That was the web and most of us rode it all the way up and many of us rode it down. Some are better off but most are back at "start." Now we just want to turn it into a fun but a little less harrowing ride. First tip, lay off the hype. Ironically, even after the whole "bubble" phenomenon its amazing that something like web services can even be promoted as the new, new thing much less start to get the whole ball rolling again: prestigious research firms promote huge growth forecasts, venture firms start bankrolling "pureplays" and the little guys are left to wonder: Pass or Play? For the retail market its less critical because we don't put it onto a shelf but our IT organizations are left to grapple with many of these major technology innovations again that can be a huge time and money sink. Its amazing, put into terms of financial markets (better than a sports analogy, no?), the futures market wants us to buy into Web Services, where the bond market is promoting storage and security. A nice straddle, or hedge, would for IT investment would be security, storage, consulting services, custom development work with a little wireless. The future market may be web services but that doesn't mean it's a smart bet your company decision today. In addition to knowing your core competency and what you are able to execute on, there are two other critical things to consider: Luck and timing.

NEWS

'Gartner 15' 2002: Guidelines for Online Shoppability and CRM
By Joel Wecksell and Geri Spieler

Results of U.S. and European shoppability studies show e-tailers can affect conversion rate and revenue, improve profits and loyalty, lower cost of customer acquisition, reduce returns and improve customer experiences.

Bottom Line

Key Issue
What mix of business and technology initiatives will best enable world-class customer service and support?

Despite the demise of many dot-coms, the number of customers coming to online retail sites is increasing, and the amount they are spending is rising as well. In mid-2001, more than 71 million U.S. adults had made an online purchase within a three-month period, which is more than a 23 percent increase over the same period the year before. Despite a rich body of best practices for online shoppability, customers continue to be vexed by sites that are slow, where core functions don't work well and where items are hard to find. The impact on the individual e-tailer is severe, as more than 40 percent of online shoppers abandon offending sites, but not the online shopping experience, moving on to those of competitors.

The message is clear: The quality of the customer experience is important. The challenge for Web merchants is to deliver consistency in branding, value and customer expectations and to satisfy real-world expectations. Building on work done in Gartner's Web evaluation tool, Web Site-ings, and an earlier version of the "Gartner 15" guidelines for online shoppability, we offer a complete and updated set of guidelines to ensure a positive customer experience.

1. Build a Rock-Solid Site

Online shoppers expect sites to work efficiently; otherwise, they will leave and shop somewhere else. Sites need to function well, and they need to be fast for the average customer working from home on a dial-up line. The site should have no broken links, no typos and no missing images. It should have intuitive navigation and a simple/efficient ordering process. Products and information must be easy to find; images should be large and clean; descriptions should be Web-friendly (short, information-rich and free of "market speak"); outdated content should immediately be removed; promoted items or services must be available; order tracking should be easy; and customers must be informed when there will be delays.

2. Pay Attention to the Aesthetics

Sites need to be attractive and compelling, with a consistent look and feel (including navigation controls) across all of the pages. The home page must clearly convey the objective of the site, who the site is intended for and how to accomplish what you need to do. In addition, the design, language and messages must be appropriate for the targeted audience. Everything on the site should be designed to improve the customer experience, and pages must be written for "scannability." For multichannel marketers, the online branding must be consistent with the offline brand.

3. Ease of Navigation Is Important

The information architecture and navigation must make it easy to use the site. Navigation must be intuitive and consistent. Multiple navigation paths must be available to enable customers to get around the site in a way that makes sense to them, regardless of previous experience (e.g., new vs. returning buyers, experienced vs. novice users), different demographics or usage segments. A site map that has been organized around the way the site is architected should be readily available.

4. Product and Pricing Information Must Be Clearly Presenteds

Product descriptions and images, price, availability, tax and shipping costs should be clear and concise, as well as audience- and segment-appropriate. Descriptions must be free of marketing hype and support the product's value proposition. Cross-selling and upselling opportunities should be presented (e.g., accessories and other products purchased by those who conducted similar searches) in the context of the product description, with benefits clearly explained, as should warranty information. For complex products, configurators should be available; when choices are numerous and the selection is not obvious, a decision support tool (e.g., a decision tree) is helpful. Printer-friendly formatting for customers who will print pages and shop in physical stores should be supported.

5. Pay Attention to Privacy and Security

Customers need to know that their data is being protected. Web merchants must make this perfectly clear and available to customers. Security and privacy policies and standards should be available and visible, easy to find and clearly posted. Privacy issues include statements posted on the site regarding how the customer data is being protected against being seen or sold to outside interested parties. Internal security is as critical as protecting the site from outside hackers. Customers should also be advised that the Web merchant is compliant with "card not present" regulations if the Web merchant is accepting credit card numbers for payment.

