NEWS

RetailVision Round Up

LOS ANGELES - Despite the enormous challenge of putting on a show during the one year anniversary of the horrific September 11, 2001, RetailVision pulled out all of the stops imaginable and produced a very successful event. From upbeat presentations by leading retailers to demonstrations of innovative technology by the vendors in attendance to the fun and frivolity that adds to every show put on by VisionEvents, this years RetailVision was an unqualified success.

ChannelMedia's favorite columnist Steve Cross with some assistance from a few friends, compiled the following review.

Lots of excitement this time. Show seems to be picking up again after the recent hibernation. Maybe we're seeing the light at the end of the tunnel? Hope so. Lots of vendors; nice mix of old and new. Lots of new reseller faces. Seems like the old guard is sending in fresh faces to endure the (agony of) boardrooms.

Some old familiar faces on the vendor side, being endlessly recycled through the revolving door of changing management teams, revised strategies, re-orgs, and the like, as always.

Some fun new products to light up stores for the holiday season. Software, hardware, and peripherals for a change. Some experienced players finally diving in to try and cement their relationships with vendors. Interesting show this time.

Talked to a number of retailers who were almost universal in agreeing with one top merchandising professional "there's no BS this time, people are here to do business". Indeed they were.

Starting to see the commoditization of the USB datakeys. Couple of players here at the show: Fujifilm has a beautiful form factor piece, big brand name, and they have sizes from 8Mb all the way to 512Mb. Rumor is 1 Gig by end of year, first of next year. Very functional, and very affordable. Its a licensed product, from developer Ohad Shvueli, who told me that pretty soon "a computer without a key will be like a car without a key". He may be right!

PALM figured it out last RetailVision, showing up and telling their story again and again to make sure everybody knows it. Worked. Lots of enthusiasm for some of their partner products. Paul Leeper, PALM's top guy in evangelizing, had some shot stuff to talk about, including the camera I mention below. He also was shepherding the WaveRay guys around. They have this completely cool gizmo that beams data, programs, info, etc. to any PALM device. Just walk up to this gizmo hanging on a door or mounted on a wall, and it loads you neat stuff. Like a show guide on the fly here at RV. At PacBell Park, where they have a couple of them, I think it loads a program. Saves you some money for beer and hot dogs...But maybe you put it in your store and sell handheld software without adding any inventory cost? Maybe you do...

PriceGrabber, the pricing comparison guys who compete with Cnet Shopper, were here in great force, to show vendors how to influence price comparison search and buying decisions the same way the resellers do it. Pricegrabber has over 300 resellers they partner with. The vendor community however, has been slow to figure out how to get websurfers directed to their products. Turns out that these guys worked a vendor event at Tiger Direct and saw how effective it was. That got them thinking about coming to RV. Even sponsored the hefty shipping boxes that get filled with tchotchkes for the retailers. Too bad the retailers get all the good stuff. No complaints, though. I had this terrific Diet Coke this afternoon for free...

Fuji has some competition from Jungsoft here at the show, they're a hungry, focused, Korean company with their eye on the ball...great form factor and great pricing on full line of USB datakeys, including 128 Mb piece...$99 retail. This stuff ought to be flying off the shelves.

One of the retail marketing guys at Creative Labs, Chen Lee, showed me the Nomad Muvo. Great name, huh? Sort of like Dire Straights old song with the "move-a, move-a" chorus (that's the one where Sting sings at the end "I want my MTV"). Its a 64Mb MP3 player smaller than a pen. Very slick. Works like a USB datakey for loading the music; just plug it in and load your songs. Huge battery life...up to 12 hours on one AAA battery. Only $129, and I want one. I'm going over to PriceGrabber and see if I can find it cheaper.

And maybe this is finally the year of the home power outlet products. The Homeplug Power Alliance is a group of 70 companies supporting a single standard. This may now be a go-er....spoke with the President of the Alliance, Tom Reed, and this stuff really works. Just plug their Etherbridge product into your power outlet and pick up ethernet, DSL, or cable modem from any plug in the house. This is very sexy, folks. Simple enough message for the masses. Standards based. The form factor is developing into very simple, easy, and easy to explain products. Look for a very quick adoption rate now that the message is emanating from a common speaker, the prices are coming down, and the effectiveness is increasing. I predict this whole thing becomes a commodity, and quick.

I just love a good story, and I found one to cheer up every vendor; Punch Software. Four-year-old company with 55% market share in their niche of home design software. These guys own it outright, with 6 SKUS. But wait until you hear this one..... they have a 56% market share in Landscape Design software with ONE SKU...56% with one sku! Do ya believe it? Talked with Pete Pierce, President, a good guy, who told me the whole team worked together for years at Autodesk. Finally got the opportunity to do their own thing. Self-funded. I just love stories like this. Nice folks. Big win. Vendors take heart, you can still do it...in retail!!

And I found another one. I call Soundvision "Digital Photography for Dummies". Here's a new product in the digital photo niche, a place near and dear to my heart (remember, yours truly launched the worldwide market for webcams way back in '95). How would like to use a digital camera without needing a computer? Great idea. Just set it in the cradle, cradle plugs into TV, takes digital photography out of the office/computer room and puts it right in the living room or family room. Ma and Pa Kettle go to town! This is a product that works the way most people look at pictures. I love it. Look for this in January.

Tried to get an interview with Scansoft, but the new Omnipage is so hot, they were too busy to talk with me! Roxio was pretty busy. Nice boxes, all done by my old buddies at ReLaunch in Berkeley. Targus had their usual party, but apparently toned down this time. Jeff Hyman, Travis Sehestedt, and the rest of the gang from V Communications were around with a list of new products, including DVD PhotoPlay, Web Easy, and the ever dependable System Commander.

Saw everything from Accpac Accounting software to Dataviz old standby "Documents to Go". Adobe, Lexmark, ADS with CD-burners, AOL was everywhere talking about Broadband, ran into Nick Adams from Atek with their "super mini" mouses and pointing devices, looked at Avery Dennison's complete line of CD/DVD labels and applicators and I think they will own this market just like they own labels.

