While home this past weekend I gazed at the local newspaper and was intrigued to share this new business venture with my e-marketing peers. A while back, many of us remember how innovative the thought of picking up an iPod from a vending machines at an international airport or hotel was for us as consumers.
The Mondrian South Beach Hotel in Miami Florida is transforming the vending machine world with the roll out of the Semi-Automatic machine. Semi-Automatic peddles a jumble of more than 60 items priced between $10 and $1.2 million in a large, sleek rectangular display. According to front office manager James Bryant, “we don't have a newspaper stand or some place where you can just buy a sundry item. We've got Semi-Automatic, which is sort of an 'in-your-face' gift shop. Just like our hotel is really sort of brash and out there.” The giant white-framed and purple-accented display holds row upon row of white, high-gloss boxes, identical but for brief descriptions: "Sunset Dinner Yacht Cruise for 2," "Sony PSP-2000, Black," "2000 Bentley Azure Convertible," "Gunpowder Tea Candle." Customers can view product images and details on either of two small screens. A credit card is swiped to make a purchase along with a simple tap on the screen for the product desired. A motorized arm then scoots behind and retrieves the product for the debonair consumer. Products too large for a shopping bag are assigned cards that can be exchanged at the front desk for the purchase. The biggest items, like cars and condos, are dispensed in two stages. Buyers pay a nonrefundable $1,500 deposit that holds the item. Then, hotel staff brings the vehicles around for a test drive or take the buyers to see the property. Guests who change their minds forfeit the deposit.
Although not highly related to the teachings of MOI, this new concept does involve digital technologies to some degree and certainly has a place in the marketing realm. It will be interesting to see if this concept remains a novelty for the trendy and affluent or whether someday there will be enough of a detachment from touch and feel based purchasing for this type of vending to play out for the consumer.
For this case analysis on pricing strategies I decided to investigate one of my personal favorite online video sites. From a consumer perspective, the perceived value of the service Hulu provides is quite great through their free pricing strategy. Not having the time or patience to DVR my favorite shows, this online content provider has allowed me to watch streaming shows and video clips at my own convenience.
Founded in March 2007, Hulu is co-owned by NBC Universal, News Corp. and Providence Equity Partners. It is operated independently by a dedicated management team with offices in Los Angeles, New York, Chicago and Beijing. Online video services such as Hulu.com obviously needs access to legitimate content as content needs to belong to a host. Hulu brings together a large selection of videos from more than 130 content providers, including FOX, NBC Universal, MGM, Sony Pictures Television, Warner Bros. and more.
The mission statement found on the “About Hulu” page of the site reinforces my preferences as a consumer:
“Hulu's mission is to help people find and enjoy the world's premium video content when, where and how they want it. As we pursue this mission, we aspire to create a service that users, advertisers, and content owners unabashedly love.”
As mentioned above, Hulu seems to identify with three key consumer groups which impact the free pricing model and in turn the bottom line of the company. The company classifies itself as free and legal through an advertising supported model. This model revolves around content being subsidized by advertisers who find that using this website allows for great marketing potential due to the high traffic of the popular pure play while still making sure to remain somewhat non-invasive in the eyes of the consumer.
User Experience It seems as though Hulu is doing quite well for itself by incorporating the advertising model into their pure play. The on-demand nature of the website and the lack of subscription or tier pricing are features of the site which allow even the most uninterested experiential users little excuse to not check out what Hulu has to offer. As a user of the website, I can say that the ability to watch a single show or entire television series over an extended period without restriction as to time period or frequency is great. One of the best attributes of Hulu for me is that it has allowed me to discover new shows I would never be smart enough to find on TV in terms of the network and listed air time. Now I can stay on the same page as family, friends and classmates who tune into and make recommendations on the most popular shows. Advertisers Hulu gives advertisers an opportunity to associate their brands with premium online video content, connect with highly engaged consumers and extend their reach beyond Hulu.com to Hulu's distribution network. The ability of Hulu to become as viral as say YouTube creates a platform for advertisers to utilize in terms of generating successful advertising. Since the advertising is typically only around thirty seconds, there is a lower click off rate among visitors and viewership can remain strong for Hulu.