6. Multiple Channels Need to Be Integrated

Multichannel retailers need to have a clear value proposition for integration that they can communicate to the market. Retailers' operations must support and reinforce their channels. All marketing campaigns, promotions, and customer information (profile) and sales channels should be integrated across channels. The need to control operating costs and to exploit economies of scale is critical, because supporting multiple channels with extended inventory can escalate costs and complicate orders and merchandising. Multiple channels and processes that affect the entire business should still be centralized. These include brand promotion, customer recruitment and retention, and order fulfillment (except for stores, since customers take their purchases with them).

7. Provide Superior Customer Service and Support

As appropriate, e-mail, chat, fax, Instant Messaging, "call me now" and direct contact should be available, with e-mail acknowledged within minutes of receipt, setting expectations regarding when the e-mail will be answered. Customers should be informed when orders have been shipped or when they are delayed, and order tracking should be available. An up-to-date set of frequently asked questions (FAQs) should be available, providing answers to questions that are truly frequently asked. When available and appropriate, technical manuals, tips and troubleshooting instructions should be available. All order information between Internet, call center and "brick and mortar" customer service data should be integrated. As appropriate, information - including head office address, phone, e-mail, other local office addresses, phone, e-mail, hours of operation, nearest dealer, distributor, representative or office, dealer location and hours, and the nearest repair/service center - should be provided. Links to help should be available on every page.

8. Provide a Shopping Cart, Checkout, Shipping and Registration

Shopping carts enable customers to store items so that potential purchases can be reviewed, seen, considered and removed. A cart with a running total should be visible on every page. Customers should not have to guess what they have ordered or be surprised when they reach checkout to see what the total is and what shipping will cost. If the cart is not on each page, the page should have tabs that clearly display "return to shopping," "customer service" and "view shopping cart" as the customer is flipping from one page to another.

If applicable, offer several shipping options to the home, a pickup site or a physical store. Investigate multiple carriers as additional shipping options to customers.

Registration is an option and should remain so. Web sites that force customers to register are losing more customers than they realize and not gaining much. Offer registration as an option and, possibly, as an incentive for sales, promotions and discounts.

9. Enable Returns

Returns are a fact of life in the retail world. Because processing returns can cost a merchant more than the product itself, this is an area in which costs must be minimized. One way to reduce costs is to create an online Web template to capture customer information before the item has been shipped and is received at the return center. By capturing the data online, the cost of keying in the data later is removed, the process is streamlined and the opportunity for error is minimized. By creating a Web template that captures the specifics of the original order for storage - plus the reason the customer is returning the item and whether he or she is interested in an exchange, refund or credit - merchants can reduce expenses related to this process.

10. Enable Customers to Search and Browse

Shoppers should be able to locate products and services from their point of view, enable customer-centered categorization and support multiple categorization schemes. Searches should be simple and straightforward, they should be available on every page and they must be easy to find. Search results must be sortable by multiple criteria. Also, consider special search results pages for special product or service groupings. For example, a search for "Harry Potter" may result in a page presenting a collection of Harry Potter products. Accept spelling variations, errors and synonyms, and use search logs to identify searches that deliver zero results to "tune" the search for a better customer experience. Provide error messages that are explicit, helpful and short; the tone should be empathetic and constructive. Limit product selection lists. Make the links to categories and products obvious and intuitive.

11. Ensure That Products Are Available

Fulfillment and distribution have taken on an entirely new dimension as "Internet speed" has pushed the entire supply chain process into overdrive. However, many retailers find managing real-time availability processes to be beyond the scope of their supply chain systems and budgets.

12. Enable Globalization

Meeting local requirements for global localization requires a high level of customization for each country. Web channels must integrate the cultural, commercial and technical delivery needs of each targeted customer. Three area issues are content, business practices and access channels. Tax and tariff issues vary from country to country, as well as shipping practices and currency exchanges for payment. Web merchants must adopt local payment standards, currencies, and exchange and payment systems.

13. Enable Personalization

Good personalization shows customers that you want to serve them better and provide them with a richer experience. Bad personalization can be obtrusive and offensive. The site must be sensitive to different kinds of customers (e.g., the expert vs. the novice); it should enable users to create profiles, with preferences (e.g., credit card, shipping, sizes and styles); and it should be customizable based on these preferences. The site should also be capable of "learning," based on previous customer actions, so that buying and servicing opportunities are informed by these actions. Web site operators should ask themselves whether the personalization offers advantages to the customer or the company.

14. Make Investor and Public Information Accessible

Investor and public data is important information, and merchants should not make it difficult for interested parties to find it. This type of information can include annual reports, quarterly financial statements, Securities and Exchange Commission (SEC) filings, analyst reports, leadership and management team members, stock quotes, press releases and news releases from outside media. In addition, all contact information should be available, along with phone numbers, fax numbers, e-mail addresses, and a listing of all offices with contact and location information.

