Welcome to
this industry briefing. Telly shopping is the art of interactive
selling. We create miracle solutions for problems that do not
exist or that people did not know they have. We use the power of
the medium to teach people to indulge themselves, reward
themselves, we deal with the reality of problem solving and the
fantasy of escape and the world of make believe all for the
price of a product. The industry is a modern and interactive
form of retail and a part of the mail order and direct response
business. The US electronic retailing industry last year was
valued at $186 billion which includes diverse channels of
television marketers, radio advertisers and direct-to-consumer
online retailers. World value, including the USA, is projected
at over $225 billion. The DRTV and live Home Shopping value is
just over $15 billion worldwide. UK Industry growth has climbed
in the past three years from £500 million, to £1 billion and
2003 gross revenues are expected to be in excess of £1.5
billion. We project strong annual growth of at least 15% for the
next five years. Some expansion, consolidation and failure of
course will occur as well.
TV
shopping is a combination of the science of promotion and
business. This is an industry that takes the skills of three
businesses being merchandise, the logistics of fulfilment and
broadcasting and seamlessly merges them into one, well that’s
the theory. Products are displayed in a live or recorded format
and as soon as a winner product is identified, everyone copies
it and drives the price and margins downwards. Before it is
destroyed in this highly competitive marketplace millions are
being made.
The trick
is always to find a unique product that is appealing, that the
viewing audience can immediately relate to, is protected by
patents, has obvious and superior features, advantages and
benefits, demonstrates well on TV and can be sold at the right
price. You will notice that products that save time and money,
help you in the kitchen or clean up, fix up, suck or sterilize
are in abundance as are products that organize, make you
healthy, beautiful, trimmer, flatter, smarter and wealthier.
There are also holidays and bargains as well as golf clubs. They
all promise a better life for an affordable price.
Today we
have a large amount of affordable channel capacity and are
witnessing some dramatic innovation. The future for telly
shopping is being established here in Britain for I believe, as
digital TV spreads and is implemented around the world, the same
multi channel, transponder splitting, time shifting, sister
channels and niche channel phenomenon will be replicated
globally.
DRTV
Besides
Telly shopping QVC style, there is a substantial DRTV and
infomercial market with 25% (40% in USA) of all advertisement on
British TV is now direct response (40% of British radio adverts
are direct response) and the trend especially due to interactive
red button TV is experiencing rapid growth.
Direct
Response Television is a term that covers any spot or format on
the TV that requires a direct response. Disney asks you to call
for a VHS and an automobile company asks you to press the red
button. But DRTV is more commonly known as being the recorded
infomercial genre of short form 30 seconds to 5 minutes or long
form programmes which are typically up to 28 minutes in
duration. DRTV delivers instantly measurable results for a wide
variety of products and services. It is easily to measure
response to spend ratio on a daily basis. DRTV makes it easy to
target specific consumer profiles or demographics at a fraction
of the cost of general advertising and in some cases it can pay
for itself. Once the product is introduced to retail there will
be a significant increase in off the shelf sales. Many people do
not buy from the TV, but they will be influenced.
Every
channel is allowed up to 3 hours of telly shopping and as you
flick through the Sky, ntl or other carriers EPG, you will
locate many of these programmes.
The
democratization of cannel capacity has given infomercial
companies a new business front but they are still buying media
time across many channels. Telly shopping now supports many
channels that would have failed if they had to reply solely upon
traditional advertisement revenues. Market forces always create
new opportunities. Quantum was years ahead of the industry when
it started one of the very first pan European satellite channels
and TV Shop also created many innovative and successful
strategies.
The US DRTV
market
DRTV
industry revenues were $5 billion in 1999, up 66% from $3
billion in 1997. It is the fastest growing segment of the
retailing industry and is estimated to reach in excess of $7
billion in 2002.
The DRTV
industry has experienced tremendous growth since its inception
in the early 1980's. Estimates place industry growth in excess
of 30% per year and revenues for 2000 at approximately $7
billion. A high level of fragmentation exists in the DRTV
market. No competitor has more than 10% of the DRTV market. The
top ten competitors account for less than 30% of the market.
Women make
up 84% of all purchasers. The family income of DRTV purchasers
is substantially the same as all retail consumers, with 42%
having an income of over $56,000 per year and 18% over $100,000.
Unit prices of DRTV items have increased significantly:
52% of all
items sold have a price point above $100, up from 41% in 1999
and items such as home gyms are successfully priced over $1,000.
