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
