And feel free to send your picks, demos, evals, links….keithn@telocity.com for next issue consideration. Peace. See you at Retailvision - and we have a few appointment times left if you want to schedule interviews.

To subscribe or see archived issues of ChannelMedia please visit www.channel-media.com. We welcome your input, submissions and questions.

NEWS

Q&A with Lexar Media's VP, Sales Tim Sullivan
By ChannelMedia Staff

Q: Things seems to be going really well for Lexar. What do you attribute your recent success?

A: Well, to start, this is a very fast growing category with the the growth in sales of digital cameras. Lexar recognized many years ago that digital photography was going to be the driving force in the category and Lexar has always had a serious focus on the professional digital photographer. We've grown our brand on a strong base of support among that opinion leading group and that really positions us well as we spread into the wider mass market. The recent retail growth (we just reached a milestone of 25,000 store fronts worldwide) reflects, I think, the retailers' recognition of that brand strength. I also have to say that our consistent participation in events like RetailVision has positioned us well when retailers made the decision to go after the category they were already well versed in Lexar's brand strength and differentiated product offerings.

Q: And Q4 seems likes its set for a robust digital imaging sales. Wouldn't you agree?

A: Everything we are hearing and seeing from retailers and OEM partners indicates that this will be a very strong season for digital photography and, consequently, for digital film. Camera prices are down significantly vs. last year, and the cameras' features are much stronger at lower price points. Also, last consumer confidence post 9/11, was very weak. Factory inventories were very lean. When the category took off in early December nearly everyone was caught without enough inventory to fill demand. I think you will see retailers planning very carefully this year to ensure adequate stock and I still think there may be some shortfall of camera supply at certain hot price points. I have heard some retailers predicting sales nearly twice as strong as last Christmas!

Q: What are your biggest challenges and opportunities?

A: This is still an evolving category, and memory form factors are still changing. It is important for Lexar to stay ahead of, and as often as possible, lead these changes. lexar takes pride in being a full line supplier to our retail partners and we will continue being a full line supplier going forward. Lexar has over 40 patents and protecting our IP is very important and a responsibility we take very seriously. With a category that is growing this fast there are going to be challenges from companies who will try to grab some of this market by ignoring our IP rights. Unlike other media categories such as optical disks, there are only a few companies who have the IP rights and technology to manufacture and sell these products.

Opportunities for Lexar come in expanding our technology into new product areas like our new JumpDrive. We've always had USB connectivity built right into our CF cards and this capability allows us to field a real winner in the removable flash media category. This category if products could easily displace the floppy disk for moving data from one computer to another...all you need is a USB port and you have a easy to use, removable 64 or 128MB drive! When you consider the installed base of USB ports out there the potential market is huge!

Q: What would you like to see more of from the retail channel to increase sales and profits for everyone?

A: Go back to the basics...the "four P's"

Product: Cover the major form factors and capacities to make sure you are communicating a strong selling story at the point of sale. Don't forget the "upsell opportunities" in the higher end "premium memory, or speed rated" subcategories. The right mix here will maximize your profit selling opportunities.

Price: The category is not as price sensitive as one might think. Prices have been very stable all year and sales are up dramatically. The retailer should not forget that memory is an "attach" sale more than a "destination" sale. So when the retailer considers the "role" that digital media plays in his product mix he should not assume that a hot price point in an ad will cause memory to fulfill " traffic builder" role. Cards move when hardware moves...price point is secondary to convenience in the consumer's decision hierarchy.

Promotion: Tie the cards to the hardware whenever possible and get your attach rate up above two cards per camera! Use employee training, attach incentives and finally ...[Doug Kellam] Also, educate your store sales personnel about attach rate, capacity needs and speed--the store sale is "where the rubber hits the road" in this category. Placement: Digital film is film...place it near the cameras and make sure that in a self serve situation the consumer can't "forget the film." We furnish, for example, small tags that attach to the display cameras and remind the consumer what form factor he should buy ...we also furnish POP that clearly explains the number of shots a particular megapixel camera will deliver at different quality levels. Retailers need to pay close attention to the product mix this season among the six major flash memory formats. Having a partner like Lexar will ensure that they are connected to a supplier who has many years of retail experience, experience in the category and superior technology. Retailers should make sure that they have invested in adequate training for the floor staff as well. This is critical as this category is not yet a full self serve category...consumers have many questions and each question is an opportunity for the retailer to secure the loyalty of that consumer for a long time...a positive first time experience to a new digital photographer is critical to success.

News Update: RetailVision, Fall 2002

Hundreds of retail buyers and technology vendors will once again descend upon the Century Plaza Hotel in Beverly Hills, California on September 10-13, 2002 to do business. We are proud and excited about all of the people attending but there are some impressive new names. For the most updated, confirmed list can be found at http://www.retailvision.com. As far as the actual show goes we have some great events planned; Of course there is the "Best of RetailVision Awards." That's right, once again the RetailVision team has come up with a new, creative way to deliver the industry's most prestigious awards. This Fall will feature "Who's Making a Killing at Retail?" Clearly a takeoff of the "murder mystery parties" where attendees find out who dunnit AND who won it. Then there is the traditional Ingram Micro Party. This year is expected to be a particularly Shagadelic affair. Rumors abound of a potential Austin Powers appearance - Who knows? It's no mystery that Broderbund is a retail powerhouse - They will be entertaining the participants at RetailVision as sponsoring cocktail reception, which will proceed the "Who's Making a Killing in Retail?" Awards Celebration. Expect to hear a lot of buzz around Maxell this Fall. As Master Sponsor of Tuesday night's Welcome Reception/Casino Night, sponsor of the retailer newspaper delivery each morning and a significant boardroom presence, Maxell is pulling out all the stops this fall for a major retail initiative. Once again, Palm has gathered its partners to showcase the latest and greatest accessories, peripherals and software designed for the Palm platform. Look for some new faces (and new products) this fall from some exciting Palm Partners. And there is also word on the street that Imation has a big story to tell at RetailVision . They will be doing a Channel Announcement in order to reach ALL the buying executives in their category(s). Finally, at least for now, America Online will be hosting the new Message Center at RetailVision Fall 2002. The Message Center will be available before, during and after the event so that participants can communicate, schedule meetings and follow up.

