2. Online video services
3. Consumer Behaviour towards online video services
4. Literature Review - Perceived Risk in Online Shopping
4.1 Perceived Risk
4.2 Perceived Risk in e-Commerce
5.3 Public Policy
6. Marketing Plan
“Rollout of HD VOD and Internet movies on day-and-date of DVD release is a growth opportunity not only because consumers value them and will pay more, but also because this expanded availability will increase overall movie viewership. The Oliver Wyman study found that that these enhanced offers would lead U.S. consumers to watch and pay for an average of three more movies per year than they do today, creating a net annual increase in domestic consumer movie spending of more than $5 billion, from the current base of $50 billion.” (The free library, 2008)
As this study of the management consultancy Oliver Wyman reveals, online video services such as VOD and PPV gain an increasing importance nowadays. These trends towards online video services (OVS) invite to a closer examination of the consumer behaviour regarding these services.
This essay focuses on consumer behaviour of the consumption of OVS, such as iTunes Movies and CinemaNow. In particular the aspect of perceived risk will be examined, because these products can only be consumed online, an environment where the perceived risk is still high and a possible barrier for the usage of OVS. In order to introduce consumer behaviour in general, a brief overview of the important aspects related to OVS will be illustrated in section 3. Next a literature review about perceived risks in consumer behaviour (4.1) and in the particular case of online-shopping (4.2) will be given. Section 5 includes the implications drawn from the literature review, namely the theoretical (5.1) and managerial implications (5.2), as well as the implications for public policy (5.3). Finally, a conclusive marketing practice for a provider of OVS will be recommended in section 6.
But first, the term online video services will be defined and a short overview of the market will be given in the following section.
2. Online video services
Online video services are internet technology-based services which offer consumer movies and TV-shows online. Consumers can use them to stream, watch, and rent or download movies and TV-shows. The market can be split into two distinct characteristics of providers. On the one side there are the hosts of illegal peer-to-peer sites that offer theatrical movies and episodes of TV-Shows for free. Consumer can stream or even download movies from these sites for free, although registration might be needed. On the other site there are the providers of Videos-on-demand (VOD) services, which are using the business models Pay-to-view, Pay-to-rent or Pay-to-own. Competitors in that area are companies such as Apple and Amazon (which extended existing business concepts into OVS , for example the movie function in iTunes), as well as legal online downloading services like Starz Entertainment, Group‟s Vongo, Movielink and CinemaNow. A third business concept competes within this market, which is the mail-order movie rental service from companies such as Blockbuster Inc. and Netflix Inc., which deliver online-ordered DVDs directly to the customer‟s mailbox.
When consumers choose to watch a movie online, the first decision they have to make is between paying for a service, or if they want to use the free version of the illegal sites. The latter normally involves disadvantages including the aspect of illegality, long loading times and lower quality. Nevertheless this is still a popular option compared to the legal opportunities to watch videos online, due to the barriers within the legal opportunities. Most providers of VOD restrict the showing of the rented or bought movies to their own technology. For example users of Apple‟s iTunes are neither able to view the movies without the program iTunes nor can burn the movie on DVD to watch it on TV via a DVD player. Furthermore alone the download of the program might be a barrier for consumers who are not deeply involved in modern technology and software and at the same time these platforms normally need registration as well as entering payment details online. These can be seen as risk, and the consumer then might prefer the free version without registration and handing there details over to a site they might not trust.
3. Consumer Behaviour towards online video services
Consumer behaviour is “the study of the processes involved when individuals or groups select, purchase, use or dispose of products, services, ideas or experiences to satisfy needs and desires” (Solomon et al, 2010, p.27). This section provides a brief overview about important consumer behaviour aspects related to OVS:
Consumer can be separated into different groups. One way to create segments is to split consumers based on demographics. Demographics “are statistics that measure observable aspects of a population, such as birth rate, age distribution and income” (Solomon et al, 2010, p.9). Important demographics for online video services are age (people with the age 60+ might not use the computer at all), occupation (the amount of time a consumer can spent watching movies online) and gender (regarding different internet usages between men and women) in order to segment the market and create different marketing strategies. Furthermore it is worth researching the household and who actually makes the decision in families, which movie should be watched. If marketers can identify the buyer and user, they can address both groups accordingly. An example would be attracting the children with Disney films and the mothers as buyer with the price and a user-friendly interface.
