Pricing Strategy and Sales Forecasting using Conjoined Analysis

2. Objective
• Analyze & segment the Internet TV set-top
box market
• Determine the important feature preferences
per segment
• Project market share and profitability
• Recommend pricing strategies
Pricing Strategy, Fall 2010 2

3. Pricing Strategy, Fall 2010 3

4. Internet TV Set Top Box Market
• We project 2.935 M Unit sales in
2011Market Size
• Sony Google TV
• Logitech Google TV
• Apple TV
Key Players
• Web Enabled TV / Blu-ray players
• Media PCs
• Gaming Consoles
Substitutes
Pricing Strategy, Fall 2010 4

5. 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
Pricing Strategy, Fall 2010 5

6. Pricing Strategy, Fall 2010 6

7. 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
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8. Attributes for conjoint analysis
Pricing Strategy, Fall 2010 8

9. 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
Pricing Strategy, Fall 2010 9

10. Current Product Comparison
DVR Search
App
Market
Browser
1080P
Support
HD
Video
Calling
Price
$299
$199*
$99
Pricing Strategy, Fall 2010 10

11. Survey Card
Pricing Strategy, Fall 2010 11

12. Survey Respondent Profile
Income 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
Pricing Strategy, Fall 2010 12

13. 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
Pricing Strategy, Fall 2010 13

14. Segment 2 – Low Price or Bust
Utility FunctionObservations
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Apple ($99) Sony $(199) Logitech ($299)
1.95
3.87
4.3
Comparative Utilities
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
• 18 Respondents – 38%
• 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
Pricing Strategy, Fall 2010 14

15. Segment 3 – Feature Hungry
Utility FunctionObservations
-4
-2
0
2
4
6
8
10
Apple ($99) Sony $(199) Logitech ($299)
-2.91
7.95
9.57
Comparative Utilities
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
• 12 Respondents – 23%
• Want more features – see Apple TV utility
• Highest household income (~250K)
• 85% have kids
• Pay high for TV - $60
Pricing Strategy, Fall 2010 15

16. Market Share Calculation
Set 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
Pricing Strategy, Fall 2010 16

17. Logitech Profitability Analysis
2011 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.
Pricing Strategy, Fall 2010 17

18. 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, 1
1.25%
Sony, 45
.18%
Logitech
, 46.41%
Mkt Share - Logitech $299
Pricing Strategy, Fall 2010 18

19. 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, 2
4.74%
Sony, 36.
52%
Logitech,
40.45%
Mkt Share – Logitech $299
Pricing Strategy, Fall 2010 19

20. 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
Logitech Profits& Mkt Share
Segment 2 Market Share & Profit
Very high price elasticity from $299->399, profits still ↑
Apple, 1
9.26%
Sony, 43.
20%
Logitech,
42.46%
Mkt Share - Logitech $299
Pricing Strategy, Fall 2010 20

21. 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
Logitech Profits& Mkt Share
Segment 3 Market Share & Profit
Apple 0% share. Low price elasticity from $199->399, strong ↑ profit
Sony, 47.
10%
Logitech,
54.64%
Mkt Share - Logitech $299
Pricing Strategy, Fall 2010 21

22. Great Analysis !!!
So what should Logitech do ???
Pricing Strategy, Fall 2010 22

23. 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
Pricing Strategy, Fall 2010 23

24. 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
Pricing Strategy, Fall 2010 24

25. Pricing Strategy, Fall 2010 25

26. Pricing Strategy, Fall 2010 26

27. Google Business Model
Pricing Strategy, Fall 2010 27

28. 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
Pricing Strategy, Fall 2010 28