15. Build Trust and Loyalty

Trust in an online relationship is about more than just safeguarding customer or partner personal data. Building trust requires a credible experience, and the buyer must be assured that he or she can rely on the seller's word. Building trust begins by delivering on the principles we have delineated herein. Because trust is such an important component in a successful customer experience, it is analyzed at length in "Customer Experience and 10 Ways to Establish Trust," SPA-15-1647.

Bottom Line
The "Gartner 15" 2002 guidelines for online shoppability and customer experience provide criteria that Web merchants can use to evaluate how well they provide the components of an effective shopping experience (i.e., customers are able to make purchases). Keep in mind that online shoppers are removed from human interaction, and this separation allows them to leave your store with the click of a mouse.

Q. We miss 5th Ave! How are things at Datavision?

A. Fifth Avenue, Midtown Manhattan, is as vibrant as ever! With DataVision's location, right in the middle of one of the busiest avenues in the country, as well as our recently upgraded and enhanced web site, DataVision's business is flourishing.

Q. I understand there were some changes to the 'runway' and how your floor is laid out? Can you shed some light on this for us?

A. DataVision is actually in the midst of a redesign of our main floor, which should be completed to coincide with Tech-Expo (late June). DataVision is constructing an awesome "Convergence-Technology" area featuring big-screen displays, focusing on Plasma and Projection HDTV's, Home Theater and related convergence product. We have relocated the Apple hardware display from the rear of the store, closer to the front of the store, side by side with the PC hardware. DataVision is also enhancing what is already one of the most complete "Mobile Computing Products" departments in New York City featuring new displays for Laptops, PDA's and Cellular products.

Q. Was any of this done in response to Best Buy entry into the NYC marketplace?

A. Who?? HAHA. No, not at all. DataVision has been at this location for close to 10 years and has gone through quite a few face-lifts, always wanting to look fresh and allocating the proper display and demo space to the newest technologies. DataVision's location attracts some of the highest-end customers in the city and we want them to feel comfortable in a befitting high-end environment. DataVision knows that it's knowledgeable Professional Retail Sales Staff is a major part of what separates us from any competition, and ensures our continued healthy and profitable growth. Our customers know what they're buying and how to use it before they leave our store.

Q. What are some new initiatives, goals for the next 12 months?

A. As always, DataVision is on the lookout for the latest technologies and products. We want to continue to be the cutting edge technology showplace in New York City and on the web for our current and future vendor-partners. Our successful www.datavis.com web site's growth will be a continued focus and has recently been named an "Authorized Sony E-Commerce Site". And finally, DataVision's greatest goal is to be on these pages, same time next year, crowing about our successes and new goals.

NEWS

Navarre Posts Nice Improvement

Navarre recently reported a 7% increase in fourth quarter net sales driven by the increase in sales and a 32% reduction in operating expenses, as well as new content-driven net sales growth at both Navarre Distribution Services and Navarre Entertainment Media. NDS produced record operating income for the fiscal year, led by significant increases in non-entertainment software categories, which led to an improvement in overall gross margin. The addition of several new software publishers expanded the sales relationships with its existing customer base. NDS also signed an exclusive music and DVD video distribution agreement with CompUSA. For the fourth quarter ended March 31, 2002, Navarre reported a 7% increase in total net sales to $65.6 million, compared with $61.2 million in last year's fourth quarter. For the year ended March 31, 2002, Navarre reported total net sales of $303.8 million, compared with total net sales of $314.2 million in fiscal 2001. Consolidated net income before non-recurring charges was $3.5 million compared with a net loss of $11.7 million for fiscal year 2001. President and Chief Executive Officer, Eric Paulson, stated, "The fourth quarter of fiscal 2002 was a milestone period for Navarre, and one that signals the many opportunities that lie ahead for the company. The recent quarter was our third consecutive period of improved performance, a trend that should continue going forward as we continue to make and benefit from smart choices regarding products, customers and expense controls. NDS made impressive gains in publisher signings, further cementing its leadership position in home PC software distribution, while NEM bucked a negative industry environment with rising sales driven by our aggressive content acquisition effort. Paulson, concluded, "Looking ahead, we believe Navarre has never been better situated to capitalize on our strengthening position as a provider of value-added distribution and marketing services covering a wide array of home entertainment products. Entering fiscal 2003 we will continue to leverage our unique mix of distribution and marketing service capabilities to strengthen our existing market category presence, as well as gain market share in newer verticals such as interactive video games and in the high-margin proprietary video and DVD channel.