There are different perspectives to examine the consumption of OVS. First it is interesting to find out, why a consumer uses video online services (e.g. instead of going to the movies). Consumer behaviour takes a closer look at the needs, wants, drivers and desires of a consumer towards the product, and which motivation is the consumption based on. This can result out of physiologically (the consumer might not be able to leave the house e.g. due to sickness), psychologically (the consumer does not like the movies or prefers being on his own) or environmentally (there are no movie theatres within reach) motivations. Furthermore the perceived risk of the consumption influences the motivation. Motivation is also moderated through needs, values and goals and personal relevance (Hoyer & MacInnis, 2007), but in case of products consumed online the perceived risk is probably the main driver, which hinders the consumption of video online services.
The second interesting aspect is the answer to the question, how the consumer chooses a particular provider of video online services. How can an advertisement catch the attention of consumers and how do consumers perceive an advert? The perceptual process explains how stimuli can lead to perception (e.g. Solomon et al, 2010, p.118f). Stimuli can be sights, sounds, smells, tastes and textures or combination out of these. The first response of the sensory receptors is called „Sensation‟. Not to all received stimuli a consumer will pay attention to, and the ones where the consumer pay attention to will be interpreted and responded to (this stage is called „interpretation‟). Marketers therefore should keep in mind that not all the adverts are going to be perceived by the consumers, and due to unique biases, needs and experiences of the consumers can be interpreted very different.
To market their products more effective, marketers should apply a technique derived out of the learning theories - Instrumental (operant) conditioning. It occurs when “the individual learns to perform behaviours that produce positive outcomes and to avoid those that yield negative outcomes” (Solomon et al, 2010, p.248). If the providers of OVS reward the buying/renting of movies in their platform, for example through offering every fourth movie for free, consumer get rewarded for their good behaviour (renting the movies with this particular platform), which then can lead to customer loyalty.
The final purchase decision can also be dependent on the consumer‟s attitude towards the provider and his actual involvement with the product. The elaboration likelihood model (Petty & Cacioppo, 1986) describes how consumer‟s attitude is influenced in both high- and low- involvement circumstances. The authors argue that there are two ways of persuasion. More involved consumer format or change their attitudes based on product information and rational considerations (the so-called central route), whereas less involved consumers take the peripheral route and shift their attitude temporarily based on peripheral cues such as celebrity endorsement, humour or other objects that generate positive feelings. Important to note for marketers is that consumers are only able to follow the central route if they possess the ability, motivation and opportunity. Depending on the target market, providers of OVS should therefore market their services based on technical information (e.g. download time, HD quality, etc) and advantages they possess compared to the competitors (e.g. prices) to consumers with a high involvement and knowledge about software and the internet, and rely on peripheral cues like credible sources, layout and amount of arguments to market their service to low involvement consumers.
Consumers also base their decision on certain heuristics. A heuristic is an experienced-based technique which is used to speed up the decision-process. Research discovered that “decision making is more heuristic in situations that involve spending time rather than money” (Saini & Monga, 2008, p.920), which is the case for low priced products as DVDs, which mainly are purchased for consuming time. Especially concerning the pricing it is important for marketers to be aware of the anchoring and adjustment heuristic - “consumers arrive at an initial judgment and then adjust it based on additional information” (Kotler & Keller, 2009, p.216). Consumers have both prices for movie theatre tickets and DVDs as anchor in their mind. Although the prices for the OVS might still be low compared to the competitors, if they are too close to theatre and DVD prices, consumer will perceive the prices as too expensive, since they will not get the experience or the actual DVD.