Marketing Emotiv
Emotiv Case BACKGROUND: By October 2007, Emotiv Systems Inc. had developed a mind reading device called EPOC, which had the ability to process brain signals in order to measure 30 different mental states. Founded in 2003 (with $1 million in startup money from four partners and $17 million in additional financing mainly from Technology Venture Partners and Epicure Capital Partners), the company’s research and development team incorporated existing electroencephalography technologies to introduce a relatively inexpensive and effective cognitive and emotional recognition system.
Management at Emotiv believed that video gaming applications represented a solid opportunity for the EPOC technology. EPOC would allow gaming users to move onscreen objects or support secondary features using their thought patterns. With the product ready to launch, the company had to decide how to market EPOC. Emotiv wanted to launch the product in 12 to 14 months, in time for the 2008 holiday season.
Although its new product was generating much interest across the gaming industry, it had yet to secure a partnership for the sale and marketing of EPOC with one of the three major video gaming consoles (Sony PlayStation3, Microsoft Xbox 360, and Nintendo Wii). The Nintendo Wii seemed like a perfect fit. The Wii was established to provide interactive movement games for casual users. Thought games seemed like the next natural step for Nintendo. In addition, Wii had a leading 42. 1% share of the gaming market in the United States. Partnering with the leader would certainly give Emotiv more exposure.
However, the Wii was not compatible with the EPOC system because it lacked the computational power the run the advanced EPOC system. It would also have made sense for Sony to jump on board with Emotiv, as it was attempting to turn around plummeting sales. However, poor interorganizational conflict within Sony slowed talks between the two companies. Sony’s European division did offer Emotiv a contract for a dumped down version of EPOC, but that was never really a viable option for Emotiv (it would have hurt Emotiv’s image and consumer perceptions of EOPC).
Microsoft was highly interested, but did not want to be a first mover on the new technology. It wanted to wait for the EPOC to prove its popularity and worth. To further add to Emotiv’s problems, there were no games incorporating EPOC yet. It would be very expensive for Emotiv to produce games internally, and the Electronic Arts (the leading gaming manufacturer) had a wait-and-see approach similar to that of Microsoft. It was now time for Emotiv to make decisions on its marketing strategy. Should it wait until it locked in a major gaming partner to launch EPOC?
Or should it launch in the PC gaming market? Emotiv also faced many questions related to the price, distribution, and promotion of EPOC. Their choice and the success of the marketing plan would affect the future profitability of the company. RECOMMENDATION: My recommendation would be for Emotiv to initially enter to PC gaming market. Even though it was less lucrative than the console gaming market (only a fifth of the size) and continuing to lose market share, the PC market was easier to enter because games featuring EPOC would be relatively simple to produce.
By merely releasing compatibility codes, independent users could easily build EPOC applications into new or existing games, representing a stark difference from the cumbersome game development process in the console market. The wide availability of titles would help promote adoption of the new technology and add to customers’ perceived value of the product. Even if the company was able to immediately find a console partner, sales may be low due to a scarcity of games for EPOC. I believe Emotiv should price EPOC at the highest price point advised by retailers, which was $399. Emotiv should create an exclusive product and brand.
From its price to its distribution to its positioning statement, the company should portray that EPOC gives users a high customer value. On the distribution front, EPOC should be sold on its own website and at specialty electronics retailers such as Brookstone, which is known for offering the latest and most innovative high-tech gizmos. I think a positing statement that would indicate high value and resonate with consumers is “Imagine the Unimaginable. ” (See Exhibit 1 for the ad containing this positioning statement). The statement conveys that EPOC offers a unique experience.
This is important because a distinct user experience is the key point of difference that separates EPOC from other products. Brand value is often created through usage and the customer’s overall experience. Thus, I would suggest Emotiv produce one game showcasing the best that EPOC has to offer. The game could be bungled in the sale of the EPOC, giving users an initial application and tutorial for the device. The company had a $2. 5 million offer from Demiurge Studios to develop a PC game to give the user a demonstration of the capabilities of mind-controlled interactivity.
The game would feature a martial arts master lifting rocks or walking on water using the user’s thoughts. Once the company had its EPOC headset and game ready to launch, it should begin to distribute these items to various influential opinion leaders. Distribution to employees at tech magazines and tech television stations would be ideal. Favorable reviews by sources such as PC Magazine as well as G4 TV and Tech TV would quickly spread word about EPOC. Advertising could also be done using these same mediums. The niche hard-core gamers segment routinely follows these media outlets.
Therefore, it would make sense to concentrate on these sources. EPOC also had favorable reviews at industry tradeshows. To gain more exposure, I would advise Emotiv to continue to appear at various tradeshows across the nation, and maybe even host their own conference. The high-profile 2008 Game Developer’s Conference was five months away. Emotiv should use the event to demonstrate their breakthrough product and create enthusiasm by announcing a launch date. The holiday season would be strategic time to launch, as discretionary consumer spending increases during that time.
