Keller, K. (2012). Marketing Management 14th Edition. Upper Saddle River, New Jersey: Pearson Education, Inc.

Molla, Rani. “How Much Cable Subscribers Pay Per Channel” Wall Street Journal. Web. 5 August 2014.

http://blogs.wsj.com/numbers/how-much-cable-subscribers-pay-per-channel-1626/

Morran, Chris. "Time Warner Cable Has Lowest Customer Satisfaction Score Of All U.S. Companies,

Not Just Cable Providers." Consumerist. N.p., 02 June 2015. Web. 01 Nov. 2015.

<http://consumerist.com/2015/06/02/time-warner-cable-has-lowest-customer-satisfaction-score-

of-all-u-s-companies-not-just-cable-providers/>.

Parikh, V, (2015, March 22). Advantages and Disadvantages of Penetration Pricing. Retrieved from http://www.letslearnfinance.com/advantages-and-disadvantages-of-penetration-pricing.html

Perez, Sarah “New Study Shows a Rise in Cord Cutting.” Tech Crunch. 23 June 2015. Web.

http://techcrunch.com/2015/06/23/new-study-shows-a-rise-in-cord-cutting-8-2-percent-ditched-

pay-tv-in-2014-up-1-3-yoy/#.bzgqipd:mdNB

"PlayStation Vue Plans." PlayStation Vue Plans. N.p., n.d. Web. 01 Dec. 2015.

<https://www.playstationnetwork.com/vue/plans>.

Sling TV. N.p., n.d. Web. 01 Dec. 2015. <https://www.sling.com/package>.

Time Warner Cable. (2015). 2014 annual report of Time Warner Cable, Inc. Retrieved from

http://s1.q4cdn.com/730563363/files/doc_financials/Annual%20Reports/2014/TWC-2014-

Annual-Report.pdf

"Time Warner Cable." Company Overview. Time Warner Cable, n.d. Web. 01 Nov. 2015.

<http://www.timewarnercable.com/en/our-company/company-overview.html>.

"Time Warner CableTV Plans & Pricing." Digital Cable TV Service Plans & Packages. N.p., n.d. Web.

01 Dec. 2015. <https://www.timewarnercable.com/en/plans-packages/tv/digital-cable-tv-

plans.html?cic721>.

"Verizon Fios TV Plans and Channels." Verizon Fios TV. N.p., n.d. Web. 01 Dec. 2015.

<http://www.verizon.com/home/fiostv/>.

http://www.letslearnfinance.com/advantages-and-disadvantages-of-penetration-pricing.html

http://techcrunch.com/2015/06/23/new-study-shows-a-rise-in-cord-cutting-8-2-percent-ditched-

Marketing Management - Product Outline

Documents

Transcript of Marketing Management - Product Outline