ADVERTISEMENT

ACP - There's $$$ For You in Refurbished Products

Since 1976 Advanced Computer Products (ACP) has created new markets for excess, class B-goods and refurbished inventory. ACP has the ability to remarket your products into 3rd tier and offshore markets thereby protecting the integrity of your present distribution channels. Give us an opportunity to show you how we can solve your inventory problems. Whether finished goods, work in process or component parts we can help. ACP has all the inventory solutions! So when your inventory problems arise give ACP a call.

Contact us: (714) 558-8822 or email David Freeman dfreeman@acpsuperstore.com.

Retail Digest

CDW announced that its Board of Directors has authorized a new share repurchase program of up to 2.5 million shares of Company stock. This newly authorized repurchase amount is in addition to the remaining 316,624 shares available under CDW's previously announced repurchase program, bringing the total shares available for repurchase to 2.8 million. These purchases may be made from time to time in both open market and private transactions, as conditions merit. The new repurchase program is expected to remain effective through July 2004, unless earlier terminated by the Board. The previously announced program was approved by the Board in January 2001 for the repurchase of up to 5 million shares of Company stock through the end of January 2003. Through July 29, 2002, the Company had repurchased a total of 4,683,376 shares at a total cost of $190,752,876 (an average share price of approximately $40.73 per share). "This increased authorization reflects the confidence held by our Board and our management in CDW's successful operating model and ongoing business prospects," said John A. Edwardson, CDW's chairman and chief executive officer. In addition, CDW announced that Susan D. Wellington was elected to the Company's Board of Directors at a Board meeting on July 25, 2002. Wellington most recently served as president - U.S. Beverages of The Quaker Oats Company, a division of PepsiCo, where she accelerated revenue growth significantly over four years and helped lead Quaker's efforts to merge with Pepsi. Previously, she held several marketing positions in the Gatorade business at Quaker, including vice president marketing - US Gatorade. She led several initiatives including the launch of the successful "Is It in You?" campaign.

Insight said its second-quarter profit rose 10 percent from a year ago as strong North American sales offset a decline in its UK operations. The Tempe, Arizona, company posted net income of $13.1 million, or 28 cents a share, compared with $11.9 million, or 28 cents, in the year-earlier quarter. Analysts polled by research firm Thomson First Call targeted, on average, 27 cents a share. Net sales climbed 46 percent to $737.1 million from $504.8 million last year. Insight said it sees third-quarter earnings between 23 cents and 29 cents a share before restructuring charges related to its UK operations, with revenues in the range of $840 million and $900 million.

Separately, the law offices of Charles J. Piven, P.A. today announced that a securities class action has been commenced on behalf of shareholders who acquired Insight Enterprises, Inc. securities between April 26, 2002 and July 17, 2002, inclusive (the "Class Period"). The case is pending in the United States District Court for the District of Arizona, against defendants Insight, Eric J. Crown, Timothy A. Crown and Stanley Laybourne. The action charges that defendants violated federal securities laws by issuing a series of materially false and misleading statements to the market throughout the Class Period which statements had the effect of artificially inflating the market price of the Company's securities. No class has yet been certified in the above action. Until a class is certified, you are not represented by counsel unless you retain one. If you are a member of the Class, you may move the court no later than September 27, 2002 to serve as a lead plaintiff for the Class. In order to serve as a lead plaintiff, you must meet certain legal requirements.

Online Retailers Show Strong Sales…A survey of online retailers indicated a strong sales increase last year over the prior year and healthy outlook for 2002.. Fifty-six percent reported profitable operations last year, up from 43% in 2000. The leading category was travel, with $20 billion in revenue last year, up 18% from $14.1 billion in 2000. Auto was next at $9 billion, up 89.5% from $5.4 billion. Computers followed at $7.5 billion, up 5% from $5.9 billion. The survey proclaims 2002 to be a milestone year for online retail with revenue expected to jump 41% to $72.1 billion from $51.3 billion last year. The EBIT (Earnings Before Interest and Taxes) margin will approach zero, meaning online retailing will reach the break-even point. In the past, retailers suffered losses due to high costs per order and customer acquisition, but the survey shows them dropping, with cost per order down to $12 last year from $20 in 2000 and cost per acquisition at $14 last year, down from $29 in 2000. shows that online retailers spent 63% of their marketing dollars online last year compared with only 38% in 1999. They spent 17% on portals, 17% on sponsorships, 8% on email, 7% on search, 7% on affiliates and 3% on banners. The leading offline spend was 18% on catalogs. The survey also shows that multi-channel retailers are showing the most growth. They commanded 67% of the market share last year, compared with 54% in 2000. Multi-channel customers spend 72% more per year than single channel shoppers. The study also finds the customer base maturing, with 53% of the revenue from repeat shoppers, compared with 40% in 2000. The conversion rate of visits into orders increased to 3.1% last year from 2.2% in 2000. The only downside of the study is that the cost of fulfilling orders and customer service has grown slightly. Fourteen percent of revenue went to fulfillment last year compared with 12% in 2000. The cost of customer service remained stagnant at 2.5% of revenue for the past two years. Online retailers need to improve these numbers to achieve even greater success this year. The survey, which was performed by the Boston Consulting Group for Shop.org, was based on data from 109 online retailers in a variety of categories.