RetailVision University was busy again this time. Dave Martella (former VP at Radio Shack) spoke about "futurecasting", looking forward rather than backward to develop future forecasts. Great concept, but I think it was actually "trendcasting". When I was at Silicon Graphics, they brought in some futurists (including Faith Popcorn, who invented the term "cocooning") to help spot trends. It was pricey, but very effective and gave us a leg up. Dave talked (for free) about how future trends will affect our experience and our markets, and gave some examples. He was really hot on Ultra-Wide-Band as a coming trend that will affect future implementations, and the entire wireless market. He talked about the changes in availability of broadband and how that will affect everything from entertainment and interactive gaming, to delivery of software and shelf space. The most interesting stuff I heard at RV, skillfully presented.

IBM has some great stuff coming, and I saw it all, but they swore me to secrecy. Love to tell you about it, but just can't. Take my word for it, its great stuff, and we'll all want it for ourselves and our customers.

The big thing everyone noticed was the increase in business being done at the show. Can't tell you how many resellers, reps, and vendor people commented on the serious mode of business that predominated at this RV. Heard from more than one retailer that that "people just cut to the chase here". About time, after years of dress-up skits, singing boardroom presentations, virtual surgeries performed to laugh tracks, and 100 other inanities observed in the last few years.

Speaking about what's hot? All the retailers are talking about Diskeeper Home Edition from Executive Software. It's the #1 selling defragmentation utility on the enterprise is now available to home users. The SRP is around $29.

How about the old Xirlink.....now known as Veo (Spanish for I See!!). Changed their name for simplicity's sake. Great line of cameras and webcams. But the kick-butt product is the Veo PhotoTraveler for PALM. You aren't going to believe this gizmo for $99 that fits into its own little carrying case for purse or pocket. And the $79 VGA resolution laptop camera is a total win, and shipping right now. If you haven't seen these, you need to see them and order them.

Maxell came to RV for their first time. Hosted by Koenigsberg & Assoc, Maxell built a big presence around their "Total DVD Solution". With a full line of media, accessories, and energy products, they have the bases completely covered. These guys are real experts, and Bruce (Koenigsberg) did a nice job of showcasing Maxell's expertise and building their relationships here at RV. Many of the resellers have 20 years or more experience buying Maxell products, and the DVD line is a natural. Every retailer got a complete package of products, strategy, white papers, and part information. Nicely done. A tip of the hat to Koenigsberg & Assoc. and to Maxell. And look it over, these guys have a nice look in their preview packaging. Tech support lines for the end-users, because nobody understands this stuff and the retailers don't have the bandwidth to educate on the fly for a commodity product.

Ran into Roger Bloxberg, an old friend and the CEO at Nova Development (the Art Explosion guys), and they just launched PhotoExplosion, nice consumer piece. But their sleeper might be Scrapbook Explosion. Folks, middle America loves "scrapbooking", and this could be another Barbie or Deer Hunter at this Xmas at retail.

And how about those Vivitar guys? Regular attendees at RV, they have 14 digital cameras, one for every segment, for every price point. An example of multiple products for multiple channels. You should see their ViviCam 55, 8Mb of memory, tiny form factor, put it in your jeans watch pocket.. Funny name for a VGA minicam for $59 retail!! Nice line. The retailers are positive.

Our old friend Murray Dennis was there with his Visioneer gang, and this time they had a new product entirely; PhotoPort TV 100. Neat idea. This is another Digital Video for Dummies kind of product. Nicely thought out, this one even lets you edit without a computer, just a wireless keyboard and easy to use software built in. Plugs into your TV and you can pull your memory card out of the camera, slip the card into PhotoPort, and edit your pictures, all without a computer, and in your living room. There is a big draw for "Joe six-pack" to eliminate the computer. Let's see how it goes.

All in all, a great show. Open your calendar and mark down the Windy City of Chicago for March 25-28, 2003 at the comfy confines of Sheraton Hotel and Towers.

Check out the "Best of RetailVision Awards"™ at http://www.visionevents.com/rv/Awards/rv-fall02.htm to see the RetailVision Fall 2002 Nominees and Award Winners.

Steve Cross can be reached at steve@crosschannel.com, 702-492-7472. He consults on strategic sales, marketing, and channel issues. Click here to see his new book, "Changing Channels".

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

Maxell Wins Merchandising Award at Retail Vision
By ChannelMedia Staff

Maxell Corporation of America won the Best Merchandising Award at RetailVision. "We were excited to win this prestigious merchandising award at RetailVision," said Dawn Wortman, senior marketing manager for Maxell, who coordinated the company's RetailVision presentation. "We were especially gratified by the enthusiastic reaction we received from retailers to our new DVD merchandising strategy."The award came in the same week that Maxell announced a new DVD merchandising strategy that is designed to highlight Maxell's line of DVD-R, DVD-RW, DVD-RAM, DVD+R, DVD+RW media and DVD-RAM and DVD-R Camcorder Video media, alongside the company's DVD care, maintenance and storage accessories and DVD camcorder batteries. At the time of the announcement, Peter Brinkman, Maxell's vice president of marketing said, "With a new technology such as DVD, it is important for retailers to be able to make a strong merchandising statement that answers their consumers' questions and presents them with a complete solution for all of their product needs. Our 'total DVD solutions' strategy presents the full range of product options from data storage to video recording to making DVD camcorder recordings. In addition, the Maxell strategy offers a complete assortment of DVD accessories and DVD camcorder batteries. And we do it while offering the reassurance and confidence of a brand consumers know and trust."

In its boardroom presentations Maxell utilized a question and answer format to educate retail attendees about the emerging DVD marketplace. In one typical sequence Maxell told its audience that it expects the DVD media market to reach $300,000,000 in the next year. In another sequence the company pointed out that it was first-to-market with rewritable DVD media with DVD-RAM discs in 1998. At the conclusion of each presentation, Maxell distributed comprehensive reference and educational materials containing technical and marketing information concerning the DVD market.