Content Owners Hulu holds a wide database of network generated content which is controlled by those providers. Streaming online videos instead of having them available to download may help steer the consumer to the shelves for that extra bit of season 5 not available through Hulu – in an ideal marketing world. It will be interesting to see whether the advertising model will be successful enough on its own to keep content owners happy. Intellectual property needs to be licensed and content owners need to be paid! After all, content needs a host such as Hulu to create that viral appeal of a hidden network show that might not have done so well on broadcast television. It could be inferred that Hulu has an overall pricing goal that is market-oriented; creating loyal among users to each network affiliated with Hulu keeps consumers fixed on one pure play location as well as steering interest to TV or DVDs sales, thus increasing network market share.
Prescriptions One of the flaws I can see with Hulu is that at times the content is not as flush as I would like it to be as a consumer nor are all shows guaranteed to stay available over an extended period of time. Often times I have checked out a show on the recommendation of a friend only to find that the content was unavailable or there was only one season posted to view. I can recall that over the first semester I starting watching the show “It’s Always Sunny in Philadelphia,” a program almost impossible to find on the FX network at a steady broadcast time. There were around five seasons available when I first visited Hulu. I was greatly disappointed when I had finished the third only to find the remaining two taken off the web.
Check out what is going on with the discussion on the Always Sunny page:
One suggestion I have for Hulu to increase their customization efforts and thus their brand is to actually employ a freemium of some kind. This does need to be done with sensitivity as most consumers may not feel an upgrade is necessary. I do not think the current shows and content should be scaled back for the free model but that there needs to be an offering to have more show choice as well as depth to entire seasons for a low fixed monthly price (say $1.99). With the freemium model, there only needs to be a low ratio of paid to free users to create a negligible cost in servicing the Hulu population who are not planning on paying for service.
Hulu: 2008 gross revenue for US: $70 million
Net margin (factors in infrastructure costs and payments to affiliates and content owners): 15 percent to 18 percent
The EBay economy is quite possible one of the most impressive in its class of online exchange businesses. Everyday millions of collectibles, appliances, computers, furnishings, used vehicles, and other miscellaneous items are listed, bought, and sold among community members. Certainly the involvement of “managers” or users of this pure play business model have helped create such activity and have made EBay an exciting hub for global commerce. EBay has built the traffic volume needed to generate revenue from operations. It is important to analyze the specific business models used to ensure the business stays profitable.
EBay employs a brokerage business model by mediating transactions and interactions between buyers and sellers. Revenue is generated by acting as a broker. This concept is mainly seen with the banking system the business has adopted to keep the virtual economy running smoothly. PayPal is a convenient transaction brokerage. According to PayPal, “it is the safer, easier way to pay and get paid online. The service allows anyone to pay in any way they prefer, including through credit cards, bank accounts, buyer credit or account balances, without sharing financial information.” One can see how convenient it is to conduct business with almost anyone in the world with payment options that are flexible yet secure and private. I use EBay solely for buying and have never linked a bank account or card number to my PayPal account. I find this very reassuring as it helps to reinforce the value EBay has to me as a customer.
Another main business model that can be linked to the operations of EBay is the subscription model. EBay is basically a service provider who has the ability to charge a fee for the transactions that occur on the website. I have never directly sold anything on EBay however a quick investigation into the site’s “Help” section shows that both EBay and PayPal do charge for the services rendered. When you list an item on EBay, you're charged an insertion fee. If the item sells, you are also charged a final value fee. The total cost of selling an item is the Insertion Fee plus the Final Value Fee. The fees sought from Ebay continue to be broken down depending on whether you are selling the item using an auction-style listing or selling the item at a fixed price. PayPal also has a set of fees when payment received is funded by a credit card, debit card or buyer credit as all digital transactions are. It is obvious that the heavy volume of daily users of this pure play business is generating a large amount of funds for EBay as they employ a subscription business model.