RETAIL DIGEST

GameStop, Staples, Ritz, Magnolia, Toys"R"Us, Borders

GameStop, the nation's largest video game and entertainment software specialty retailer said sales increased 34.8% to $271.4 million in the first quarter of 2002, compared with $201.4 million in the prior year quarter. Sales growth resulted from a 28.7% increase in comparable store sales, as well as the sales from 38 new stores added during the quarter. The increase in comparable store sales was due to solid performance throughout the video game category. It was fueled by the continued strength in existing Sony PlayStation 2 and Nintendo Game Boy Advance systems, as well as two new hardware systems, Microsoft's Xbox and Nintendo's GameCube, which both launched in November 2001. Net earnings for the first quarter totaled $4.9 million, or $0.08 per share, compared with a net loss of $7.2 million, or ($0.20) per share, in the prior year quarter. R. Richard Fontaine, Chairman & Chief Executive Officer, commented, "We are pleased with our exceptional first quarter results. As expected, strong software sales followed our fourth quarter record-setting hardware sales, as gamers sought out new additions to their growing collections. Fiscal 2002 continues to look very positive as the total installed hardware base continues to grow at an unprecedented rate with strong software titles anticipated on all platforms."

The outlook for the second quarter was strong even before the recently announced price reductions on hardware. As has been the case historically, the increase in hardware sales in the second quarter should improve results slightly, but mainly help drive software sales in the quarters which follow. Based on improved gross margins (owing to a better ratio of software to hardware sales) and better expense leverage, we expect second quarter earnings to be between $0.06 to $0.07 per share. Comparable sales are expected to be 15%.

Staples said quarterly earnings more than doubled as it cut costs, rolled-out a new store format and boosted sales of profitable items like photo printing paper and inks. Shares of the 1,247-store chain rose $1.28, or 6.4 percent, to $21.86 in afternoon Nasdaq stock market trade, with more than 8.4 million shares changing hands. Staples, ranked behind industry leader Office Depot said its cost-containment push and store improvements will help it achieve earnings in line with Wall Street's consensus target for the current quarter. The retailer has been shortening its aisles, improving signage, expanding check-outs and lowering shelving to try to make its stores more shopper-friendly and offset sluggish sales growth that has plagued ince the U.S. economy began faltering in March 2001. Rivals Office Depot and industry No. 3 OfficeMax have also cut costs, improved customer service and sharpened their marketing pitches. But Staples said weak computer and furniture sales in the first quarter offset some gains from its store overhaul as business customers shied away from big-ticket purchases. Chief Executive Officer Ron Sargent said the company still saw good gross margin gains as it cut 750 less profitable items, and added 450 products -- including $299 paper-shredders -- for the lucrative small business customers.

Leading e-commerce network Ritz Interactive announced its acquisition of CameraWorld.com's Web site. CameraWorld's large Portland retail store will continue normal operations and is not part of the acquisition. The announcement was made today by Ritz Interactive President and CEO Fred H. Lerner. This latest acquisition comes on the heels of Ritz Interactive's April purchase of yet another top photography e-tailer, PhotoAlley.com. The addition of CameraWorld.com to the Ritz Interactive portfolio, which also includes flagship sites RitzCamera.com and WolfCamera.com, reinforces the company's leadership position within the photography e-commerce space. Ritz Interactive acquired WolfCamera.com in October 2001. The Irvine-based e-commerce network has also established itself as a marine specialty leader, with its boating and fishing online superstore BoatersWorld.com. "We look forward to expanding upon the qualities that have earned CameraWorld.com its loyal consumer base," he said. "Our plan is to retain the elements that have made this site so popular, along with the CameraWorld.com brand and URL, and provide consumers with even greater selection, functionality and service."

Magnolia Hi-Fi, a Pacific Northwest-based mid- to high-end electronics retailer specializing in audio and video solutions for homes and vehicles will open three new San Francisco-area stores. Magnolia celebrated its grand opening on Friday, May 24. The new stores are located in Palo Alto, Colma and Santa Rosa. "Magnolia Hi-Fi is excited to bring the Magnolia Hi-Fi shopping experience to the Bay area" said Jim Tweten, president of Magnolia Hi-Fi. "We present an alternative to enthusiasts interested in high fidelity reproduction of music and movies in their homes. People can experience premier brands of audio and video in a pressure-free environment where the top priority of Magnolia experts is to provide the highest levels of customer service." The three 10,000 square-foot stores will feature a large selection of high-performance audio and video products for the home. The Santa Rosa location also offers high-tech mobile electronics solutions. The stores present a very comfortable, home-like setting in which products are displayed in a way that makes it easy to compare features and performance. Magnolia Hi-Fi was started more than 48 years ago in Seattle. Today, Magnolia has 16 stores throughout the Washington, Oregon and the San Francisco Bay Area. For 21 consecutive years, Magnolia Hi-Fi has been named "Retailer of the Year" by AudioVideo International, more than any other consumer electronic retailer in the nation.