The average DRTV customer is now substantially the same as the
average Macy's customer.
Health and
fitness products are the best selling DRTV category followed by
cosmetic and personal care items, diet and weight loss products
and household goods and appliances. These products reflect the
demands of the baby boom generation who are more active and
driven by health and fitness concerns. The hottest DRTV fitness
products are low impact and no impact exercise equipment.
(source: various web sites)
DRTV
Growth Set to Surge
”According to DRTV Quarterly, while most consumer spending
trends are declining, ranging from minor corrections to
catastrophes, DRTV continues to surge forward as the medium of
choice because consumers respond to DRTV* to the tune of $2
trillion US worldwide, out performing the global motion picture
industry by wide margins.
* DRTV does not just sell ab belts and steamer products!
On a global scale, the movie industry is predicted to grow to
$450 billion (US) by the end of 2005. Compare that to the DRTV
industry, which is predicted to grow to $2 trillion.
Another striking contrast arose in 2002 when marketers
predicted an 18% increase in their media budgets for DRTV, which
was expected to out-pace the hallmarks of the direct response
industry (direct mail and telemarketing), by a wide margin. In
fact, these areas would see a 7% drop in revenues. Marketers
also predicted that conventional advertising budgets, such as
TV, radio and print, would decline slightly due to shrinking ad
budgets.
In the US, consumers spent 7% more of their money buying
product they saw on TV than the previous year. This is a
substantial growth considering it was a year in which the
economy lagged behind 2001.”
US DRTV sales growth
continues
2001 $126 billion 100 (Index)
2002 $135 billion 107%
Projected growth in
advertising sectors
DRTV 18%
EMAIL 17%
ONLINE 9%
CONVENTIONAL TV -1%
PRINT -1%
RADIO -2%
DIRECT MAIL -7%
TELEMARKETING -7%
(Source:
Direct Marketing News, DoubleClick Poll, 2002)
The past
In the UK
telly shopping actually began well before QVC appeared “over here”.
As far back as the 1950s there were retail programmes on very small
cable link up systems which of course predates the Americans first
infomercial attempts by a few years.
I recall
watching Britain’s first telly shopping channel and it was not QVC.
The Satellite Shop lasted less than a year and several people now
with QVC actually started there including the presenter Julian
Ballantyne. The channel's merchandise came from GUS’s Grattan
catalogue and the presenters where winging it, making mistakes and
now and then they even sold something. The Satellite Shop experiment
gave Sky an understanding of the complexity involved in this
business.
The pioneer of
live shopping
The founder of
live TV shopping is Home Shopping Network. HSN began when a radio
station which had to sell can openers on air to make ends meet and
then migrated to cable TV. HSN U.S. continued its positive momentum
with double-digit sales increases in each of its key lines of
business. Revenue increased by 14% to $423 million from $371
million, operating income increased 112% to $32 million from $15
million and OIBA increased 13% to $46 million from $40 million. July
2003 was HSN's best ever, driven by the company's 26th anniversary
celebration and the launch of America's Store on DirectTV on July
1st. HSN.com grew revenues 46% over the prior year period and 8%
over Q2, driven by a significant increase in unique visitors,
accounting for 14% of HSN U.S. sales versus 11% in the prior year
period. HSN International revenue increased 31% to $103 from $79
million, driven in part by favourable exchange rates. HSN Germany's
revenue was approximately flat on a year over year Euro-equivalent
basis, although sales trends in Q4 are initially encouraging. HSN
Germany continues to grow its online business, with sales up 82%
over last year and accounting for 6% of Q3 sales versus 4% in the
prior year period. HSN most notably failed with part of its
international expansion strategy lately when the Kirsch Gruppe
pulled out support and caused the closure of several Home Shop
Europe expansion channels. It was an expansive and over blown
strategy reminding one of the recent ecommerce boom to bust
scenario.
HSN,
an operating business of InterActiveCorp (NASDAQ: IACI), is the
world's most widely distributed TV shopping network. HSN pioneered
the electronic retailing industry in 1977 when it first introduced
America to the convenience of home shopping. Since then, HSN has
grown into a global multi-channel retailer with consolidated sales
of close to $2 billion and a growing customer base of over five
million. Our programming reaches more than 136 million households
worldwide.
-
Headquarters:
A 1.4-million-square-foot facility on 53 acres in St.