Less popular business models can also be applied to EBay although most do not generate any revenue but rather good reputation and value for the customer. The infomediary and community models can be combined to provide a great deal of user content for the consumer. The rating system for each buyer and seller on EBay is a good way to patrol the listings for fraud and help kick out offenders of the system who are not so trustworthy. In this sense EBay is acting as a middleman to provide information to the perspective users of the platform. This helps EBay overall with its goal of satisfying consumer needs. This data on each community member can hopefully create loyalty among popular sellers and thus providing brand loyalty to EBay. The community business model overlaps here as users generate content within the network as each member goes on to rate one another on their satisfaction. As with most businesses operating even the slightest bit online there is obviously the likelihood that some advertisement revenue is generated with this pure play as banner ads are seen while navigating EBay’s listings. My User Profile - Measuring a company’s activities and performance is essential for both the desirable growth of the business as well as for the community members. If you were to turn inward and focusing on the performance of the organization, finance based metrics might be important to EBay. If possible, EBay would want to learn who the most valued and least valued customers are. This analysis should be considered since poor customers who never pay or ruin buyer and seller relationships maliciously can hurt the reputation of the business model EBay has created. If EBay has any outside investors who have a stake in the company it would want to look at the cash burn rate to determine where exactly investment is being made and if it is paying off. Although this is more important for a start up company, it is still valuable to look at where revenue could be lost. Sales and net income are also important to watch. EBay as pure play retailer must strive for an increase in site traffic and activity. This pure play business must try to continually attract those consumers who are keener on conducting business with the traditional brick and mortar retailer. Both financial and traffic forecasting should be done on a regular basis to ensure a good return for all shareholders. Without taking the consumer into account and solving their problems as a marketer, financial success will not be sustainable. EBay has opened up a whole new medium of exchange with their unique partner – millions of people.
The evolution of a new business model which centers on the need for user-created content has brought with it many tough questions regarding the issues of licensing and copyright. With the use of expressive material on websites such as YouTube whom rely solely on third party contribution, the issues of authorization and “fair use” are among the most pressing but vague problems facing these new business platforms. The complexity of copyright law can be seen by looking at the mere number of infringement cases prevalent today. This case intends to discuss just how YouTube and recording industry giant Warner Music Group are operating in a digital age.
With album sales declining and online piracy rates biting into profits, major record labels are forming arrangement deals with platforms such as YouTube to help pick up the pieces. Everything was all and well as YouTube partnered with the first of the big four record labels, Warner Music Group, about two years ago. Now that the licensing contract has ended, users who are uploading material onto the site are finding that their rendition of the day’s top jam is being cut short by those holding the rights to the content. “Whether YouTube bailed or Warner Music punted-but the material fact is the same. From Bad Company to the B-52’s, James Blunt to Jane’s Addiction, the videos are down. The reason is simple: money” (Gilbert). The answer is not perfectly clear as to exactly how high profits are extracted from the explosive growth audience of YouTube. What is known through knowledge on web business models is that YouTube can act as an affiliate, were they pay royalties to WMG for each license or on a “pay per click” basis where each video view is seen as a revenue stream for the content provider. YouTube can also pay out some of its ad revenue to WMG to keep them satisfied enough to allow the content to remain active for the users. Under prior terms it’s reported that Warner received either a fraction of a cent per video play or a share of any ad revenue generated alongside their content, whichever was greater (Gilbert). Music videos are among the most watched content on the site from a multitude of content providers. Despite this fact, when WMG evaluated its total digital revenue less than one percent came from YouTube. (Gilbert). The unfortunate lack of negotiation between the parties is sure to have an impact on the value proposition of this pure play in the eyes of the consumer.