"We attended Retail Vision this year to make a strong statement about our intention of being the leader in DVD with a full line of media in all formats, a complete line of DVD accessories and camcorder batteries, all complemented by a brand-driven merchandising and packaging strategy that educates the consumer and drives sales for retailers," said Don Patrican, executive vice president of Maxell.

NEWS

Q&A with Brett Johnson, President of Targus
By ChannelMedia Editor, Keith Newman

Q. I know there are lots of things going on at Targus. Or, you're not the same old computer luggage company from way back when. Give us a quick update on the Company?

A. We're pleased with our transformation to a complete provider of mobile solutions but we have had our challenges integrating several acquisitions and brands. The past year, we have made much progress clarifying our product and brand strategy and I am very encouraged by the results.

Q. What are your big "push" products for Q4?

A. Our Q4 focus is launching PowerCenter, which is a new initiative with our Universal Power products, where we will sell the individual PowerTips for each mobile device separately. In other words, when a consumer enters one of our retailers that have launched PowerCenter, they will be able to purchase a Targus Universal AC or DC charger and then customize the individual PowerTips to suit their mobile needs. The beauty of our patented solution is that you only have to carry one charger to power and charge the most popular mobile devices, including: notebook computers, mobile phones, PDA's, digital cameras, portable printers, etc. We are launching PowerCenter in September and it will be a major focus of our presentations at RetailVision.

Q. Clearly, not all's perfect though in Retail Land. What would you like to see more of from your channel partners?

A. Our retail sales have been the fastest growing area of our business and a real engine of growth for us, so no complaints from me on this front.

Q. And, if you don't mind my asking, what can we look forward to in 2003 from Targus?

A. We are going to focus on the Targus brand to further establish our position as a complete provider of mobile solutions beyond carrying cases. In other words, you will see more product launches and innovation in our power, security and connectivity ranges and of course, PowerCenter, PowerCenter, PowerCenter.

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SELLING AT RETAIL

Information at Your Fingertips: The Power of Field Intelligence
By Mark Dean, BDS Marketing

Chapter 4 from "The BDS Guide to Point of Contact Marketing"

Imagine being able to sit at your computer and, with a few keystrokes or mouse clicks, gain a complete overview of your situation at retail. Not only could you immediately determine everything from inventory status to competitor pricing, but the information would be extremely fresh…virtually real-time.

For some executives, this vision is already a reality.

"Being able to quickly access strategic intelligence is a huge competitive advantage," says Bryan Watson, Manager of Retail Support Operations for Thomson multimedia. "Having a clear-eyed, up-to-the-minute view of the retail environment enables us to identify and address potential problems immediately, before they can fester. We also can fine-tune our programs, modify coverage models and re-deploy resources for maximum impact."

Watson and other savvy executives recognize the crucial role that timely, accurate market intelligence can play in today's fast-changing business world. They are capitalizing on their access to such data to determine if:

• Retail outlets are adequately stocked with popular skus;
• Every retailer and store is complying with merchandising initiatives and properly displaying products and point-of-sales materials;
• Store-based sales representatives are presenting the brand (and individual products) effectively;
• Competitors are employing pricing, promotion or other strategies to gain an edge on the retail floor;
• The retailer's sales associates are recommending the company's key products (and why or why not);
• Customer perceptions of the category and brand are accurate and favorable; and
• Their company's in-store marketing programs are generating a solid return-on-investment.

The ability to obtain real world insights through the collection, tabulation and analysis of strategically useful data is among the most powerful - and increasingly popular - benefits of a well run Point of Contact (POC) Marketing program. In a typical campaign, hundreds of carefully trained marketing professionals visit literally thousands of stores every week - and in many cases every day. These individuals are in an ideal position to observe frontline conditions and collect useful information.

At BDS Marketing, we encourage virtually all of our clients to include a field intelligence component in their Point of Contact Marketing programs. At a minimum, we recommend gathering data that will help evaluate the POC Marketing program itself. Among the questions asked on a continual basis: How many stores are the field team visiting, and how often? Are sales increasing? Are we seeing an increase in the sale of ancillary products? What's happening with product returns? How are sales per hour?

Most of our clients also employ field-based marketing professionals to ensure that both their overall brand and specific products are effectively presented and promoted on the retail floor. These individuals verify that each retail outlet is complying with contractual agreements regarding pricing, product placement and the display of both products and POS materials. They also check product appearance and functionality.

As important as they are, the above applications merely hint at the awesome intelligence-gathering potential of a professional Point of Contact Marketing program. Astute companies are going beyond the basics, deploying nationwide teams of merchandising specialists, mystery shoppers and others to visit targeted stores on a systematic basis to observe conditions, ask questions and gather valuable information. These carefully recruited, intensively trained professionals are staying apprised of competitor activities, assessing retailer perceptions and interviewing consumers to determine product knowledge, brand preference and other issues. They are, in effect, serving as the manufacturer's dedicated "eyes and ears" in the field - both at retail and elsewhere.

All data are not created equally, so it's important for field employees to know precisely what information to collect, and how to obtain it efficiently. They need to be given clear direction, along with professionally developed questionnaires that minimize errors. While most of the information gathered should be objective and require the representative to simply answer multiple choice or "yes/no" questions, it also helps to allow room for subjective comments.

Of course, simply collecting volumes of raw data is of little value. To be useful, the information must be properly assembled, formatted, apportioned and presented in a matter that permits careful evaluation. The information should be easily accessible 24 hours a day, seven days a week, by anyone with an Internet connection, a popular browser (e.g., Internet Explorer 5.0 of above) and a password.

A powerful information technology infrastructure -- and a team of skilled information technology professionals to manage it -- are among the prerequisites of a successful program. Off-the-shelf software programs are largely inadequate, so you'll probably need to develop a customized program. Your team should employ open-ended architecture that permits the integration of information from multiple sources (including company databases as well as information coming from the field) and thus provides a unified, holistic perspective.

Therefore, companies that choose to outsource their POC Marketing programs need to carefully evaluate the IT department at every prospective agency. Make sure department staffers have in-depth expertise in data warehousing and data mining. The best will also demonstrate a solid understanding of the retail environment and the operation of a POC Marketing program.