Management’s plan was to release EPOC for the 2008 holiday season, and I would encourage Emotiv to stick with that idea. As the company generates attention and increases awareness for EPOC, it will likely gain a partnership with a major console as they had been seeking. At that time, Emotiv could move from the niche hard-gamers segment to a mass marketing strategy that would also target casual gamers that play for entertainment and fun. The inroads created by their initial strategy can help the company achieve this goal. BASIS FOR RECOMMENDATION: The PC gaming market provides a solid first step or the company. There are significantly fewer barriers to entry in this market. Customers in the PC gaming market tend to be hard-core gamers that spend thousands of dollars upgrading their computers. As such, hard-core gamers would likely be the early adopters of EPOC anyway. In fact, the prospect of a brain computer interface was already creating buzz and generating excitement in online hard-core gamer blogs. I feel that the hard-core gamer segment is a strong target segment, and natural first step for EPOC. Gaming for hard-core users is a lifestyle.
They use video games and peripherals for the experience and seek as much reality as possible. EPOC fits this group’s needs perfectly, and provides substantial customer value. Thus, a high price tag would be warranted. The price skimming would give Emotiv more flexibility as it eventually moves into the mass market. From a cost benefit standpoint, the move is an optimal strategy. The PC market generates higher margins because the company does not have to pay royalties to console partners. The fee in the console market is usually between 3% and 4% of sales.
Selling the EPOC in Brookstone is a good strategy to target customer looking for the next cool gadget (Brookstone would attract this type of customer), but the company would also be able to negotiate much better terms than the 35% margins that Best Buy demands. Emotiv should be able to exploit hard-core gamers due to the concentrated nature of that market. Adverting costs would be kept minimal, as ads in tech magazines and on television stations command much lower rates than would primetime placements to target the mass market.
At a price of $399, the company would need to sell 213,399 units by the end of 2009 in order the breakeven (See Exhibit 2 for a full breakeven analysis). This seems like an attainable sales level for the company. With time, I believe EPOC will become popular enough to move to the mass market. Following the successful launch of EPOC, Microsoft, Sony, and Electronic Arts would be more willing to work with Emotiv. The pace at which the industry adopts EPOC depends on many factors. An opportunity for the company to accelerate the conversion from niche to mass markets would be a partnership with an influential company like Apple.
Their products are widely recognized as being highly innovative. An iPad app that supported the EPOC system could drive sales, making EPOC mainstream quicker. (See Exhibit 3 for a full SWOT analysis for Emotiv). Once the EPOC technology is adopted by the major consoles, I believe its growth can be similar to that of Guitar Hero. Like Guitar Hero, EPOC is an add-on device that creates an interactive experience for the user. The video game industry is rapidly changing, and casual fans are increasingly demanding the kind of games that EPOC can provide.
An optimistic sales forecast once the EPOC reaches the mass market could be estimated with an analogy to Guitar Hero (See Exhibit 4 for an optimistic EPOC sales forecast by analogy to Guitar Hero sales). Once EPOC becomes mainstream, sales could quickly increase to more than one million units annually. Although advertising expenses, distribution costs, and royalties paid to console and video game manufacturers would increase, the company would realize a cost savings for manufacturing. After one million units, the incremental cost per unit drops from $110 to $60.
ASSUMPTIONS AND UNCERTAINTIES: In the breakeven analysis, I assumed that Brookstone would receive a 20% margin on the sale of EPOC, significantly lower than the 35% margin that Best Buy demands. I am assuming that hard-core gamers will pay an elevated price for a product that provides mainly secondary features, as hard-core gamers usually play fast-paced shooting games that have less of a need for EPOC in the main features of the game. There is also a huge assumption that EPOC will be successful enough to encourage a console maker to adopt the technology.
Finally, comparing EPOC to Guitar Hero would be the best case scenario for Emotiv. Casual gamers are harder to reach than hard-core gamers. They could be highly price sensitive (EPOC will be priced at $399 compared to Guitar Hero’s $99 price) and expensive to attract (because they are more fragmented and ad space on primetime television would be more costly). EPOC will also have to compete with demand for newer versions of Guitar Hero, which could cut into its sales. ACTION STEPS: Emotiv should immediately contact Demiurge Studios, so it can have the tutorial game ready as soon as possible.
Emotiv should showcase EPOC at the 2008 Game Developer’s Conference in March 2008. At this point, it should distribute the headset and game to influential opinion leaders across the gaming industry. Hopefully this will create buzz for the release of EPOC. The release should be slighly ahead of the holiday shopping season, in early November 2008. As sales build, the company should continue to target a partnership with a console maker and game producer. By the beginning of 2010, they should have won a contract and be positioned to mass market EPOC.
