Number 25: Winter 2004
Telly Shopping
By Budd Margolis
Editor's comment: There are now many ways to shop remotely. One of the most discussed areas over recent years has been shopping through the television. Genuine interactive shopping is now available through satellite or cable channels. Regular Pool correspondent and the man who knows all about television shopping, Budd Margolis, provides an overview of the state or the market.
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
Viewership: 75% female, Age: 40+, Average Income: $63,000
2002 Sales: Close to $2 billion HSN could report sales of over $2.4b for 2003.
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
- Total number of phone calls taken in 2002: over 150 million
UK Corporate Facts 2002
Total number of households reached: 11.6 million
Total hours on-air: 17 hours live each day
Number of employees: approximately 1,700
Total number of units shipped in 2002: nearly 8.3 million
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.
"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.
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© Budd Margolis /
Through the Loop Consulting Ltd 1998-2004