Strategic intelligence can provide real-time understanding of the retail battleground -- information of incalculable value to sales and marketing executives. Having such information at their fingertips gives these executives a huge advantage over competitors forced to make decisions on the basis of hunches or intuition. And the importance of such intelligence is only going to grow as competition intensifies.

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 fourth in a series entitled "A Road Map to Sell-Through: The BDS Guide to Point of Contact Marketing." To view previous articles, please click on a link below.

Previous Articles
Article 1: Driving Sales While Building Brands
Article 2: The ROI Imperative
Article 3: Professionals Only, Please: The Essential Role of the Field Staff

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RESEARCH

360-Degree Web Retailing Is More Than Just Click-to-Order
By David Schehr, Gartner

Viewpoint

Most of the buzz about the Internet and retailing has focused around online sales—so-called click-to-order. U.S. consumers don’t just buy on the Web, they shop and get service. What and why depends on both the product and person.

Dynamics

• Consumers use the Web differently for a variety of retail product categories. Patterns have solidified in the past two years.
• Consumers rely on the Web throughout the product purchase and use cycle, creating many opportunities for brand building.
• The Web influences consumer shopping and spending in many ways that go beyond the current online activity or sale.
  

Predictions

• By 2004, e-commerce (click-to-order) forecasts will be supplemented by metrics to measure Web effects on store sales.
• By 2006, Web-influenced sales will be over $500 billion, compared to just over $200 billion in click-to-order retail e-commerce.

Recommendations

• Retailers: Make sure your site capabilities match consumer behavior patterns. Plan for the total sales cycle.
• Manufacturers: Use your site to support both the consumer and the retailer. Remember to strengthen post-sales product support.
• Start with the low-hanging fruit. Simple steps like consumer access to online user manuals can give your brand image a boost.

Dig Deeper

• Related Research from GartnerG2
• Presentation
• Methodology

Viewpoint

Putting the Web in a larger context

To date, most Internet retailing has focused around online sales—so-called click-to-order. But US consumers don’t just buy on the Web, they also use it to shop and get service. What and why depends on both the product and person. The US government, GartnerG2 and a number of other groups now track online retail commerce. The government’s quarterly trend data demonstrates steady but moderate growth in online buying that is
likely to continue.

Manufacturers and retailers both must realize that this growth is the beginning—not the end—of the online retail channel evolution. While it enables pure “click-to-order” sales, the Internet is a robust channel for all aspects of the sales, purchase and use cycle for consumer goods.

To wring maximum benefit from this continually evolving channel, manufacturers and retailers must learn to leverage the Web throughout the entire purchase and use cycle, understanding how consumers use the Web differently for various product types. In short, they must learn to use the Web as part of a multichannel approach to serving consumer needs, rather than seeing it as a narrow stovepipe channel, isolated from other channels.

Dynamics

Consumer online behavior patterns emerge

Consumers use the Web differently for a variety of retail product categories. They have learned from experience that buying products on the Web has positive aspects (convenience, selection, privacy), as well as negative ones (slow product browsing, lack of tactile and other sensory input, limited support).

Consequently, online buying behavior has shifted over the past several years. Consumers are more selective in how they use the Web for shopping or actual purchasing. Multiple waves of consumer research conducted by GartnerG2 in the past two years provide clear evidence of these developing patterns (see Figure 1). There is wide variation in the proportion of Internet users who shop online for different product categories. (Note: These proportions are independent of overall purchase rates for these products across all channels. Some of the most frequently purchased products overall, such as groceries and over-the-counter medicines, have relative low online browse rates.)

Source: GartnerG2, May 2000

The shifts from early 2000 to mid-2002 reveal some surprises. Expectations were that online shopping would steadily increase. Overall, that has proved true. But on a category-by- category basis, browsing rates have declined. Consumers are becoming more selective in the categories they shop for on the Web (see Figures 2 and 3).

Source: GartnerG2, August 2001

Source: GartnerG2, July 2002

In almost every product category, the proportion of Internet users who have recently shopped for that product has declined. At the same time, the number of shoppers who convert at least one shopping occasion to a purchase has increased. In other words, consumers have become more selective in how they use the Web for shopping, but also have grown more comfortable with the Web as a place to buy certain products.

Product attributes, not marketing, drive consumer Web buying

Product attributes, not marketing, drive how consumers use the Web in the purchasing process. Flashy Web sites, media exposure and portal deals do not change one critical element: consumer behavior. While roughly half of all US online consumers buy products online, retail e-commerce thrives only when consumer preferences and product attributes are in sync. The “buy-to-browse” ratio shown above measures the relative selling success of various retail categories. Categories that appear in the upper right corner have relatively high proportions of Internet shoppers and relatively efficient buy-to-browse ratios.

GartnerG2 has identified several main “constellations” of product categories:

• Shrink-wrapped: Prepackaged, low-value, commodity, media products, prebound or shrink-wrapped from manufacturers, of a size and weight that allow easy mailing or shipping. Products include books, CDs, DVDs, toys, computer software and games. Price, availability and fulfillment are the principal drivers of consumer behavior. Convenience opportunities are high relative to conventional channels, and this has been the source of much of the product volume of online sales.
  
  
• Tele-shopper shift: Closely related to the components of the shrink-wrapped group. Products in this group include fashion and “for delivery” items such as apparel; jewelry and collectibles; flowers and gifts; sports, concert, theater and similar event tickets. These product categories have established channels apart from brick-and-mortar stores—such as mail order, television shopping or toll-free telephone ordering. Much of the growth comes from a shift of these direct-to-consumer products (especially catalog items) being ordered through the Web, rather than via telephone or mail order.
  