Toys "R" Us said sales for the first quarter of 2002 increased 2%, to $2.1 billion from the first quarter of 2001. The company reported a first quarter 2002 net loss of $(4) million, or $(0.02) per share, compared with a net loss of $(18) million, or $(0.09) per share, reported for the first quarter of 2001. John Eyler, Chairman and Chief Executive Officer, stated, "As we indicated in our guidance on May 13, sales at our U.S. toy stores were somewhat soft primarily due to weakness in our outdoor seasonal categories, and a pronounced slowdown in the video business in April as some consumers anticipated video hardware price cuts which were announced last week. However, we are encouraged by the continued strengthening of our core toy sales in our U.S. toy stores, which achieved a 5% comparable store sales increase during the quarter. Our renovated Mission Possible stores maintained a positive sales gap over our un-renovated stores, with the 2001 Mission Possible stores achieving a 7% comparable store sales gap in the first quarter.

Borders reported results for the first quarter of 2002, which ended April 28. Consolidated earnings for the quarter were 5 cents per share, 1 penny higher than analysts' consensus estimates and 4 cents over the penny per share (excluding unusual items) earned in the first quarter of 2001. For the second quarter, management projects profits of 2 to 3 cents earnings per share, which compares to breakeven earnings for the same period in 2001. First quarter comparable store sales in the Borders superstore segment were in-line with the company's revised guidance at -0.4%, yet were lower than our normal trends due to weakness in the music category and lower than anticipated February sales. The Waldenbooks segment generated higher than expected comparable sales of -0.2% for the quarter. "Borders Group continues to increase earnings through effective expense control, inventory management and other key bottom-line initiatives," said Borders Group Chairman, President and Chief Executive Officer Greg Josefowicz. "Our focus remains on driving sales through the continued refinement and expansion of programs such as value message advertising to increase traffic, as well as in-store execution and promotions that deliver value and build transactions."

E3 RETAIL ROUNDUP

Eidos, GameCube, Microsoft, Sales Report from ISDA, iBlast, TakeTwo

In response to recent price cuts announced by Sony and Microsoft, Nintendo slashed the price of its GameCube video game console from $199 to $149. Last week, both Sony and Microsoft lowered the prices for their PlayStation 2 and Xbox consoles, respectively, from $299 to $199. Nintendo said that to date it has shipped 4.5 million GameCube consoles worldwide, compared to 3.5 million for Xbox and 30 million for PlayStation 2. The company also announced that it will soon introduce GameCube titles featuring popular Nintendo properties such as Mario and Zelda. "We were the first manufacturer to reach the $199 price level and now we're leading the industry to $149 allowing even more players around the world to get their hands on our legendary favorites like Mario, Zelda, Star Fox and Metroid this year," Peter MacDougall, executive vice president, sales and marketing, Nintendo of America.

Microsoft told its partners of plans to invest $1 billion to launch an online gaming network called Xbox Live, designed for use by owners of its Xbox video game console. The service will reportedly launch in the fall and cost $49 for a one-year subscription, in addition to the cost of a broadband connection and the cost of the actual online game titles, which will be sold at retail for around $50.

Video game consumers rented 49.2 million games and spent $201 million during the first quarter of 2002, up 9 percent from the same period a year ago, according to figures released on Monday by the Video Software Dealers Association. Games for Sony's PlayStation 2 accounted for every title in the organization's top 10 rentals list for the first quarter, occupying 64 percent of the overall video game rental market. Game rental revenues for the first quarter of 2002 were $184 million, up 24.5 percent from fourth quarter 2001's total of $161.4 million. "The video game rental business enjoyed a strong first quarter due, in part, to increased competition and consumer choices fueled by the introduction of Microsoft's Xbox and Nintendo's GameCube," said VSDA president Bo Andersen.

Eidos Interactive and Core Design introduced Lara Croft, character of one of the $1 billion dollar game franchise, who marked her public debut at the Electronic Entertainment Expo (E3). Croft, who has previously been portrayed by models Rhona Mitra, Nell McAndrew, Lara Weller, Lucy Clarkson, Jill de Jong and actress Angelina Jolie, will make several appearances on the expo floor answering questions from the audience and talking about her newest adventure "Lara Croft Tomb Raider: The Angel of Darkness." "For years we have wanted to introduce the real Lara Croft to the world. We are thrilled that we could finally convince her to take some well deserved time off to meet her fans," stated Eidos Interactive Vice President of Marketing Paul Baldwin. "The chronicles of her adventures have really struck a chord with gamers around the world and we think they will be overjoyed to finally meet her and talk to her in person."