Petersburg, FL, a city in Tampa Bay
-
Employees:
4,500
-
A
fulfilment staff of more than 1,100 ships: 90,000 to 130,000
packages per day; 44 million packages per year.
-
Parent Company:
HSN is a subsidiary of IAC/InterActiveCorp. Barry Diller is
IAC/InterActiveCorp's Chairman and CEO.
-
Reach:
More than 136 million households worldwide
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Viewership:
75% female, Age: 40+, Average Income: $63,000
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2002 Sales:
Close to $2 billion HSN could report sales of over $2.4b for
2003.
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International operations: Home Shopping Europe in Germany, Italy
and Japan.
British market
QVC
Ten and a half
years ago, HSN tried to enter the UK market but lost out to Barry
Diller’s QVC at that time. Diller then renegotiated the Sky terms
from a 50% stake to 20% when after a few months they realised that
viewer figures were not growing as quickly as desired and that they
may never break even with the original Sky deal. Diller’s helm
lasted just a few years marked by the failed attempts to control
Viacom and then CBS and he now controls HSN.
The QVC
UK story began 10 years ago as the channel was to launch and the
press was having a good laugh at such a rich subject. They stated
that the British would never buy anything on TV. The first product
was a yellow alarm clock in the shape of a Volkswagen Beetle and
within minutes of going on air, all 400 of the timepieces were sold
for £16.50 each. The phones and call centre systems had trouble
coping. Then came the stories about how people would become addicted
and ruin their finances from such a compelling retail beast.
In scale and
dimension, customer service & experience, reliability and logistics,
no one does it better than QVC.
Global
Corporate Facts 2002
Net sales
2002: $4.4 billion an increase of almost 12
percent over 2001, US $3.6 billion, UK : $297 million, Germany $275
million and Japan $86 million
-
Total number of households reached worldwide: 141
million
-
Number of employees: approximately 11,000
worldwide
-
Total number of units shipped in 2002: over 107
million
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Total number of phone calls taken in 2002: over
150 million
UK
Corporate Facts 2002
-
Total
number of households reached: 11.6 million
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Total
hours on-air: 17 hours live each day
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Number of
employees: approximately 1,700
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Total
number of units shipped in 2002: nearly 8.3 million
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Total
number of phone calls taken in 2002: over 14.7 million
June 13, 1986
Joe Segel the founder of the
Franklin Mint and then QVC decided that Home Shopping Network,
market
leader at the time, could be improved upon by adopting a relaxed
presenting style with themed programmes rather than a random product
line-up and brow-beating customers into using their credit cards.
The resulting success established a record in
American business history for first-full-fiscal-year sales by a new
public company of $125 million.
Although its viewing figures account for no more than 0.3% of the
total television audience, QVC boasts of having nearly one million
active customers in the UK. According to the marketing consultants
Keynote, Britain's television shopping industry is worth £1.54
billion a year. All home shopping, including mail order catalogues,
last year accounted for £22.3 billion of spending, which is some 10%
of the whole retail market and a 16% rise on the previous year.
Home shopping sales are
predicted to increase by 15% a year and shop channels are well
placed to continue to grow and multiply. This summer John Malone the
Denver billionaire and one of the most powerful players in America's
TV market, gained complete control of QVC when his Liberty Media
group bought out the largest shareholder for $7.9 billion (£5
billion).
Around the
world everyone copies QVC or thinks by replicating the look that
they have mastered the science of QVC. Only in digital & convergent
Britain, has the revolution brought cheaper bandwidth and an
explosion of new and very niche channels. This new culture based on
satellite television that is increasingly interactive has laid the
ground for innovations such as bidding, travel, phone, hobby
channels many of which are extremely successful.
EPG: Electronic Programme Guide
No where else
do we have a system that could support nearly 40 shopping channels
and it is a trend that will be repeated across the world in the next
few years as national systems join the digital TV revolution. The
EPG was never designed with the thought that there would be such a
flurry of every type of programming from ethnic sub continental to
children, near video on demand to telly shop channels. 4 pages of
ten channels does not cover it all and past the GOD and txt dating
channels we find additional channels for Create & Craft at 696 and
Exchange & Mart a shop channel and interactive classifieds channels
at 697 now explore a new section and as you will hear Create and
Craft has been profitable from day one.
Sky will
change and improve the EPG to accommodate new channels and
accommodate emerging strong categories and possibly other viewer
friendly features. Sky is expected top make changes within the next
12-24 months. No one knows what the EPG will look like or what
impact this will have on viewership and sales.