  
  • Williams-Sonoma reported that the Web accounted for $132.8 million in sales for Q4 2001. The company estimated that while 40% to 50% of this figure represented incremental volume, more than half was considered to be a channel-shift by catalog buyers

The most recent wave of data from mid-2002 shows that the shrink-wrapped and teleshopper shift groups are merging into a single product group, the “sweet spot.” This is likely due to two converging factors:

• Consumer online shopping behavior is maturing, and these products are all highly suitable for the single-channel “click-to-order” buying process.
• Direct-to-consumer retailers are becoming more adept at integrating nonstore channels. Virtually all catalog retailers and home shopping channels integrate the Web as an ordering option, and many provide tools—such as quick-order boxes or links on the home page—to make multichannel shopping consumer-friendly.
  
  
• Feature-driven. These products involve multichannel behavior, where consumers may conduct research online, evaluate product features in a retail store, and then order via the Internet. Products in this category include small-office and home office equipment; computer systems and peripherals; electronics and housewares. Both human nature and Web limitations contribute to this multichannel behavior. It’s human nature to want to touch some products—to punch the buttons, twirl the knobs, gather tactile information and see how a product operates. A wide range of product specifications and variations—best explained by a face-to-face sales person—hinder direct online ordering. The Web limits the ability to determine the picture or sound quality of audio/video or some computer equipment. Most consumers use the Web for pre-shopping research and locating stores to visit for a more hands-on product evaluation.
  
  
• Heavy lifting. These products are generally large, in terms of both cost and weight, and require direct consumer involvement in the delivery. The category includes furniture, major appliances and auto parts. Size, price and the cost of direct shipping (rather than from a local distribution center) all inhibit online purchasing. This group also has some of the need for tactile input that affects the multichannel group, such as sitting on a chair or lying down on a bed. Internet use in these categories logically focuses more on gathering information than on buying directly.
  
  
  • Furniture.com began with the premise of selling substantial furniture products direct to consumers, but ceased operations in November of 2000. Too few consumers were willing to buy these products directly at prices that could sustain the business. The Web site re-opened in 2001 after an employee buy-out. In its new incarnation, the organization works with a network of established brick-and-mortar furniture retailers that provide inventory, logistics, delivery and support functions.
    
    
• Niche buys. Many products in this category are purchased offline. “Niche” refers to the online opportunity. These are products—such as health and beauty aids, groceries, gourmet food and wine; prescriptions and over-the-counter drugs; movie tickets; pet food; and sporting goods—with relatively low levels of browsing, but significant conversion of browsers to buyers. Online buying here probably comes from individuals with strong brand preferences. For those with set brand preferences and established replenishment frequency, these categories are similar to the shrink-wrapped category. Generally, it’s easier to buy these products offline. The products also have other constraints that limit the convenience of Internet-based buying—such as prescription plan coverage for drugs, or perishable groceries and gourmet products.

Cast a wider Web

Reliance on the Web throughout the product purchase and use cycle creates many opportunities for brand building. Every product is acquired and consumed in a process that has three basic stages, whether it is spaghetti sauce for dinner or a washing machine that will last over 10 years:

• Look (need identification, product assessment and comparison).
• Buy (selection and purchase).
• Use (consumption and disposition or replacement).

The Web provides opportunities to build brand image and brand identification throughout this process, even when the product is not well suited to direct purchasing online (see Figure 4). Companies can identify which opportunities make sense for promoting and supporting their products online, and then provide that support, either on their own site or through those of supply chain partners.

Source: GartnerG2, July 2002

Companies can leverage the Web in a number of ways:

• Category/application information. Consumers may need help in understanding how to use or apply a product as a pre-condition to purchase. Examples are do-it-yourself support areas or recipes for food products.
• Store selection. Consumers who are buying in a new category, looking at a new brand or relocating to a new community are likely to need the help of a store locator. It is particularly beneficial if the locator is tied into mapping and driving direction information.
• Channel evaluation. The Internet has strengths and weaknesses (as do other channels) for product evaluation and purchasing. Retailers can provide incentives and support on the Web site to encourage site visitors to try other channels that are better suited—for either the customer or the store. Products in the feature driven and heavy lifting categories often lend themselves to pre-shopping and product evaluation on the Web, then supporting in-store sales through promotions or contact information solicitation with store staff follow-up.
• Product comparison. For more complex products, side-by-side feature comparisons and custom configurators are particularly useful Web applications for manufacturers, retailers or even third-party sites. Robust content, including independent reviews, objective evaluations and consumer feedback, will prove more effective than marketing language borrowed from a brochure.
  • User testimonials and user community feedback can be integrated as an important aspect of product evaluation and comparison.
• Business-to-consumer (B2C) commerce. For many sites, the click-to-order capability is still the core aspect of the online experience. However, retailers and manufacturers must be objective when analyzing this aspect of Web-based retailing. In the end, consumer behavior will rule. Marketing can aid a real online sales opportunity, but it can’t rescue an unreasonable one.

Look at the entire cycle

Post-sale support is critical, and the Web provides some key opportunities to upsell, cross-sell and promote repurchase. There are a number of tools that can help reassure consumers, build brand image and promote favorable word-of-mouth:

• Online user manuals. Every household occasionally loses user manuals—for DVD players, digital cameras, cell phones or similar devices. Making it easy to access manuals online—preferably in HTML, Adobe or other easily opened formats—can reinforce a company’s image as a strong service provider.
• Frequently asked questions (FAQs) and use information. These provide answers to common questions. FAQs can substantially reduce the need for call center and other interactive support, and can free those operations up to handle more complex consumer issues. Ideally, these two service channels should work synergistically, so that simple, recurring requests can be identified and included in the FAQ section.
• Service locations. Despite the throw-away design of many consumer products, providing warranty and post-warranty service locations is another way to move recurring customer service functions to a self-service channel.
• Accessory selection and purchase. While the final sale may take place in a different channel, providing information on suitable accessories and parts on a site can increase incremental sales. It also helps manufacturers sell directly to the consumer without creating channel conflicts with major retailers. This type of inventory is difficult for a retailer to maintain at individual store locations, and the marginal value of special orders is likely to be nonexistent.
• User communities. Establishing areas on the site that allow users to share experiences and gather information is especially valuable with high involvement or frequently replenished products. Likewise in product categories where emotional or psychological attachments can be linked to the product or its use, from medical products and sports equipment to diapers and pet supplies. Additionally, providing these areas can help manufacturers gather insight into possible problems consumers may experience with their purchases, or identify unexpected opportunities for extended use.