Leading market information provider NPDTechworld reported said sales of retail computer software achieved healthy gains in the first half of 2002 compared with the first half of 2001, with significant revenue growth in business and games categories. Sales approached the $3 billion mark, improving five percent when compared with the same period in 2001. "The first half of the calendar year is typically a slower period for retail software sales," said Steve Koenig, senior software analyst, NPDTechworld. "Advancing revenues for the retail software market during this period is a sign of health and suggests further dollar expansion in the months ahead." Strong sales of operating systems and virus detection titles helped cultivate business software revenues over the past six months. Retail revenues in the business software category eclipsed the $1.5 billion level, improving by nine percent during the first half of 2002. Retail revenues from the sale of operating systems, including Microsoft's Windows XP and Apple's OS X, increased 40 percent during the first half of 2002. Dollar sales of virus detection software titles through retail were 70 percent higher during the first six months of 2002. Retail dollar sales of PC games climbed past the $600 million level for the first time in the first half of 2002, beating 2001's same period results by $20 million. Expansion packs for existing games - a feature unique to the PC platform - continue to help drive demand in the PC game arena. Koenig noted, "Growing revenues for PC games demonstrate consumers are still buying games for their PCs."

Quarterly sales increased 5.8% to $11.35 billion in the June quarter from $10.73 in the March quarter, the Semiconductor Industry Association reported. "The semiconductor industry is continuing the recovery that started late last year and we are encouraged by the progress we have made pulling out of the 2001 downturn," said SIA president, George Scalise. He added, "While computer and computer-related sector demand is lagging, wireless and consumer sectors continue to strengthen. These two leading sectors are stimulating strong sales in Flash, digital signal processors, application specific products, discretes and analog, all of which increased by double digits rates in the June quarter." This month, strong growth in the digital consumer sector led the sales increase in Japan, while the Asia/Pacific markets continue to benefit from outsourcing for board level and box manufacturing, which is especially strong in China. Sales in the Americas were impacted by the slowness of the recovery in the PC markets, while the shake out and restructuring of the telecom markets, in addition to a slow PC market, has inevitability had a short term effect on revenues in Europe. In June, the SIA released its mid-year market forecast providing an overview of an industry-wide recovery that is currently under way. Sales in 2002 are still expected to result in approximately 3% growth from 2001, and the SIA continues to expect the growth rate to accelerate to 23.2 percent in 2003 and 20.9 percent in 2004 with wireless and digital consumer products leading the growth of sales.

EchoStar Communications signed an alliance with Wal-Mart stores for the distribution and marketing of DISH Network satellite TV receivers in 1,900 Wal-Mart stores nationwide. Wal-Mart will carry RCA-branded satellite TV receivers manufactured by Thomson multimedia. Installation of the dish antennas will be performed by DISH Network's national installation network.

e.Digital said that CompUSA, America's Largest Computer Superstore, is the first retailer to carry e.Digital's new Odyssey 100 and Odyssey 200 MP3 players. The Odyssey 100 and 200 are Mac and PC compatible, easy to use, loaded with features, and economically priced. "We're delighted to have CompUSA add more of our products to their digital audio selection," said Tom Boksa, vice president of consumer electronics for e.Digital, "They now carry both flash-based and hard disk products from our MP3 product lines. The Odyssey players, which have already shipped to CompUSA and will be available in the next few weeks, join our Treo 15 personal digital jukebox line already available at CompUSA stores nationwide. Our brand-new Odyssey products are versatile and economical, with a simple-to-use Odyssey Manager program for both PCs and Macs. We expect CompUSA customers to be very enthusiastic about the new Odyssey line."

Beyond.com reported that its sale of substantially all of the assets and customer contracts related to the company's Government Systems Group to Softchoice Corporation has been completed. Softchoice did not assume liabilities of Beyond.com other than the obligations under the Beyond.com Government Systems Group customer contracts. Beyond.com expects that the total sale proceeds of this transaction, together with the proceeds of the previously announced sale of its eStore assets to Digital River which was completed in March 2002 and the proceeds of liquidation of its remaining office and technology assets, will be insufficient to cover all of Beyond.com's liabilities and that, therefore, Beyond.com's stockholders will not receive any distribution upon completion of the bankruptcy proceedings. Softchoice helps businesses and organizations of all sizes research, buy and manage their software resources. Softchoice is a single source for a wide selection of industry leading software brands including Microsoft, Adobe and Symantec. This is a player to watch. See: Softchoice at www.softchoice.com.

Staples signed a definitive agreement to purchase Medical Arts Press for $385 million in an all cash transaction. "Expanding Staples' offering in vertical markets will build our relationships with new and existing customers, growing our industry-leading delivery business," said Ron Sargent, Staples President and Chief Executive Officer. "The acquisition of Medical Arts Press builds on our expertise serving key industries including the medical profession, the largest vertical market in the US" Based in Minneapolis, Medical Arts Press recorded approximately $168 million in revenues in 2001. Founded in 1950, the company is a leading direct marketer of specialized printed office products and practice-related supplies to healthcare practices and currently serves more than 300,000 customers. It also operates SmileMakers, the largest direct marketer of children's giveaway items catering to medical, dental and educational markets, and Hayes Marketing, Inc., (HMI), a direct marketer and manufacturer of marketing-related products to chiropractors, dentists and eye care professionals. "Joining the Staples' family will make it easier for our customers to obtain everything they need to run their practices," said Steven Wexler, Chief Executive Officer of Medical Arts Press.

