DirecTV is known for catering to high-end consumers with a penchant for sports, and that strategy has steaded the company well. But that wasn’t always the case.
At first, the satellite-TV provider’s biggest sales point was picture quality and the vast number of channels available to customers. Company executives were happy to grab every eyeball they could attract.
For its first decade, DirecTV had little, if any, quality-screening techniques. The only real barrier to entry was the cost of the equipment, which was steadily declining. Still, the equipment was expensive at first, and most consumers who bought its dishes and set-top boxes were willing to stick around and pay to receive its digital programming.
But by 2005, that concept had run its course. Competition from Dish Network and cable operators forced DirecTV to start giving away its equipment. DirecTV resisted but, in the end, it was beneficial to the company’s growth trajectory.
TAKING A RISK
“Ironically, we have Dish to thank for forcing us to do something that was considered a bit risky at the time,” said interim CEO Larry Hunter. “But that decision really kick-started our growth curve.”
Subscriber growth exploded, but the quality of the customer eroded. When Chase Carey came on board in 2003, he quickly saw a recipe for disaster and determined that DirecTV needed to achieve profitable growth, not just growth for growth sake, said DirecTV chief sales and marketing officer Paul Guyardo.
DirecTV’s initial marketing was aggressive but had little long-term strategy, said Leichtman Research president Bruce Leichtman. The company could hype its picture quality but as cable improved its networks, that advantage eroded. There was no real hook to reel in customers and keep them.
Guyardo’s first task was to determine just exactly what a profitable customer was and what kind of products and services those customers subscribed to or wanted. He and his team scoured DirecTV’s extensive database and found that 28% of the company’s customers brought in 56% of the profit. After zeroing in on who those customers were, they found the best ones were generally men older than 35 with families, living in single-family homes. As family men, they had a greater appreciation for TV consumption. They tended to move less often and have more discretionary income than other groups. They were also heavy sports viewers.
DirecTV started securing exclusive rights with a number of sports leagues and organizations. The most notable, of course, is the package of out-of-market National Football League games it delivers every year. “NFL Sunday Ticket” has become the company’s signature product and one of its most popular. But DirecTV also delivers an exclusive “March Madness On Demand” NCAA men’s basketball tournament package and the “NASCAR Hot Pass” offering, as well as packages geared to the U.S. Open tennis tournament and other events.
“We honed in that segment and have focused our efforts there ever since,” Guyardo said.
Zeroing in on that demographic meant shifting the company’s marketing strategy and media purchases. Guyardo moved away from trying to attract adults 25-to-54 to men over 35. It also meant shifting ad buys from shows like NBC’s Today to spots on ESPN and broadcast-network sports programs.
Guyardo also changed DirecTV’s media-buying strategy, shifting TV spots from daytime to primetime and the overnight hours, “when most men watch TV,” he said.
But that was just the beginning. DirecTV needed a brand that resonated with those desirable consumers. The company’s advertising offers and promotions were focused around sports and high-definition programming. And it brought those images to life.
Television ads featured actors playing characters from past movies who exhorted the benefits of DirecTV, as well as sports icons hyping the company’s various packages.
“These ads were geared specifically toward men and the brand took on a celebrity, larger-than-life persona,” Guyardo said. “Our focus was on the benefits that appeal to that demographic.”
And it worked. DirecTV went from having 12 million customers in 2003, when News Corp. bought 34% of DirecTV parent company Hughes Electronics (since renamed DirecTV Group), to 18.3 million today, making it the No. 2 multichannel-service provider in the country.
Moreover, when DirecTV Latin America is included, the company serves over 24 million customers in the Northern and Southern Hemispheres, making it the largest multichannel-service provider in the world, noted Hunter.
“Once they began focusing on delivering sports not available anywhere else and aimed their sights at different demographics, they became more profitable,” Leichtman said. “[The exclusive sports strategy] has worked well for them.”
That focus on sports and HDTV is what really differentiated DirecTV from its competitors, said Miller Tabak analyst David Joyce, who agreed that the approach has been very successful. However, saturation of the market, coupled with competitors reaching parity on products such as HD, will make it harder to stay ahead of the curve, he noted.
Nonetheless, the emphasis on sports and aiming its product mix at men over 35 years of age isn’t going to change any time soon, Guyardo said. “The target demographic hasn’t changed since I got here in 2005,” Guyardo said. “And it’s not going to change anytime soon.”
Still, the way it’s marketed has changed.
Four years ago, 23% of total sales were completed using direct sales. At the time, internal sales efforts weren’t bringing in big numbers, but they were attracting quality customers — those most likely to take advanced services and products. It was clear that it was an efficient way of growing the business and was more profitable than paying third-party dealers to sign up new customers.
Today, 50% of DirecTV’s new business comes from direct sales. About 25% comes from telco partners and rest is now handled by DirecTV’s network of retail dealers.
DirecTV sends out millions of traditional direct-mail pieces every year using sophisticated marketing metrics, Guyardo said. The direct-mail offers are highly targeted and specific to demographics, geography and customer history.
DirecTV.com has become a very successful marketing tool and is dynamic enough that it provides existing customers a more personalized experience, giving them different information than new and potential customers receive. Additionally, it has driven customer self-care substantially, which has improved profitability, Guyardo said. Call centers aren’t receiving as many tech calls, giving agents more time to sell services and answer questions more effectively.
Lastly, every advertisement DirecTV runs is tagged with an 800 number and encourages consumers to contact the company. It sounds simple, he said, but it drives intelligent sales. DirecTV is also on the verge of launching a viral social media “friends and family” campaign via Facebook.
Marketing efforts by telco partners — AT&T, Verizon Communications and Qwest Communications International — as well as local dealers, “play different roles that our direct sales can’t play,” Guyardo said. For one thing, they provide a local presence.
But while the goals of DirecTV’s outside partners are closely aligned, there is a competitive element to having third-party partners. Many retail dealers sell both Dish Network and DirecTV to their customers. And where the telcos are selling their own wireless video service, DirecTV is considered a competitor rather than a leg of their triple play product offering. Still, Guyardo is happy with the arrangements.
SELLING THE BENEFITS
“We’re always leading with superior benefits no matter where we are being marketed,” he said. “No one else, for instance, can offer the NFL Sunday Ticket and we have more high-definition channels than any of our competitors. We differentiate our video product. It can be partnered with whatever service a customer desires, but if you want the ultimate video experience, you’re going to want DirecTV service.
“[Our telco and dealers] have a common enemy: Cable. If one of our telco partners can put a telephone customer into a triple-play package — regardless of whether it’s DirecTV or their own video product — their churn goes down and their satisfaction rates go up. We may initially lose some revenue from that customer, but we gain it back with reduced churn. At the end of the day, it speaks to the power of our brand.”