In the 1960s and 1970s, the Yellow Pages were the basic channel for enhancing consumer-initiated communication with a company (mainly retailers). In the past 20 years, this was supplemented by the toll-free number for customer service (mainly manufacturers). The Internet is now taking its place as the next generation of communications channels. Over two-thirds of Americans currently use the Internet once a month or more. As this usage matures, consumers will increasingly expect all consumerfacing companies—manufacturers and retailers—to have at least some Web presence to get information.

Statistics support the Web’s influence across multiple channels

Analysis of consumer spending patterns clearly shows that the Web's influence on consumer shopping and spending goes well beyond the current online activity or sale. GartnerG2 research shows that, in most categories, the influence of the Web on store buying includes both shopping and concurrent buying behavior (see Table 1). Even though only 10% to 20% of category buyers typically use multiple channels concurrently, it represents literally millions of opportunities to promote brands and stimulate store traffic.

Base = All Internet users
Source: GartnerG2, July 2002

Other research reinforces the conclusion that online sales have a ripple effect, and influence subsequent offline sales in the same category. Data from eCommerce Pulse (see Figure 5) calculates the effect that online ordering has on subsequent purchasing within the same product category.

Source: eCommerce Pulse, December 2001

While the value of follow-on purchases varies widely by category (not a surprise, given how consumer use of the Web changes by product), this data provides strong additional support for the value of the Web beyond actual online ordering. Across categories, the measurable in-store sales represent averages more than the actual online value of the Web purchase.

Predictions

• By 2004, e-commerce (click-to-order) forecasts will be supplemented by metrics to measure Web effects on store sales. Retailer and manufacturers will look for measures that help evaluate “pull-through” and “push-through” of Web-based marketing activities. Loyalty programs, catalog identifiers, downloadable coupons and similar techniques will be tried to entice consumers to close and complete the information feedback loop.
• By 2006, Web-influenced sales will be over $500 billion, compared to just over $200 billion in click-to-order retail e-commerce. Click-to-order retail ecommerce will grow 35% to 40% annually. But retailers and manufacturers will leverage the Web as a sales and service tool for other channels, especially the brick-and-mortar stores. GartnerG2 projects that, conservatively, total offline sales volume influenced by online activity will be two to three times that much, in the range of $440 billion to $655 billion by 2006.

Recommendations

• Retailers: Make sure your site capabilities match consumer behavior patterns. Plan for the total sales cycle.
  • If your main product categories fall in or near the online sweet spot, provide robust Web-based ordering functionality.
  • If your main offerings are in the feature-driven or heavy lifting categories, use the Web primarily as a pre-shopping information and post-purchase support tool.
  • Niche buy retailers: Weigh any extensive Web-based sales effort carefully—utilization rates will make profitable online selling a difficult challenge. Likely, the more conservative and prudent course is to act like a feature-driven product vendor and surround the offline sales effort online.
• Manufacturers: Use your site to support both the consumer and the retailer. Remember to strengthen post-sales product support. Consumer goods manufacturers have a great deal to gain through encouraging repeat purchases and purchases of their products in related categories. Enhancing the consumer experience after the initial sale through strong Web support is a cost-effective means of promoting this. The Web also enables manufacturers to help consumers understand how to get the most out of what they have already purchased, which also strengthens a brand’s image in the consumer mind (and wallet).
• Start with the low-hanging fruit. Simple steps like consumer access to user manuals online can give your brand image a boost. Effective use of the Web doesn’t have to mean enormous investments in customer relationship management or personalization. If information is readily available and logically presented, users will be able to “help themselves.” The result will be more satisfied and more loyal customers.

Dig Deeper

Related Research from GartnerG2

Report: 15 Best Practices to Improve Retail Web Site Usability
By Geri Spieler (16 July 2002)

Report: E-tailers and Retailers: Leverage the Sales Channels
By David Schehr (31 March 2001)

Report: The Internet Market You’re Overlooking: Go for the Gray
By David Schehr (22 August 2001)

Presentation

A PowerPoint presentation, Evolution of US Online Shopping Behavior, 2000–2002, is available for download.

Methodology

Findings discussed in this report are based on a combination of sources. Principal survey findings are based on a consumer mail survey conducted during May and June of 2002. GartnerG2 surveyed a representative sample of US households. Respondents included 5,835 adults aged 18 or older. Responses were weighted and projected to a universe of 105.5 million households and 201.3 million individuals in the contiguous United States. Supplemental data from earlier Gartner consumer surveys has also been used in this report. Other data sources are as cited.

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

RESEARCH

IT Revenue Breaks Into Positive Territory
By Steve Baker, NPDTechworld

Industry Overview

The months of gradual improvement in IT sales finally culminated in positive trended sales in July. US retail POs sales were $26.5 billion in July, a .4% improvement over the 12 months ending in July 2001. This was the first positive rolling 12 month period since last August. The 12 month revenue of $26.5 billion was the highest 12 month time frame since the 12months ending in March 2001. For the month of July revenue of $1.88 billion represented an 8.9% improvement over July 2001 and was the highest monthly growth rate since March 2000, at the tail end of the Internet sales boom. Of course the key contributor to this result was the on-going improvement in desktop PC sales, which registered its smallest revenue decline, 3.1%, since November 2000. The twin fuel of stable pricing and a gradual improvement in unit volumes, which have now begun to approach their 2001 levels, have powered desktop sales. As more aggressive selling seasons loom in the horizon, back-to-school and Christmas, it remains to be seen if this momentum is enough to carry the positive sales trends through the end of the year.

Category Specific

Hard Drives Sales Get Bigger
Hard drives, once an afterthought on the retail sales floor have come into their own as a key retail category. Both revenue and units have been steadily rising as overall industry trends have combined with the inner workings of the hard drive industry to elevate the need for mass storage, while improving its ease of use. For the first seven months of 2002 unit sales volume grew by 12.8% while revenues advanced 7.9%. The average price of a drive, before rebate, was $125, down only $5 from the same period in 2001.