Overstock.com, a leading closeout retailer, reported gross merchandise sales of $26.1 million, a 102% increase over the $12.9 million recorded in the same period a year ago and up 22% from Q1 2002. Gross merchandise sales represents the gross sales price of goods sold by the company, which varies from GAAP revenue. GAAP revenue was $14.4 million, a 94% increase over the $7.4 million recorded in the same period a year ago and up 19% from Q1 2002. GAAP gross profit was $2.5 million, a 240% increase over the $749,000 recorded in the same period a year ago and up 23% from Q1 2002. GAAP gross margins for the quarter improved to 18% compared to 10% for the same period last year and 17% during the first quarter of 2002. Loss from operations, excluding amortization of stock-based compensation, for the second quarter was $959,000 or $0.08 loss per share, compared to $3.9 million or $0.35 loss per share a year earlier. GAAP net loss for the second quarter was $2.4 million or $0.20 loss per share compared to $3.8 million or $0.35 loss per share, a year earlier. Patrick M. Byrne, CEO of Overstock.com stated, "First, I welcome our new shareholders and to them commit this: I intend to set the gold standard in communicating our results (good and bad) transparently and honestly, while striving to enable you to understand the business you bought. The second quarter was marked by rapid revenue acceleration and improving operating metrics. These results reflect operating discipline, a solid infrastructure, and a dedicated team. In addition, we raised $28 million in an IPO conducted in a hostile business environment. I am satisfied with this quarter's results, but see opportunities to improve."

Merchandise Support, Inc. (MSI) was selected by Eastman Kodak to create and implement a faster method of communication between Kodak's Merchandising Management team and MSI's field representatives. After testing a variety of solutions, MSI has developed "OnTheSpot", a real-time, wireless reporting system utilizing a handheld device that provides the fastest in-store reporting capability in the industry. This innovative response to the imaging leader's request is the next step in MSI's solution to deliver premium retail channel services. Designed as an instantaneous two-way communication tool, the real-time system allows immediate feedback of time sensitive retail information. The traditional reporting method took up to 24 hours to input and another 24 hours to receive and implement a response - resulting in a 48 hour turnaround to solve issues that arose in the field. MSI's creative handheld solution enables field representatives to report directly from the retail store allowing information to be captured instantly. Once captured, the manufacturer can review and respond to issues, within minutes if required. "In order for manufacturers to maximize their presence in retail, it is imperative that they are provided with "on the spot" feed back from the field," said Laura Rojas, MSI's Director of Marketing. This complete solution gives MSI the ability to rapidly mobilize and deliver retail information nationwide. Currently in its second quarter of successful execution, the program also allows national issues to be discussed and addressed among our field representative team using the handheld device's e-mail system. With an innovative approach to capturing channel information, MSI continues to meet the needs of our clients and remains at the forefront of superior retail channel execution. "MSI's ability to provide store level reporting using a wireless mobile handheld device has allowed us to request and receive information literally within the same day," said Terre Laske, Kodak's Merchandising Manager.

Computers are Top Items on Back-To-School Shopping Lists

Seventy-three percent of Americans consider home computers to be an important back-to-school item for schoolchildren, with half rating access to home computers "very important," according to a national survey released today by the Consumer Electronics Association (CEA). Home computers ranked just behind traditional school supplies, such as pens and notebooks, and ahead of new clothes and shoes in terms of importance, signaling the growing emphasis Americans are placing on the role of computers in education. Nearly nine out of ten respondents believed traditional school supplies were important, while only 53 percent thought new clothes and shoes were important purchases. The survey was conducted via telephone to a random sample of 1,000 US adults during July 2002, and it has a margin of error of +/- 3.1 percent for aggregate results. "These survey results indicate that home computers have certainly become a back-to-school necessity," said Gary Shapiro, president and CEO of CEA. "Nearly three out of four Americans believe it is important for students to have a computer when they return to school in the fall."

The survey also found that while most respondents felt that school supplies and reference books were affordable (88 percent), less than one-third (31 percent) felt that computers were an affordable item for families with schoolchildren. Only 40 percent believed new clothes and shoes were affordable. The CEA survey findings coincide with the upcoming "sales tax holidays," or temporary sales tax exemptions, for back-to-school items that are taking place in four states during the first weekend in August this year. For the first time ever, four states - Georgia, North Carolina, South Carolina and West Virginia - will allow consumers to purchase tax-free computer products, school supplies and clothing during August 2 - 4. The CEA survey found that more than half of respondents (51 percent) would be more likely to purchase a computer during a sales tax holiday period. Between 50 and 60 percent of respondents also said they would be more likely to purchase traditional school supplies, as well as clothing and shoes, during a sales tax holiday. Additional information about this initiative can be found on the CEA website at www.ce.org/taxholiday.

SELLING AT RETAIL

The ROI Imperative
By Mark Dean, BDS Marketing

Chapter 2 from "The BDS Guide to Point of Contact Marketing"

Senior-level sales and marketing executives share a common bond: virtually all of them are experiencing intense (and growing) pressure to justify their marketing investments.

"My CEO is looking long and hard at every proposed expense," says Jonathan Harris, Vice President of Sales for the Connected Home Division of SONICblue™ Inc. "Vague, unquantifiable results just won't cut it. I not only have to show how a campaign will achieve department or company goals; I have to explain, in detail, how the campaign's effectiveness will be measured."

BDS Marketing is typically invited into a company when management recognizes a gap or weakness in its retail strategy. For example, they may seek a stronger and more visible presence on the retail floor, or need help educating consumers about a new technology. They may want to train sales associates on how to qualify consumers and close sales. Or they might need to counter a competitor that is gaining market share.

It is not uncommon for companies to immediately respond to such challenges with a strictly tactical approach. They might decide to expand their merchandising program, or to arrange for a certain number of product demonstrations at tier-one retailers. They then send out an RFP in hopes of identifying the least expensive way to implement their plan.