iBlast, the nation's largest datacasting network, will give gamers another reason to celebrate the dog days of summer: iBlast Games. The new service was previewed at the E3 conference in Los Angeles and is scheduled to debut this summer. iBlast Games offers subscribers a way to receive hundreds of games, trailers, demos, patches/fixes/updates and more -- over the air, for immediate use, without the Internet. Capable of delivering up to ten gigabytes of game content per day, iBlast Games will be available in selected cities nationwide following its launch in Los Angeles. For PC gamers, iBlast Games represents a high-tech solution to some very real hurdles. With most games now larger than 100 Megabytes, reliable Internet distribution of titles is a major challenge for publishers and users. Using the powerful transmitters of digital television stations, iBlast Games will instead send entire games and game-related content into the home wirelessly, requiring only a small antenna and a receiver. Since content is delivered directly and in its entirety to their PCs before they use it, subscribers will avoid spending time downloading trailers and demos, as well as full games, online.

Take-Two Interactive Software outlined its 2002 lineup at (E3) covering next generation consoles including the PC, PlayStation(R)2 computer entertainment system, the Xbox(TM) videogame system from Microsoft, Nintendo Game Boy(R) Advance, Nintendo GameCube(TM) and the PlayStation(R) game console. "Take-Two's titles have taken the world by storm and in the process we have successfully built some of the industry's most successful franchises," said Kelly Sumner, CEO of Take-Two Interactive Software. "We pride ourselves on knowing what our audience wants and we are certain that we have brought to E3 a diverse, exciting and above all, fun lineup."

COMMUNITY

Changing Channels: Killing the Reps
By Steve Cross

A large retail chain just decided that they weren't going to work with reps. What a funny thing to do. Almost a graphical description of a lack of awareness of your partner's needs. I'm shocked, shocked to see gambling in Casablanca. Oops, wrong movie.

But is anybody from the vendor community shocked that a retailer doesn't want reps, but wants the vendor to pay them (the retailer) the former rep's commission? Most vendors don't think that retailers give a hoot about the vendor community. Just like retailers don't think vendors care about retailer financial and operational requirements.

Just shows how little this particular chain knows about their vendor partners. Allow me to give everybody a short lesson about reps. Manufacturers typically contract with outside firms known as Manufacturer's Representatives to launch themselves and/or their products into channels that are outside their core competencies. Some manufacturers use reps to replace internal sales forces whose overhead costs are out of control, or work with reps to get additional affordable "feet on the street". Some manufacturers like reps because they get paid only a straight commission percentage.

By the way, I have no axe to grind either way. I do strategic work. I'm not a rep, and I don't rep products. However, I've hired reps, fired reps, and worked with them on and off since about 1985.

This occurrence just tweaks my ongoing issues about the lack of compassion in the channel for the guy or gal on the other side of the desk from you, no matter what side of the desk you're sitting on. Sometimes I think nobody remembers that we're all in this together.

Next time I'll ream out vendors about dumb things they do to retailers.

Steve Cross works with mid-sized high tech companies to evolve their businesses. Since 1997 his clients have included Pinnacle Systems, Visioneer, Dazzle, Network ICE, Margi, Aladdin, Outpost.com. He was formerly sales vice president at Connectix. Contact: steve@crosschannel.com 408-528-7211

RESEARCH

Cell Phone Prices on the Rise in Spite of Falling Subscriber Growth and Revenue
By Shauna Smith , Sr. Analyst, Mobile Wireless

The top five wireless carriers in the U.S. all recently reported first quarter subscriber growth that failed to surpass that of the previous quarter. At best, VoiceStream Wireless' new subscribers for the first quarter fell by 31.2 percent when compared to Q4 2001. At worst, Verizon Wireless' new additions fell by 58.2 percent during the first quarter of 2002. The decrease in new subscribers does not come as a surprise considering the fact that the wireless market in the U.S. is approaching saturation. Today, total wireless subscribers are nearing 50 percent of the population. Although the number of cell phone users is at an all-time high, revenues for wireless carriers are also on the decline. The top five wireless carriers generated a total of $14.98 billion in revenue during the first quarter of this year, a decrease of 3.1 percent compared to $15.45 billion in the fourth quarter of 2001. AT&T Wireless, Cingular, and Verizon Wireless experienced falling revenue while Sprint PCS and VoiceStream saw total revenues rise by 3.2 percent and 4.6 percent, respectively. Several carriers have also experienced average revenue per user (ARPU) steadily decline. AT&T Wireless' ARPU fell 3.8 percent from the first quarter of 2002 compared to the fourth quarter of last year. Sprint PCS' ARPU fell 1.7 over the same period. Decreasing subscribers coupled with falling ARPU means that wireless carriers must find new ways to squeeze additional money out of customers.