Hard drives have benefited from the increasing need for storage by PC users as tasks like home video, picture editing, digital photography back-up and MP3 file burning have taken up increasing amounts of drive space. At the same time the gradual industry trend toward external peripheral solutions has greatly benefited hard drives as consumers are more comfortable with plug 'n play USB or Firewire drives versus the need to open up the case and install the drive.

To prove the point NPD Techworld's POs data shows that the share of revenue for external hard drives in the first 7 months of 2002 is up to 14.2% from 7.9% in the prior year. Unit volume has grown equivalently, with year-over-year unit growth of over 128% in contrast to the 4% growth in sales of internal drives. Certainly the opportunities in drive sales to consumers have improved and enticed new entrants into the market such as Seagate, which had left the direct to consumer for a number of years.

Throughout the explosion in the need for storage, and the continued growth in mass storage, hard drives have remained the cheapest and most flexible storage medium available to consumers. The advent of plug n' play, and especially the opportunity presented by the coming universal availability of high speed USB ports, are helping to cement the opportunity for this category. One key advantage that hard drives are more poised than ever to exploit is their position as one of the true classic technology categories. Price continues to fall in concert with increasing levels of performance. While an external hard drive cost, on average, $266 in the first seven months of 2001, that price had fallen to $225 during the same time period in 2002. And that $266 would have bought a 40GB drive in 2001 but by 2002 the average price would have bought a drive twice that large, 80GB.

RESEARCH

ARS surveys the Scanners and Flash Memory Market
By Dwain Smith Research Analyst, Scanners and Flash Memory

If you're like most people and don't have the luxury of an ultra-light portable laptop at your disposal to store and transport files from place to place (i.e. work to home), then key chain memory modules or portable USB flash drives are a great alternative. When it comes time to transfer data from one system to another, these devices are lifesavers. You can store all types of files, including large office documents, pictures taken from digital cameras, as well as audio files. Floppy disks have proven to be a good, inexpensive alternative for storing and transferring data, but now with the advent of digital cameras, digital camcorders and digital audio devices, which all produce extremely large files, their usefulness (popularity) is diminishing rapidly.

In the past, floppy disks have been an effective way to store and transfer data - these three and a half inch disks are durable, small and capable of holding 1.44MB of data. But today, with the size of files being generated from digital cameras, music players and other devices, the usefulness of floppies is lessening. A growing trend in the laptop market contributing to the demise of the floppy is the integration of a CD-R/W or memory card slot. While the memory card slot is an emerging trend, it is still far from being standardized. Laptop manufacturers such as Sony and Toshiba are integrating memory card slots in their machines, opting to not include floppy drives at all. Apple also chose to leave out a disk drive in its popular iBook. There are other alternatives for storing data on 'floppy-less' systems including Zip Drives, but not all computers are equipped to handle these devices.

The only true universal link between all laptops and desktops is the USB port, which makes the USB flash drives even more valuable. To use the flash drives, all you need to do is just plug it into any USB port on a PC or Apple and within seconds it is recognized by the computer. Computers will typically assign a letter and name to the device often times referring to it as a 'removable disk.' It then lets you drop and drag files just as you would do with your regular hard drive. When you're done you can simply remove the flash drive and access the information as you need it on various devices. Other features of the USB flash drive includes; the ability to act as a memory card reader, the absence of cumbersome cords, and, depending on what operating system you run, plug-n-play compliancy. All of these make it easy to use on any device. If you run Mac OS 9 or later, or Windows 2000 or later, you typically won't need a software driver. However, if that's not the case, all USB flash drives include software drivers to get you up and running.

Data is stored in these devices on flash memory chips, the memory frequently used in digital cameras, PDAs and digital music players. Flash memory is unique in that it retains its contents even when it's not powered. This feature, along with its ruggedness, enables users to handle it with more abandon when compared to floppies, ensuring that your data is less likely to be compromised in any way.

USB flash drives come in many different form factors and colors, ranging in size from that of a fat highlighter pen to a Zippo lighter. Their practicality and their attractive designs appeal to a diverse audience including business users and students. They are reusable, and can store anywhere from 8MB to 1GB, compared to 1.44MB for floppies, and 650MB for CDs. This higher capacity is extremely useful, considering most files from digital cameras and MP3 players can range from 7kb to 650kb in size. The physical size of the device doesn't change as the capacity goes up, but the price does, and they don't come cheap. But with the introduction of new products into this market, pricing for these devices should come down dramatically within the next 12 months. A 64MB USB flash drive ranges in price from $49-$99, while a 128MB device will cost you anywhere from $69-$149 depending on the brand. This appears to be much more expensive than floppies or CDs, but the aforementioned mediums require mechanical drives. When you factor in the cost of the disk drive along with the cost of the media, the cost factor of the flash drives are much more justifiable.

USB flash drives were first introduced in November 2000, and up until recently have only been available on the Internet. Over the past few months these little devices have been gaining the attention of retailers. The first stores to allocate shelf space to the devices included Micro Center, Circuit City, CompUSA and Best Buy. Although consumer awareness of these devices is minimal compared to floppies or CDs, USB flash drives serve an important purpose and provide both manufacturers and retailers with high margins.

Through the use of USB flash drives, users now have an increasingly cheaper and easier way to store and exchange data, but awareness of these devices is minimal. There are cost effective ways of transferring data if you don't have a laptop, such as CDs or Zip Drives, but they each have their drawbacks. Retailers and manufacturers both need to intensify their promotional efforts to highlight these devices -- especially during peak shopping seasons (i.e. back-to-school or the upcoming holiday season). They should target the consumer and business markets with niche marketing tactics to lure consumers, because if you want a quick, easy and practical way to transfer large files, without lugging around a laptop, portable USB flash devices definitely fit the bill.