This approach can be effective, especially if the other elements of the marketing campaign are on target. And while it may be unavoidable due to budgetary constraints, the results often fall far short of what could be achieved. Why? Because many executives underestimate the benefits and potential return on investment of a strategically developed, professionally executed Point of Contact (POC) Marketing campaign. Such a program can enhance brand identity, significantly improve relations with retailers, expand "share of mind" among retail staff and measurably increase sell-through.

Developing an effective POC Marketing program begins with a carefully devised process.

Assessing the Situation

The first step is to gain a thorough understanding of your overall situation, including the competitive environment. While you may already have a solid grasp of your unique situation, it's useful to take a fresh look and re-evaluate certain assumptions. Seek answers to an array of questions, including:

Define Program Goals & Objectives

Your next step is to clearly define the program's goals and objectives. Regardless of whether your program is being implemented by an in-house team or an external agency, it is critical that it be measured against specific pre-set goals. Obviously, the determination of such goals depends on the company's unique situation and objectives. Some are relatively tactical, such as ensuring "demo readiness," or retailer compliance.

Following are examples of goals BDS is often asked to achieve:

When setting goals, acknowledge that factors beyond the control of the POC Marketing team, such as inventory shortfalls or competitor pricing strategies, can influence whether they are achieved. (In a later article we'll discuss the benefits of gathering field intelligence on a real-time basis to enable quick adaptation to changing conditions.)

After measurable goals have been defined, agree on how the campaign will be tracked and evaluated. There are a variety of possible evaluation tactics, ranging from consumer surveys and mystery shopping analysis to specific sales performance data. Regardless of the approach, sharing benchmark data with the POC Marketing team is a must if you want a fair evaluation of the program's effectiveness.

Determining Strategies & Tactics

Your next step is to determine which strategies and tactics will most likely accomplish program goals. There are a myriad of strategies and tactics to be used, alone or combined in a carefully orchestrated blend. Following are among the tactics typically included in POC Marketing programs developed by BDS:

Your plan should be customized to address the unique situation facing your company. "Off-the-shelf" programs can be cost-effective, especially if you are limited to a tactical one-off campaign. But they rarely achieve the impact of a long-term program tailored to your situation.

You also should build a specific coverage model for each campaign. Unlike some companies, BDS avoids standardized coverage models and instead develops a unique model for each client and campaign. Building a coverage model is both an art and a science, balancing the need for reach and frequency. There are no hard and fast guidelines suitable for every program.

This leads to an important point: the need to continually evaluate both the overall marketing environment and your particular program to ensure the campaign is achieving the goals you've specified. Yet evaluation is not enough; you also must be willing to adapt and change when necessary. While developing a solid foundation is an essential first step to a successful POC Marketing program, being willing to shift tactics or strategy in response to rapidly evolving conditions is equally important.

Mark Dean is founder and president of BDS Marketing, one of the nation's leading sales and marketing service firms. Founded in 1984 as a field marketing agency, BDS has since helped pioneer the field of Point of Contact Marketing and today delivers measurable results for clients such as AT&T Broadband, Motorola, Philips Electronics, Xerox, Sharp Electronics and Canon. Contact: (949) 472-6700, ext. 1232, or mark.dean@bdsmarketing.com.

This article is the second in a series entitled "A Road Map to Sell-Through: The BDS Guide to Point of Contact Marketing."

Previous Articles
Article 1: Driving Sales While Building Brands

ADVERTISEMENT

New programs and pricing for Service Provider Central! Showcase your services to manufacturers at RetailVision. Don't be left out - there's a program right for you. For more information contact Barry Levin, VP, Shows at 216.595.9828. Levin Consulting- Dedicated to the profitable sell-through of technology products.

RESEARCH

Case Study: Digital Cameras Give a Portrait of the 'Digitally Savvy' Consumer
By Richard Trinkner, GartnerG2

Issue/Solution

Since 1999, Americans adopted digital cameras more quickly than most other technologies because of clear accelerators. Though other digital products have been widely adopted, digital cameras show ordinary consumers as "digitally savvy."

Situation

Discoveries

Dig Deeper

Situation

For marketers of all consumer products and services, the lesson of today's sudden digital camera adoption is that consumers are on the cusp of changing how they use technology products to relate to their world.

Digital technologies replace analog technologies to deliver greater personal control over content and flexibility of use. Many digital products-DVD players, personal video recorders, digital video cameras and game consoles, for example-do not require consumers to understand the digital nature of the technology. Others-like digital cameras, PCs, PDAs, MP3 players and e-book readers-require some skill on the consumer's part to use them fully.

The PC was the first to require some sophistication on the user's part, and the first to teach consumers to interact with digital content. Word processors taught the flexibility of digital text, and e-mail demonstrated how digital content can be transmitted. This "digital savvy" has spread among mainstream consumers beyond computers, as the uptake of digital camera shows. An early segment of mainstream consumers feels so comfortable downloading, e-mailing, storing, editing and printing images that they now consider digital cameras a convenient alternative to film cameras, despite the technical complexities of their use.

Before 1999, digital cameras appealed to a niche market only. By late 2000, they had reached the early adopter market. In 2001, the "popular" market-the initial mainstream consumer-was buying, and the digital camera product pyramid developed more fully. This case study examines the accelerators that contributed to that growth:

Product evolution: From niche to necessity
Digital cameras have existed since the 1970s, albeit only as expensive products suited to professional photography and specialized businesses. Consumer adoption of digital cameras has been sudden, rising from 5.2% of American households in 2000, to 16.2% by June 2002 (see Figure 1).

Traditional cameras create images by exposing film; digital cameras contain sensor plates that convert images to computer graphic files, which are then stored in tiny reusable memory cards. Digital photos can be displayed immediately without processing, and printed using a home PC and a color printer. Of critical importance is the reliance on a variety of digital products. Photos can be downloaded to a printer or PC, edited by digital image software, shared with friends via e-mail or the Web, and deleted from the camera's memory. This interaction with numerous other digital products defines GartnerG2's "digitally savvy" consumer.