I recently uploaded a video onto YouTube. It is not a complete original as I have added some Fifty “50” Cent to the montage of pictures I took of me and my friend while partying over the weekend. A week later YouTube has sent me an email notice telling me that my content has been disabled, prompting me to take further action. In a statement from YouTube, “we try and give people options when they receive a copyright claim. Instead of automatically blocking videos, we give uploaders the choice to dispute the claim (fair use), use our AudioSwap tool to replace the track with one from our library of pre-cleared music, or leave the video as is with no sound” (Sandoval 2). After checking out the section of the YouTube Blog entitled “The Ups and Downs of Music Licensing for YouTube,” I am now satisfied knowing that I can use the AudioSwap library tool to find a cleared song. I am sure the one I choose is equal if not better than the original track I had used. If you sense any sarcasm in the tone of this last statement than you probably know where I am going with this. I will spare you the rhetorical questions that ask why and how exactly my needs are being fulfilled as a potential user having to go through the hassle of attempting to make the content I upload my own. A statement made by YouTube in their blog has an almost mission statement feel: “YouTube: a system that gives artists a brand new revenue source and a great way to connect with their fans.” Personally I feel as though if an artist wanted to connect with a user who is trying to use their song in a clip they have created for the platform, they should not let an agent such as Warner Music tarnish their reputation and make many customers of YouTube unhappy with copyright claims. What is interesting in this case unlike the struggles YouTube has had with the high-profile case involving Viacom or ordinary user piracy is that there was an actual license agreement between the host of the content and WMG. In this situation, YouTube fans used Warner Music’s songs for two years with the label’s blessing (Sandoval 1). When one is in doubt on whether they have exercised their right to fair use properly, it is always wise to get permission (license) from the provider. In the case of WMG, this rule does not clearly apply since there was a contract in effect. The resulting confusion from fans across the net is evidence that yes, there is a problem, and a resolution needs to be made to sustain satisfaction among the growing number of users on YouTube. There are many examples of upset consumers having the audio silenced on their videos. Frank Stallone, a 41-year-old DJ had received notice of infringement and noted simply, “I don’t understand who I’m harming. If anything, people are hearing the 45 second tease they haven’t heard in a while and they’ll want to go out and buy the song” (Sandoval 2). Being able to sympathize with the confusion many members are facing, you really get a sense of how the profit motive of two companies can impact the exchange process and business model as a whole.
Fair use in itself seems to hold very little appeal after examining a case such as this. As put by attorney Ivan Hoffman, “the standards used for determining fair use only come into play when there is a litigation since fair use is a defense to a claim of infringement. Therefore, any reliance upon the doctrine before such determination is made seems a false and unwise reliance.” If you were to think of all the media available for a marketing exchange to take place, it is almost overwhelming how many potential copyright claims there could be especially knowing that the fair use doctrine is so ambiguous. Conducting business in an environment where there are constant claims of expressive work infringement seriously takes away from the experience of the digital marketplace. The bottom line is that Warner Music will not be making any money while they are off the site nor will YouTube be able to retain consumers who will seek out a competitor who provides them with the content they desire. Content needs distribution as distribution needs content (Gilbert). It is going to be interesting to see how social networks and user-generated content sites try to generate revenue while still providing value and loyalty to the consumer.
The digital age has brought with it a wide array efficient marketing tactics that will in continue to bring a more perfected view of the consumer’s wants and needs into focus. The innovation seen in such a marketing strategy of mass customization has certainly provided the consumer with a vast amount of power at their disposal in terms of their buying power. By implementing this feature into the athletic shoe business, two major competitors have found an opportunity to better comprehend the patterns of consumer behavior. What better way to gauge someone’s interest than to walk in, or at least hold in hand, a consumers newly created shoe? I will give my personal opinion on how effective Nike and Puma are at using their interactive websites to gain my interest as a shoe buyer.