In an effort to drive new subscriber rates and increase revenue, most carriers are banking on 3G networks and advanced applications. However, a quicker and easier way to increase revenue is becoming more apparent as well. Citing slow adoption rates of wireless data services such as mobile access to the Internet and email, carriers appear to be looking to equipment to gain additional revenue. Historically, carriers tended to place more emphasis on subsidizing the cost of cell phones so they would be more affordable for consumers. This strategy was driven from the expectation that they would then make up the cost and much more from monthly services fees and value-added applications. However, the cost to acquire new customers remains high and carriers must constantly battle to keep churn, or subscriber turnover rates, low. As a result, handset prices are now increasing, which is an indication that carriers may be attempting to narrow the subsidies paid for mobile phones and eventually pass along the total cost to consumers. Several signs point to rising handset prices. First, based on a sample of five of the main regions throughout the U.S., the average price of cell phone placements available through retail stores has increased to $142 at the end of March this year from $122 six months ago. Additionally, the number of free phones with service agreements has declined. In the same sample of five major U.S. markets, there was not a single phone with a most frequent price across each of the metros equal to $0 at the end of the first quarter of 2002.

Finally, the number of handset placements in the low-end segment, priced between $0 and $99, has decreased while the mid-tier, including handsets priced between $100 and $199, has increased. Although the number of high-end phones priced above $200 is has been fairly stagnant over the last several months, this category is expected to begin increasing significantly. Overall, the number of handset placements in the $0 to $99 range has decreased by over 10 percent in the last 6 months to about 50 percent in March 2002. Alternatively, the number of handset placements in the $100 to $199 range has grown by about 10 percent.

Today's wireless industry is at an interesting crossroad in the U.S. Subscriber growth rates and carrier revenues are down. Overall subscriber numbers are up but leveling off at a rapid pace. In order to make up for lost revenue, carriers are now offering higher priced phones. Rising handset prices have the potential to significantly impact consumers. Many wireless subscribers have come to expect inexpensive cell phones and other incentives such as mail-in rebates and free accessories. However, the days of less expensive, or even free cell phones may soon be over entirely. In the end, this is likely a good strategy for carriers who have been taking hits on each handset sold for some time. As 3G handsets begin to enter the market, the timing is ripe for carriers to increase the prices of their handset selections. Advanced technologies provide additional justification for carriers to begin increasing the prices to consumers. As the number of higher-end and higher priced mobile phones increases, the number of basic, cheap cell phones will continue to decline. To lessen the blow initially, carriers and manufacturers will likely continue to heavily promote handsets in the near term. While incentives such as mail-in rebates, instant savings, and free services and merchandise will always be popular, we may start to see higher prices coupled with fewer offers in the long run as carriers look to gain more value from handset sales. More expensive handsets and less carrier subsidies will aid in increasing bottom lines, but will not help carriers overcome the problem of gaining new subscribers. Given that the wireless market is becoming saturated with users, carriers should focus on communicating the benefits of higher-end handsets and pushing replacement purchases. Rather than keeping the same phone for several years, carriers should place more emphasis on incentive programs that encourage customers to purchase a new phone as often as every year. This will not only enable companies to gain revenue from additional handset sales but increase customer loyalty and possibly up sell subscribers on advanced mobile services based on the capabilities of higher-end handsets.

ARS Inc. is a competitive market intelligence company that analyzes daily market, channel, and product changes and informs clients what is happening and why, analyzes relevant impacts, and predicts what to expect in the near term. Shauna Smith, ARS Senior Analyst, Mobile Wireless, 858.551.0008, ssmith@ars1.com

Projector Warranties: The Train is Leaving the Station: Who's On and Who's Not?
By Christina Lawson, ARS Projector Research Analyst

Today, projector vendors are changing their warranty programs in an effort to stand apart from the crowd. With virtually all vendors having the ability to bring projectors with similar feature sets and weights to market, vendors are trying to differentiate warranty programs to stand out from the crowd. Until recently, the standard projector warranty was two years for parts and labor. Recently, however, vendors have started offering comprehensive service plans, allowing the end-user to choose what is best for their particular needs. More comprehensive warranty coverage is desperately needed in the projector industry if vendors are to compete in winning the faith of an increasingly dependent customer base.