But the product still isn't perfect. Photos printed at home are generally inferior to traditional photos, and printing photos is challenging for some. For advanced photographers, moderately priced units are not as flexible as comparably priced film cameras, lacking interchangeable lenses, advanced aperture programming and adjustable depth of field. But for software-savvy photographers, the digital format creates unique artistic opportunities.

Figure 1: Digital camera adoption, by household type and income

Note: "Retired" signifies that the head of household has retired. "Active" signifies that the household has no children and the respondent is not retired. "Family" signifies that the household has children below the age of 18 living at home. Source: GartnerG2, surveys conducted February 2000, June 2001 and June 2002.

Niche adopters and their catalysts
Before 1999, fewer than 5% of households owned digital cameras. The few that did generally had unique or professional needs for digital images. Because of their high cost and technical limitations, digital cameras were not considered replacements for film cameras. Their image resolution was suitable for online display but not for photo-quality prints. Supplementary products did not suit graphics, e-mail was only a recent skill for most consumers, home printers could not produce quality photos, and few home PCs were fast enough to edit photos easily. Memory cards were expensive, severely limiting picture storage. Yet the technology was adequate for users with niche needs: Web designers, graphic artists, professional photographers and wealthy gadget lovers.

Early adopters and their catalysts
In 1999, digital camera use across most age groups was between 3% and 5%. Users fit the standard profile of early "boy toy" technology adopters: They tended to be wealthy and male, though many of the "boys" were in their middle years. Wealth was the strongest correlation. Adoption rate among households earning more than $75,000 was three times that of households earning $15,000 to $29,999. There was relatively equal penetration across age groups, with very slight leadership from those aged 18-to-24 and 45-to-54.
These early converts were no longer niche adopters who needed digital photos for professional or personal needs. Instead, they were persuaded by a shift in digital camera technology. For niche adopters, digital cameras were a means for digital output; for early adopters, digital cameras were an end in themselves, just for taking ordinary snapshots.

'Popular' adoption and its catalysts
By June 2002, 16% of US households owned a digital camera, reaching the stage GartnerG2 terms "popular"-progression beyond niche users and wealthy males to a cross-section of society. Penetration was still highest among the wealthy-nearly 30% of owners had household income above $70,000-but rose dramatically across all income and age brackets between 2000 and 2002. The three catalysts were:

Discoveries

Adoption of digital cameras is different
Why have digital cameras entered the mainstream, while similar digital products like PDAs, MP3 players and e-book readers remain niche products? Why are consumers replacing film cameras with digital cameras, but not replacing books with e-book readers?

It's not a simple love of digital things. While digitization per se may be compelling to gadget lovers, to most consumers it's just a means to an end. The difference lies in the results and end experience.

Emergence of a digitally savvy consumer
For consumer marketers, digital camera adoption rates signal an increase in consumers' skill to interact with digital content. This portends changes in consumer behavior, new avenues for reaching these consumers and new consumer service expectations.

Most digital technologies offer new freedoms, such as the ability to adjust, edit, personalize, copy and share content. Digital photos can be copied with no loss of quality, edited by software, shared with others on the Internet-they offer an immediacy of experience. They dramatically increase consumers' control over content, which will likely spur desire for control over other types of content.

Digital camera owners' tendency to adopt other digital technologies shows a trend toward using digital alternatives to analog where there are clear benefits (see Figure 2). More than one-third of digital camera households have broadband Internet access, which is 2.3 times greater than of the general population.
The same holds for other digital technologies. Compared to the general population, digital camera households are:

Figure 2. Penetration of other products into digital camera households

Source: GartnerG2. Survey conducted June 2002, except for e-books, whose data is June 2001

Consumers are also opting for digital on many other fronts. Although digital products are not always superior to their analog predecessors, many of the typical benefits of digital data-immediacy, content malleability and electronic transfer ability-are expected in other experiences. Even the DVD player, which doesn't require digital savvy to operate, offers some of these benefits. Users can choose which version of a movie to watch, jump quickly from scene to scene, and (illegally, with certain software packages) transfer copies of movie content.

Conversely, consumers who don't own digital cameras are less likely to own other digital technologies. Indeed, non-ownership may indicate reluctance to purchase other digital products-at least at this early mainstream stage.

Reversing the lens of the statistic shows the percentage of households that have adopted other digital products as well as digital cameras (see Figure 3). Half of MP3-owning households, 38% of broadband households and 46% of PDA households own digital cameras. These adopters of multiple digital technologies-while still a small population-are incorporating digital into many facets of their lives. If these products can offer the same perceived cost-savings to consumers, their adoption will likely explode among the larger population, too.

Figure 3: Digital camera adoption in households owning other products

Source: GartnerG2, survey conducted June 2002, except for e-books, whose data is June 2001

Adoption rises with the product pyramid
No product survives in a vacuum. Each depends on a foundation of other products and services, and can form the foundation for others. Over time, a product's success can be measured by the number of other products it supports. For example, digital cameras began at the top of their pyramid, supporting no other products. Now, they form the foundation for online photo and Web site services, photo-only printers, and home photo printing supplies.

Figure 4 shows the digital camera product pyramid. Products require those that appear below them, and enable those above them. For example, consumers need PCs, color printers and e-mail to use digital cameras fully. Likewise, consumers need digital cameras to use online digital photo services. Digital cameras and broadband are symbiotic-consumers don't need one to use the other, but the two benefit each other. In the pyramid, every product increases demand for the others. As Figures 3 and 4 show, adopters of one technology tend to adopt the others.

Digital camera adoption rates rose with its product pyramid. Since 1999 consumers could do more with digital cameras and manufacturers provided more products and services that interact with digital cameras. The pyramid's growth reflects a maturing market where companies are offering new products and services based on digital cameras.