At this point, their marketing strategy would change. The increased demand facilitated by the console market will give the company higher revenues and profits, giving it more financial flexibility to advertise on primetime television and distribute its products in Best Buy stores. In time, perhaps the company could use its talented research and development team to build even more advanced devices for the gaming market, or even expand the distribution of EPOC for other uses, including applications in the medical, military, market research, and business sectors. See Exhibit 5 for a complete time line for Emotiv). Exhibit 1. Print advertisement for EPOC using its positioning statement. Imagine the Unimaginable Emotiv’s EPOC Exhibit 2. Breakeven analysis for years one (2008) and two (2009). Fixed Costs| | | Startup investment | | $1,000,000 | Additional financing used *** | | +$9,500,000 | Cost to produce video martial arts games| | +$2,500,000 | Expected operating expenses for 2008 | | +$11,086,000 | Expected operating expenses for 2009| | +$20,557,000 | Expected total fixed costs| | $44,643,000 | | | Contribution| | | Price | | $399 | Retailers Margins (Price * 20%)| | -$79. 80 | Emotiv’s Revenues| | $319. 20 | Cost of Goods Sold| | | (Manufacturing Cost is $110 per unit for the first million units produced)| -$110 | Total contribution per unit | | $209. 20 | | | | | | | Breakeven (fixed costs/contribution)| | 213,399| | | | | | | ***| | | Additional financing raised | $17,000,000 | | Capital still on hand| $7,500,000 | | Additional financing used | $9,500,000 | | Exhibit 3. SWOT analysis for Emotiv.
Strengths * Superior quality * Emotiv’s EPOC was the best mind- reading device on the market * Technological leader * Its research and development team was highly experienced and innovative, giving the company the ability to continue to improve EPOC and perhaps develop another product in order to move into another gaming category or market segment| Weaknesses * EPOC could be inconsistent * The human mind works differently on different days and times, which can confuse the algorithm behind EPOC * The EPOC is not compatible with the Nintendo Wii, hurting its growth chances since Wii has a leading market share in the console market * No games are currently available for EPOC, which could slow adoption rates by decreasing the value customers receive from the product | Opportunities * Efficiently target hard-core gamers since they are a concentrated group that would likely have an high interest in EPOC and act as early adopters of the technology * Eventually target the mass market once gaming console companies realize the value of the EPOC, allowing the company to experience robust sales similar to those of Guitar Hero * Could increase penetration rate sooner if an innovative leader such as Apple accepts ts technology | Threats * Although EPOC was the most advanced mind-reading device on the market, Emotiv still faced the threat of competition from other firms * NeuroSky and OCZ Technology were both developing mind-reading devices (although inferior to EPOC) that could be marketing for video gaming applications, which could cut into its market share * Consumers may have unjustifiably high expectations from EPOC (someone once asked if it could move objects in real space), which could lead to customer disappointment and bad reviews| Exhibit 4. Sales Forecast for 2011 once EPOC is mass marketed to all video game players. Under an optimistic scenario, sales of EPOC will mirror sales of Guitar Hero. Exhibit 5. Time line for Emotiv. OCTOBER 2007: Sign a $2. 5 million contract with Demiurge Studios to develop a PC game to be sold with EPOC that demonstrates the capabilities of mind-controlled interactivity. MARCH 2008: Appear at the 2008 Game Developer’s Conference. Showcase EPOC and announce that it will be released in November 2008.
APRIL 2008: Begin creating buzz for EPOC’s launch by sending headsets and the accompanying PC game to influential opinion leaders at Tech TV and PC magazine. OCTOBER 2008: Create more consumer awareness through advertisements. Target hard-core video game players by running ads on Tech TV and in PC magazine. NOVEMBER 2008: Launch EPOC in time for the start of the 2008 holiday season. Commence its distribution agreement with Brookstone. MARCH 2009: Wait for sales figure for the fourth quarter. Then resume talks with Sony, Microsoft, and Electronic Arts for a partnership to market EPOC. Show them sales statistics for EPOC, which could help demonstrate the success and popularity of the product. JANUARY 2010: Hopefully sign a contract with one of the major console makers.
OCTOBER 2010: Prepare to release EPOC for a gaming console. Start advertising on primetime television to capture the mass market. NOVEMBER 2010: Release EPOC for a gaming console in time for the start of the 2010 holiday season. Expand distribution to include Best Buy. MARCH 2011: Conduct research on EPOC upgrades. NOVEMBER 2012: Introduce a new and improved EPOC 2 model. If consumers are satisfied with the first model, repeat sales volume will be high. MARCH 2013: Begin research to expand its product line beyond video games, perhaps for medical, military, market research, or business applications. NOVEMBER 2015: Launch a new product in a new sector.
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