If users are looking for a simple, cost effective means to store and exchange data without lugging around a cumbersome laptop, USB flash drives may be the way to go. However, with the slow acceptance by retailers to stock their shelves, user awareness of these devices to date has been minimal. However, if retailers and manufacturers intensify their promotional efforts to highlight these devices, especially during peak shopping seasons (i.e. back-to-school, the holiday season), they just might find a niche market of consumers and businesses who will look to flash devices to fit their transferring needs.

COMMUNITY

DVD Video Steaming into Roster of Hot Holiday Products
By Lee Sherwood, Pinnacle Systems

DVD, the fastest growing consumer electronics technology in history, has created a dynamic product pyramid and unprecedented opportunities for retailers this holiday season.

Resellers who look at product sales charts and analyst projections when planning their holiday strategy will see video emerging as the "killer app" in the DVD pyramid. The pyramid has expanded quickly from DVD players to digital cameras and camcorders.

In the pyramid, every product increases demand for the others. Sales of DVD players have steadily increased since 1997. This year, DVD player sales are projected to surpass sales of VCRs and the worldwide installed base of DVD players will reach nearly 200 million units.

The installed base of camcorders (especially DV camcorders) has grown steadily since 1997.

With digital camcorders now available for $275, prices have dropped to the point where sales of digital cameras took off. Camcorders, which are expected to reach a household penetration of nearly 40 percent this year, are driving the market for PC video editing and authoring software.

Sales of video editing solutions are rising because today's digital savvy consumers realize that just plugging the camcorder into the back of a TV and watching unedited video loses its appeal after a while.

The basic software that comes with today's digital capture devices generally does little more than let the user capture their photos and video. As a result, all of the people who buy (or have recently bought) a digital camera or camcorder are prime candidates for video editing software that will maximize the benefits of their new purchase. Software that will let them quickly edit and burn their stills and videos to CDs or DVDs that play on DVD players.

The growing demand for consumer video editing solutions has inspired software firms to take the complexity out of selling and using video editing software. Products are now available that meet the requirements of consumers with varying levels of video editing experience-from novice to professional.

For less than $50, basic programs like Pinnacle Express provide digital camera owners with a cost-effective way of making the transition from digital photos to interactive slide shows and video, and from VHS tape to long-lasting CDs and DVDs. They can organize their digital pictures and have them automatically compiled into photo slideshows, complete with background music. Then, when they purchase a camcorder, they can use the same program to delete unwanted scenes from their videos and can add Hollywood-style transitions and effects simply by dragging and dropping.

In addition to generating new opportunities for product bundles and add-on sales, video editing applications generate after-market sales. After experiencing success, home video enthusiasts usually want to upgrade to a software solution that offers more editing effects and direct output to CDs, DVDs and the Internet.

By offering a choice in output for slide shows and videos, software developers provide prospective buyers with compelling reasons to buy now, rather waiting until they purchase a DVD burner. Consumers who don't have a DVD burner can record DVD-quality video on a CD that can be played on virtually any DVD-ROM drive or DVD player as well as computer-based CD-ROM drives.

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COMMUNITY

Changing Channels
By Steve Cross

Can We Learn from the Europeans?

A couple weeks ago we all got the news that The Wiz, long-time retailer in the New York tri-state area, is shutting down 26 of their 43 stores. At the same time, Best Buy is opening 60 stores this year. What's going on here?

The Wiz is a chain of 10-12,000 sq foot stores. Small-format, we would call them. Not in Europe. In France or the UK, 10-12,000 is a slightly oversized retail format. A regular "high-street" store (what we would call a downtown store) is usually 5-7,000 square feet. And they seem to make it work.

Of course they have large-format and superstores. Heck, who do you think invented the Walmart-style hypermarket? Not Sam Walton. He first observed the hypermarket on a trip to France. The French put all their superstores out in the country, near major freeways. There's just no room in European cities for big stores. They don't have the space available. The continent has been home to civilized man for over a millennium (with some time off for the dark ages), and they're sort of packed in. Most mid-sized towns in Europe have shopping streets with residential living above. The living spaces are small too, as are the appliances. That's the main reason French and Italian women shop daily; they have teeny-little refrigerators, just larger than what we all had in college. There's no room to store anything. An unintended consequence is that their food is fresher (and possibly more nutritious) than ours.

I was surprised, on my first trip to England years ago, by just how small the stores were. There was a sudden change in weather, and my wife Susan went into a "jumper" (sweater) store to buy something warm. Well, we were flabbergasted by how little merchandise the store had on display. And friends, they had no stockroom in back. Everything in the store was on display, in a little tiny store of maybe 1,000 sq feet! And this was a national chain of sweater stores!!

Best Buy offers a ton of choice to the consumer in their stores. I believe they have two formats; 30,000 and 45,000 square feet. There's a lot to like in a Best Buy...appliances, phones, small electronics, Music Cds, DVDs, computers, software...a strong competitor. It's going to be tough for some of the players to compete. Can we keep small-format stores alive? In the cities maybe. In the suburbs and exurbs; don't think so. Good luck Wiz. Hang in there.

Steve Cross can be reached at Steve@crosschannel.com, 702-492-7472. He consults on various strategic and channel issues. Click here to see his new book, "Changing Channels".

COMMUNITY

New Trends in Online Shopping - Online Shoppers to Increase Average Spending to $1,089 in 2002
By emarketer.com

In its latest report, Retail Industry Online, eMarketer estimates that US internet users will increase their annual online spending from an average $866 in 2001 to more than $1,089 by the end of 2002. The report also notes that sales data from online retailers indicate that repeat customers account for a growing portion of online sales, and these same customers are typically spending more each time they buy online.

Repeat business from customers who are more comfortable with making online purchases has helped bring down the average customer acquisition cost by 60%. Retailers also reduced expenses by reining-in marketing costs, which fell from $26 per order in 1999 to $12 per order last year. For more information, please visit: www.eMarketer.com.

LISTS

NPD's Hits List of Top-Selling Software - September 15 - September 21, 2002
Provided by NPD Techworld

List is based on units sold by twenty-three channel partners. For more information, please contact NPDTechworld at (703) 376-6200.