Why the change in warranty programs? Vendors are adjusting warranty programs to differentiate their products from the competition. By offering more coverage to the end-user, vendors give the customer a value proposition. Extending the warranty shows an increased confidence from the vendor on behalf of its product. In turn, customers are willing to spend extra dollars on a product they are guaranteed will be dependable for the next three or four years. Projectors are increasingly being depended upon to train employees and win new sales accounts. As such, customers are demanding more reliability and security when it comes to their projectors. Increasing standard warranty coverage and giving customers the option to purchase extended plans allows vendors to stand apart from the competition and increases the faith and loyalty of the end-user. As a standard offering, InFocus backs all of its InFocus-branded projectors and Proxima-branded projectors (x540 and newer)with a two-year repair and replace warranty. Customers can extend their parts and labor for one ($379) or two years ($559) in addition to the two standard years included with purchase. In addition to the standard two-year warranty on parts and labor projectors are backed by one year of "ProExchange," which entitles customers to a replacement unit within 24-hours if a technician is not able to remedy the problem over the phone. With ProExchange coverage, customers can access a 24x7 technical support hotline for free. ProExchange can also be extended for one ($199) or two years ($269). Without ProExchange coverage, any calls made between 6:00 pm and 6:00 am will incur a $75 per incident service charge. For its corporate users, InFocus also offers a "Spare in the Air" program, which gives the customer a spare unit for free the next business day while their original unit is being repaired. Spare in the Air coverage, as with the other plans, can be extended for one ($379) or two years ($559). InFocus' program is the most comprehensive in the channel to date. InFocus' 24x7 support, options to extend coverage for up to four years at a reasonable cost, and prompt turn around service give the company's warranty program an A-. Another leader on the warranty front is NEC. The Japanese manufacturer's standard warranty program entitles the customer to two years of "InstaCare" service. Under this program, customers are given a toll-free number to call between the hours of 7:00AM and 6:00 PM to get technical support. If the projector must be repaired, NEC guarantees a three-day turnaround (return and repair) or a replacement within one business day. InstaCare coverage can be extended for one year ($699). As an extended warranty option, NEC offers "InstaCare Express", where the replacement projector is shipped out on the "next available flight." Customers incur an approximate $200 charge when using InstaCare Express. This program, which is not necessary in most cases, is a valuable safety net in the professional world of Road Warriors. These warranty programs, however, are limited to certain projectors in the NEC lineup. NEC's InstaCare service is available on NEC's LT, VT, MT, and DT series projectors, while InstaCare Xpress is only available on NEC's LT, VT, and MT series projectors. While NEC offers other warranties on its conference room projectors, the aforementioned policies are clearly targeted towards the mobile professional who may need the projector within a few hours or days. NEC's warranty program receives a B for offering technical phone support during the most critical hours of business and the option to have a projector replacement in the end-user's possession within a matter of hours (via InstaCare Express). Epson's standard warranty program is called "Roadside Service," and entitles the customer to a full unit exchange for up to two years after purchase. The replacement unit is shipped to the customer 24-48 hours after the request has been made. For $525 (average street price), customers can purchase an extra year of Roadside service within the first year of the projector's life. While Epson does not offer as many solutions as compared to InFocus or NEC, the vendor's ability to have a replacement projector out to a customer within one or two days is adequate in most cases. Additionally, the extra year of coverage, while an attractive feature to have, is about twice as much as a one- year extension of InFocus' warranty program. As such, Epson's warranty program earns a B-. While some vendors have already boarded the comprehensive warranty train, others are still getting ready to beef up their offerings. Toshiba and ViewSonic are two players that have yet to offer anything above the standard "Plain-Jane" warranty of two-years on parts and labor. Although rumor has it that both Toshiba and ViewSonic will soon come out with more comprehensive warranty programs, to date neither of these vendors offer any compelling programs above-and-beyond the industry standard. Today, this slim offering is sure to turn off the presenter that must work within deadlines and important meetings to win accounts for their company. Toshiba and ViewSonic's warranty programs earn a C- because of the simple fact that these programs are the standard of yesterday and industry leaders are already offering much more coverage. Because end-users are much more dependent on projectors than they have been in the past, they are demanding more assurance with their products. As such, projector vendors must cater to these increased needs. By offering around-the-clock support and replacement projectors within a matter of hours, vendors are differentiating themselves from the crowd and positioning themselves as a complete solution. While customers are always looking for a bargain they understand that security and "piece-of-mind" comes with a price. While not every vendor has caught with the times, most have caught wind of this new demand from their customers and are wisely planning to launch new programs within the next few months.

ARS Inc. is a competitive market intelligence company that analyzes daily market, channel, and product changes and informs clients what is happening and why, analyzes relevant impacts, and predicts what to expect in the near term. For more information regarding ARS please visit: http://www.ars1.com.

LISTS

NPD's Hot Selling Software Lists
Provided by NPD Techworld

NPD INTELECT® Market Tracking Hits List of Top-Selling Software, April 2002

* Title not on last month's top-selling list.
List is based on units sold by more than 70 channel partners, representing 90% of the U.S. retail consumer market. For more information, please contact NPDTechworld at (703) 376-6200.