Rafi Mohammed

A Memo to TiVo: Please! Please! Please! …Use the Value Decoder

Posted on January 3th, 2007 (0 Comments)

I talk a lot about equating value with price. The concept makes sense – we all can relate to the notion that an umbrella is more valuable during a rain storm or a Caribbean vacation is more valuable when there is three feet of snow on the ground in Boston. But translating the basic concept of value into pricing practice is often more difficult than one would imagine. Don’t worry, even pricing consultants struggle with the basic notion of value-based pricing. I recently had lunch with a pricing consultant and he mentioned that one of his clients was struggling with its product becoming commoditized (competitors were offering very similar products at lower prices). Trying to be helpful, I enquired if his client was trying to add value by differentiating its product. Giving me a “of course I am helping my client with this issue” look, he replied that his client was indeed adding value to their product. He then mentioned that the problem was customers were not willing to pay for this additional value. Digging my nails into the table…I restrained from reminding my pricing consultant friend of the obvious: value is equated to price.

Walter Mossberg recently wrote a column in the Wall Street Journal titled “The HDTV Dilemma: Pay for TiVo’s Recorder or Settle for Cable’s?” High Definition (HD) television owners have limited digital video recorder (DVR) options to record television programs in high definition: a barebones high-definition DVR supplied by the cable or satellite company ($12 a month for unit rental and subscription service) or a TiVo Series3 HD Digital Media Recorder ($800 to purchase plus $12.95 a month for subscription service). That’s a heck of a difference in price!

In his column, Mr. Mossberg highlights how much better TiVo’s High Definition DVR is: more program storage capacity, friendlier user interface, better functionality, and the TiVo DVR can even programmed via the web if you think of a program you’d like to record while you are at the office. On the downside, this TiVo is designed to replace, not complement a cable box – thus a visit by cable-company technicians is required to install a High Definition TiVo DVR. An additional complication is that features like Comcast’s on-demand service often do not work with a HD TiVo DVR. Walter ended his article with the conclusion that the “TiVo Series3 is an excellent, but overpriced one (option).”

While I’m not a DVR user, I’m inclined to root for TiVo since all of my friends love its service. It’s almost scary the cult-like raves I hear from my TiVo-loving friends: “you always have something good to watch” or my personal favorite, “TiVo has changed my life.” Here’s my question for TiVo: “Exactly what were you thinking when you set the Series3 price?” First off, the $800 price tag is as expensive as some HDTVs! Second, DVRs provided by cable companies, the next best alternative (a key component of the Value Decoder,) are priced significantly lower than TiVo’s product ($12 a month vs. $800 plus $12.95 a month). There’s no question that TiVo offers a better product, but are these superior features worth the steep price differential?

It’s always disappointing when companies work so hard to build and market a great product then drop the ball on pricing. A memo to TiVo, please use the Value Decoder to price your products in the future. By all accounts, you offer a great product – let’s start pricing for profits and growth!

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Note: The use of the phrase “Please, Please, Please” in this blog’s title is a tribute to James Brown, the Godfather of Soul. In addition to mentioning Mr. Brown in my book, one of the best concerts I ever attended was James Brown at the House of Blues on Sunset Boulevard in West Hollywood. Mr. Brown and his 26 piece band literally blew the roof off the joint – a truly joyous show.

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