Several
companies have extended their exposure by adding additional channels
and a few are now streaming their broadcasts. Interactive TV and
internet sites combined with retail and catalogues sales all
efficiently combine to increase revenues.
Why do people
buy?
People are
astounded that there are markets for the type of merchandise often
on display but then people have taste and when they see something
they do not like they display their attitude much as a lion or cat
defends its territory. Professionals understand that even if they
dislike something, there may be a market for it and if one
understands the science of salesmanship just about anything can be
sold successfully. I used to take the worst performing products at
QVC and sell them out by thinking about them and giving them the
added emphasis they required.
People buy to
fill their dreams and desires, to entertain and reward themselves
and to feel in control. They also buy for fun, for the sheer delight
of choosing and possessing and they also buy as a tribute to the
presenters who have kept them company for several hours. There is
revenge shopping as well when sales shoot up while husbands are away
watching the “footie” in the pubs of Britain and then there are
actually people who need, like and treasure the product offered and
who value the information provided and the convenience of home
delivery. Some live in remote areas, some are disabled and some just
do not have the time or energy required to fight the traffic,
weather and crime that a shopping trip may require.
Those who make
the customer delighted will win repeat business and that’s the key
to anyone’s success.
The future for
British and global telly shopping
Many dozens
and eventually hundreds of new channels will be added to our viewing
choice. The Sky EPG is already outdated and provides few
personalised and remote use features. And we know that more shopping
channels are planned some from the world of newspaper publishing as
announced last summer by the Express Group. Traditional retailers
and marketers will also appear on these channels. EPG position is
important but can be compensated for with marketing spend or access
to other forms of mass media. Many of today’s channels are
struggling and will either be acquired or will die off. Some are
reaping huge returns for minimal investment. The risk to return
associated with this industry is favourable and such successes as
QVC, the sit-up.tv Group and Ideal World from Ideal Shopping Direct
Plc, will provide confidence to the sector.
How many more
channels can the British sustain? It will really depend upon those
innovative new concepts which aim at the existing and untapped
markets. I said in 1995, after Diller said we would have 500 TV
channels that in fact we would or could have 500 shopping channels.
I never imagined that we would have 500 shop channels in Britain. I
now believe, as current trends indicate, that within 15 years, or
less, we will reach this level of massive penetration. Broadband and
the next advancement in delivery technology will carry this dream to
fruition.
TV works very
well with the internet and digital TV will provide the convergent
platform for companies to migrate to. Ten years ago companies were
wary of the internet. Ten years from now most companies with web
sites will have sophisticated streaming or full blown broadcast
channel capability. It will be wireless, it will be personalised and
it will be seamless interacting with the stores and billboards we
physically pass and recording and using information in ways we may
well regret.
Freeview is
also starting to take off and subscribers may just reach 2.5m home
by the end of 2003. Price-drop.tv appears to be ready to launch and
join several other shop channels.
There are many
markets not yet catered to and there is much work required to
improve the consumer experience and industry reputation.
Interactivity will blur the line between drama and product placement
and one touch accessibility will drive additional sales from new
consumers.
The world will
catch up to what we have here in digital Britain and many of the
formats developed here, as with the experience of traditional
broadcast TV, will be licensed for overseas exploitation. And some
will just be copied. Many of the most innovative concepts will come
from the fledgling UK telly shopping industry. There is still room
for experiments and I am sure we will be surprised, possibly
delighted at those in the works and yet to be imagined. Thank you.
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"There is no such thing as
'soft sell' and 'hard sell.' There is only 'smart sell' and
'stupid sell.'" - Charles Browder
-
"Advertising may be described
as the science of arresting the human intelligence long enough
to get money from it." - Stephen Butler Leacock
Licensed products can enhance the brand franchise by
providing a wide range of sensory associations that enrich the brand
and strengthen consumer relationships. These brand-building benefits
include increased brand loyalty, which has a direct influence on
profits. Consumer research is required to develop an accurate
licensing ROI model. Licensors should budget funds for this research
if their objective is to determine the real value of the licensing
program. Royalty revenue should be reinvested into research as well
as other licensee support programs. Licensors should beware of the
licensing dyslexia syndrome and understand that the brand benefits
from licensed products can far exceed royalty revenue. Fortunately,
this malady can be cured by a marketing orientation and a commitment
to consumers.