Some elements compete directly against each other, like online photo print services and home printing products, implying that the pyramid is likely to change quickly, especially at its top layer, where change most often occurs. The digital camera's role as a foundation product bodes well for its longevity, as consumers who buy into the entire pyramid will be less easily convinced to change technologies when a rival appears.

Figure 4. Digital camera product pyramid

Source: GartnerG2, July 2002

Recommendations

Consumer product and service marketers

Retailers

RESEARCH

Microsoft Palladium Could Boost Online Commerce
By Gartner G2 Analyst

Event
When news of Microsoft’s new Palladium security initiative came to light in the 1 July 2002 issue of Newsweek magazine, Microsoft contacted Gartner to discuss the development effort.

GartnerG2 Analysis
Palladium is the name of the new secure operating environment Microsoft is developing to run alongside but outside the normal Windows environment. Though not expected to be released for a few years, Microsoft is positioning Palladium as a valuable addition that will extend the value of the PC for companies wanting to conduct secure transactions as well as for consumers who want control over the use of their personal information.

Palladium will reside side-by-side with Windows and employ a combination of software and hardware to ensure an environment inherently more secure than a software-only solution can offer. With Palladium, says Microsoft, businesses can feel assured that the content they provide will be delivered based on the business
rules they determine.

Currently, information gathered by cookies, Web bugs and other technologies are outside the consumers’ control. If the Palladium development effort succeeds as Microsoft predicts it will, the PC could potentially become the preferred commerce infrastructure for both business-to-business and business-to-consumer transactions. It has the potential to facilitate revenue streams where none exist today because:

GartnerG2 Recommends

Dig Deeper

Related Research from GartnerG2

Report: Online Transaction Fraud and Prevention Get More Sophisticated
By Ken Kerr (17 January 2002)

Q&A: Microsoft’s Tactic to Control Digital Music
By Paul-Jon McNealy (28 September 2001)

RESEARCH

Making Projectors "Easy as Pie"
By Christina Lawson, ARS Projector Research Analyst

It's no secret that the average teenager knows more about the latest technological gadgets than their parents. Projector vendors have identified that most presenters in the professional world fall into this group of unsavvy technology operators and are trying to make the products more "user- friendly." Vendors have consistently strived to bring user-friendly projectors to the market and are employing innovative ways to increase feature sets while simultaneously making the devices easier to use. In the past projectors were too cost prohibitive to purchase for individual end users in corporate, government, and educational facilities. Today, however, it is not uncommon for every conference room in a company, each account rep in the sales force, or for each classroom at the university level to be equipped with a personal projector. The rapid growth in the adoption of projectors is due simply to the cost of the devices, which have steadily fallen in price the past two years. This increased user base coupled with advanced feature sets has raised the demand for vendors to bring easy to use projectors to market. A variety of user-friendly features are outlined below.

Color Coded Cables and Toolbox Carrying Case

Traditionally, ease of use features have pertained to making projectors plug-and-play devices, allowing users to hook the projector up to a variety of inputs much like they would a VCR. Over time as input capabilities have grown to include not just PCs but also VCRs, DVDs, network cables, and monitor loop-through, the number of inputs has grown out of control. End users are left to decipher the various inputs, wasting valuable presentation time. InFocus, in its latest attempt to satisfy customers, recently introduced color-coded cables. These cables are designed to help users quickly identify which cable belongs in which outlet. To further aid the user in keeping track of these cables, InFocus has designed a new carrying case designed like a toolbox. With separate compartments for each of the cords, the projector, and the remote control, users can quickly identify missing parts.

Networked Projectors

The vast number of end-users within a company has created a problem within IT departments to monitor use of these projectors. With sufficient communication and manpower desperately needed to monitor equipment, IT professionals are fighting an uphill battle trying to keep the projectors under their control. The crux of the problem is that these projectors are shared by many individuals and are often shifted from room to room. Until recently administrators did not have a sufficient method of monitoring the status of projectors. Networked projectors introduced a means for administrators to monitor the equipment and allow an IT administrator to control an entire fleet of projectors from one control station. Administrators can monitor projector lamp life, run error diagnostics tests, and even turn projectors on and off from command terminals. These monitoring and control capabilities save institutions valuable time and money by allowing administrators to ensure each projector is being used and maintained properly.

Many of the major vendors recognize that the ability to monitor a fleet of projectors is a feature users demand. InFocus has taken the lead in offering its own ProjectorNet ™ software, which allows corporations to connect all InFocus projectors to a network where each unit can be monitored.

Customizable Start-Up Menus

Yet another growing trend in the quest for an easy to use projector is the enhancement of start-up menus. Startup menus are often programmed to have a "Microsoft Windows" look and feel so users are familiar with the layout. Startup menus, while they have been incorporated in projectors for years, are more necessary today then ever before due to the increased functionality of the projector. In some projectors the menus are fully customizable so that presenters can record settings for a presentation and can recall those settings without having to shift through the projector's menu each time they give a presentation. This feature is most advantageous to presenters who use their projector frequently in one venue but also have the occasion to remove the unit from its "home" for presentations elsewhere.

Automatic Input Detection

Many projector manufacturers have adopted automatic input detection, the ability for a projector to automatically detect the type of input and correlating settings for optimal image reproduction. This allows for presenters to seamlessly change the input during a presentation from a PC to a VCR to a DVD, without the need to manually change the settings.

Color-coded cables, more organized carrying cases, networked projectors, customizable startup menus, and automatic input detection are a few of the ways vendors trying to make projectors easier to use. Making projectors easy to use not only encourages product upgrades, but also saves many professionals time and money because there is less to train new users on. Ease of use features are inevitably making projectors so easy to operate even the most technologically challenged end user can operate one with few obstacles.