Nike Inc is a very well established brand with a mass of followers adorning their kicks and sporting apparel. It was no surprise that when initially checking out the NikeID site I found their approach to be much more subtle and manageable than that of the Puma Mongolian Shoe BBQ site. My reaction was mostly satisfaction with what Nike was trying to do. They seem to have a captivating but yet simple page layout that emphasizes efficiency in terms of getting the consumer quickly and easily into their shoe design journey. The feel of the Nike site is not entirely that of entertainment but rather getting a task completed. There are times when the clean-cut atmosphere of a site such as NikeID helps to alleviate the pressure that may already be forming in a consumer knowing that the style of shoe they desire is not sold in any store. Before even selecting a shoe model under a specified gender, the consumer can use the color scale at the bottom of the homepage to see if they like what color options are available without getting tied up in the complexity of navigating all the other components of the site. Once a consumer decides to push on with the NikeID experience, they can focus in on their favorite shoe model. It may sound strange but I actually liked hearing each indicator noise as I navigated and made selections on the site. These sounds being a typical annoyance in most other contexts actually allowed me to feel as if progress was being made toward completing my expensive new fashion statement. The sites use of flash did not seem to be too overpowering on my usually slow computer, allowing me to retain interest in creating a trendy shoe.
A far cry in my mind from the strategy of NikeID comes in a far away place in the fantasy world of Puma’s Mongolian BBQ site. I find the site to be just plain ridiculous from its homepage to the mission statement or the “What is Mongolian BBQ” section. It is hazy to me whether Puma is in the shoe business or entertainment business. Unlike Nike who does not seem to need to use excess entertainment in its design, Puma tries to create somewhat of a confusing brand culture. I was actually somewhat disappointed at not hearing more audio on the Puma website to go along with the flash and at least keep me amused enough to not want to close my browser. One can investigate through a simple Google search that a Puma is actually a native mammal of America, not Mongolia. Not to dwell on this point but I simple do not understand the efforts of Puma in creating a valuable experience for the consumer. A catchy homepage for the Puma site is all well and good however the site continues to disappoint when attempting to cook up a shoe. Puma only allows the consumer three modifiable shoe models unlike NikeID. It seems as though the abundance of flash is trying to compensate in some way for what little actual substance there is on the Puma site. NikeID to me has better structure that is capable of gaining revenue by offering a large product line while the Puma Mongolian Shoe BBQ is a less planned effort to keep up with what the competition is doing with the customization strategy.
When it comes to actually designing the shoes on either site, there are some fundamental flaws which I could see irritating to the consumer. The main drawback I saw with the NikeID site was the lack of color options. Having a few basic colors in mind to say make a replica shoe from a collegiate basketball team, I was unable to find colors like orange and navy blue. Some shoes model like the Nike Dunk did have these colors but others did not. If I was interested in a model such as the Air Mogan, I would be disappointed to find that my exchange with Nike was cut short simply because they did not have what I was looking for in terms of color. If you are going to make a product such as shoes customizable, there should be a wide variety of colors available for all models. What I did like about NikeID is that they kept the material selection such as nubuck, mesh, and leather simple and separate from the color options. In the case of Puma, the consumer is forced to select color along with fabric at the same time which becomes confusing. I decided to design a shoe that I would actually wear in my “cool” Air Mogan prototype. Needless to say, you can tell I will not be rocking laser blue, cerise, dragon red, barn, or marina anytime soon. It is important to also speak of what kind of sneaker consumer I tend to be in order to defend the conclusions I have made on these two customization outlets. It may seem low on many a person’s priority as to what is worn on their feet however I do take pride in the shoes I wear. In every attempt to keep them “fresh” and “cool” I try and make sure they do not get too dirty or the unthinkable, go out of style. If one were to pick up a pair of my sneakers which looked to be no more than a month old they are most likely over a year old. In no way do I see myself as a trendy shoe buyer. I do not try and make bold statements by wearing loud, multicolor sneaks which seems to be all the rage on many college campuses today. Put simply, I like what I like. Typically I purchase New Balance, Asics, and Nike with simple color patterns. When I think it is time to purchase a new pair, usually every few months, I find the model and wait to find the right price for me in terms of value. The idea of spending over ninety dollars on a pair of customizable shoes is absurd. I am not saying this due to my status as a college student on somewhat of a budget. The types of shoes I wear, which are simple in nature, do not hold a value of anything near the amount of money Nike and Puma are asking for even their most basic designs. I do not believe I have ever or will ever spend over seventy dollars on a pair of everyday casual sneakers. Give me the money to buy the most expensive customizable shoe possible and I will go buy two pairs of shoes which satisfy my feet just fine.