So while Junior may be quicker than Dad at programming the VCR, projector vendors are making sure that Dad has a handle on setting up the projector - whether it is in the office or at home.

RESEARCH

Market Update from NPD
By NPD Techworld

Leading market information provider NPDTechworldSM reported today that dollar sales of retail computer software achieved healthy gains in the first half of 2002 compared with the first half of 2001, with significant revenue growth in business and games categories. In the overall retail software market, software dollar sales approached the $3 billion mark, improving five percent when compared with the same period in 2001. "The first half of the calendar year is typically a slower period for retail software sales," said Steve Koenig, senior software analyst, NPDTechworld. Advancing revenues for the retail software market during this period is a sign of health and suggests further dollar expansion in the months ahead." Strong sales of operating systems and virus detection titles helped cultivate business software revenues over the past six months. Retail revenues in the business software category eclipsed the $1.5 billion level, improving by nine percent during the first half of 2002. Retail revenues from the sale of operating systems, including Microsoft's Windows XP and Apple's OS X, increased 40 percent during the first half of 2002. Dollar sales of virus detection software titles through retail were 70 percent higher during the first six months of 2002.

"New operating systems help drive software sales as consumers look to upgrade their existing software to utilize the features of the new OS," Koenig added. "The continuing proliferation of the Internet among US households, broadband in particular, has elevated virus detection software from a valuable feature to a mandatory utility."

Retail dollar sales of PC games climbed past the $600 million level for the first time in the first half of 2002, beating 2001's same period results by $20 million. Expansion packs for existing games - a feature unique to the PC platform - continue to help drive demand in the PC game arena. Koenig noted, "Growing revenues for PC games demonstrate consumers are still buying games for their PCs."

RESEARCH

PC Shipments - Dataquest Update

While the overall number of PC shipments suffered a slight decline in the second quarter of 2002, the mobile PC segment managed positive growth, according to preliminary results from Dataquest Inc., a unit of Gartner, Inc. The number of worldwide mobile PC shipments totaled 6.9 million units in the second quarter of 2002, a 6.1 percent increase from the second quarter of 2001 when shipments totaled 6.5 million units. By comparison, worldwide PC shipments declined 1 percent in the second quarter of 2002 compared to the second quarter of last year.

"Continuing growth in mobile PCs provides some good news in a worldwide PC market that overall remains weak," said Charles Smulders, vice president of Gartner Dataquest's Computing Platforms Worldwide group. "The mobile PC market grew in most regions except for Japan and Latin America. The US mobile PC market grew 9.3 percent year over year, supported by the beginning of back-to-school purchases, as well as orders from educational institutions."

Dell and HP are in a virtual tie for the No. 1 position, but Dell increased shipments by 10.6 percent, while HP shipments declined 0.4 percent (see Table 1).

Table 1
Preliminary Worldwide Mobile PC Vendor Unit Shipment Estimates for 2Q02

Toshiba's double-digit growth was attributed to significant increases in shipments both in the United States and Western Europe. IBM showed modest growth in the United States and Western Europe. Sony grew substantially in Western Europe, while it showed softness in the US market.

"We expect the notebook market to outperform the deskbased market in unit growth terms in 2002 and 2003," Smulders said. "PC vendors need to continue to focus resources on delivering value-based notebook products to the consumer market."

These results are preliminary. Final statistics will be available soon to clients of Gartner Dataquest's PC Quarterly Statistics Worldwide by Region program. This program offers a comprehensive and timely picture of the worldwide PC market, allowing product planning, distribution, marketing and sales organizations to keep abreast of key issues and their future implications around the globe. To subscribe to this program, please call 408-468-8000. Additional research can be found on Gartner's Hardware and Systems Focus Area on Gartner's Web site at www.gartner.com/1_researchanalysis/focus/hwmkt_fa.html.

COMMUNITY

Changing Channels: The Future is Here
By Steve Cross

The Future is here! While on vacation I had an encounter with our future at the resort's high-tech library. A 10-year old girl was using one of the four PCs that also provided for Internet access to check her email (AOL, I looked). A gentleman of my approximate age approached me to complain/gripe about having to wait for a 10 year-old saying "this kid is tying up a PC to send instant messages or something."

He was right, of course, the young girl was using her own AOL account (or user name), probably her own buddy list, and maybe instant messaging too. That's the point, and he missed it. In 6-8 years, this little girl is our new customer. When she graduates high school, starts college, buys a car, a house, a laptop, an HDTV, software, and clothing; will we be ready?

The teen of today represents a different kind of customer. For the most part, they view the Internet the way we thought about TV; like a utility…ubiquitous, and just part of the landscape. She doesn't think its "way cool." After all, she grew up with it already there. She feels the same way about using it to post her homework, send email, IM (Instant Messages), and 20 other things we all had to learn to use. Banner ads are to her like highway billboards are to us…just landscape that we generally ignore or filter out. What will she filter? Starting to get the problem?

We will find that she (and her generation) has different attitudes about things than we do; Spam probably doesn't bother her that much, creeping text on TV screens is just part of the wallpaper to her, streaming full-motion video over the web is what she'll expect, and Internet privacy is a myth to her. Either be ready for her, or go find something else to do for a living.

As she grows up, I intend to send video pitches to her smartphone, produce mini movie-quality product vignettes for her in-car video screen, and beam self-printing coupons to her PDA to drive her into stores. I'll be there to sell and market to her and her generation in novel, imaginative, persuasive ways. Care to join me?!?!

Steve Cross has been helping companies grow since before dirt was invented (seems like a long time). He can be reached at steve@crosschannel.com 702-492-7472.

LISTS

NPD's Hits List of Top-Selling Software - Week of July 21 - July 27, 2002
Provided by NPD Techworld