Faced with an advertiser’s liquidity problem, a radio station was forced to accept as compensation ( it’s hard to believe but true ) – paid in full with can openers. How could anyone create monetary value with can openers? Silly answer perhaps, but how about selling through on-air personality Bob Circosta for $9.95 each. Guess what? They all sold out and birth was given to radio home shopping. This was in 1977.

From this idea, in 1982, Lowell Bud Paxson created the Home Shopping Club, a local cable channel that could be viewed on various cable channels.

Four years after home shopping was founded, Joseph Segel, after watching a videotape of the Home Shopping Network ( now HSN ), identified gaps and potential improvements in how products should be offered and presented. Segel went on to create QVC ( stands for Quality, Value, Convenience ) and signed up fifty-eight cable stations in twenty states to carry its first live broadcast, reaching 7.6 million TV homes. Segal accomplished this by offering stocks to cable companies at a price of 20¢ a share while publicly available for $10 a share. In its first trading day QVC reached $20 per share and subsequently set a new record for first full-year fiscal sales for a new public company of $112 million.

Home shopping isn’t quixotic when you look at all the innovative and not-before-seen products that it sells: collectibles, fashion, cosmetics, shoes, home goods, kitchen gadgets, labor saving devices, unique food items, electronics and gift items. These product areas mirror the 90%-plus female audience. Recent statistics also show growth in the male market with NASCAR, the NFL, and Craftsman tools.
Where else could Naeem Khan’s evening designer dresses be sold out in just 10 minutes? How else could 30,000 Pieces of apparel designer Carlos Flachi sell over one weekend of his live appearances. And which other medium could Falchi handbags sell for $1600 each. HSN of course.

The television home shopping business is simple and exciting – but comes also with risk to the business owner. After months of persuading the network’s buyer, and having met all of the legal and quality control standards of the network, the inventor or seller will be issued a purchase order. Every purchase order must come with a full return privilege to the shopping network, meaning if the product does not sell, the network can return it to the seller.

According to Ladenburg Thalman & Co, the following is the breakdown for spending on home shopping in 2nd quarter 2009:

52 percent — Home, electronics and hard goods
17 percent — Jewelry
21 percent — Health and Beauty
10 percent — Fashion (apparel and accessories)

As can be expected, things aren’t as rosy these days for the home shopping business. Profits at the shopping channels fell 10-25% because of slowing sales. Adding to injury, all of the home shopping networks suffer from customers defaulting on their in house credit cards. When you consider that almost 100% of home shopping customers use credit cards to make purchases, home shopping networks have no cash paying customers

And Home Shopping has come a long ways since the days of call centers and interactive voice response systems to process orders. In 1994, in response to industry research which showed that just 8% of Americans ever bought from home-shopping shows, HSN began exploring new distribution channels for their merchandise. The theory was that if consumers wanted the freedom to choose which products and when they wanted to see, home shopping networks wanted to deliver the experience.

It seemed like a natural idea then for HSN to partner with Prodigy and Compuserve users, allowing online order purchases at the click of a button, using credit-card and shipping data already supplied to the online service. However, profiles of the average home-shopping customer -a middle-age, lower-income female-is quite the opposite from the online customer, who’s more often a young male professional. Whereas TV home shoppers flocked to jewelry and apparel, the online populations are more interested in electronic gadgets and sporting goods.

Today, HSN no longer just sells clothing, kitchen appliances, and cosmetics. The company also promotes products from companies like Kraft during its scheduled programming. According to Wall Street Journal, HSN will air a three-minute segment in which an HSN chef will show how to create a recipe from Kraft’s Food & Family magazine using Kraft products.

While some critics and tech-revolutionaires have argued that the home shopping industry’s death began with the birth of eBay, Amazon, and online behemoths, the truth often lurks in the middle.

Here’s why:

The more buyers can see you sell, the more you sell:

Shopping channels use seven to eight minute segments to discuss and demonstrate their products, while a typical spot on television is only one to two minutes at best. It’s proven time and time again that time matters; most sales made are in the final moments, not the first two.

Brand loyalty

Years of experience and presence on TV have earned Home Shopping a line of loyal customers. Over half of home shoppers buy 50 or more items per year. Knowledge, acceptance and trust: Home Shopping Networks have them. Shoppers also understand that if they are unhappy for any reason, they can get their money back.

Controlled media costs

The increasing cost of media is making direct response advertising more challenging. With shopping channels, the networks are owned, therefore they do not fall victim to increasing media costs or availability challenges. With live television it’s easy to calculate cost when you can see how many units have sold in real-time.

Pricing Advantage

Shopping channels strive for a 45% to 60% pricing model, giving them a better chance at profitability than the conventional five or seven to one models from direct response.

Product Credibility Factor

Accompanying each product presented in home shopping, an expert ( often the founder/inventor ) of the product details his “how it came about” story and other wow factors associated with the product. Customers can hear it from the horse’s mouth.

Personal recommendations & testimonials

The chance to receive feedback — love or hate — directly from the public is a positive advancement in commerce. Shopping networks have developed their own on-air talents, people that are considered trusted sources of information. When a talent gets excited about a product, the viewers follow. Shopping networks take on-air calls from people who have already bought and love a product. It is as if the viewer can eavesdrop on the neighborhood chatline.

Brand & Marketing Development

Home shopping networks have just as much interest in the success of a product as its inventor or owner. A typical 8-minute primetime airing on QVC is the equivalent of $300,000 of advertising for a product. Imagine having a trusted household company that every knows buys your product and throws in free advertising. One study reports eight minutes on QVC is worth about the equivalent of 50 spots on any other network. The difference is home shopping viewers are ready and willing to buy NOW.

Traffic

Websites like those of QVC and HSN are amongst the most-visited and best-converting sites. Last I checked, QVC rolled in over 4 million unique visitors a month and HSN pulled in about half the amount. Why shop from home when you can shop from anywhere? It’s easy. One simply needs to understand that anywhere includes at home.

Just two weeks ago, JC Penny, the 103 year-old company reported it has scaled back store openings and increased spending on mobile shopping. Ecommerce makes up just 9% of its $17.5 billion in annual revenue.

Likewise, Kohl’s Department Store is spending $100 million on e-commerce, and adding new distribution centers to fill online orders.

Andrew Bartels, of Forrester research, says it best, “This is a case of necessity being the mother of investment.”

The ability to shop from anywhere and everywhere is the future of shopping. While internet shopping may be slow when compared to televised sellathons, video and speed will create interactions like never before experienced through traditional home shopping. It could well become a chase between the construction of mobile shopping destinations and efficient bricks-and-mortar deconstruction. Whether it started on television, bricks, or internet, the finish line is mobile shopping. “WOW!” That’s how the winner will receive his approbation.

And anywhere shopping is definately at the right time.

This entry was posted on Friday, May 21st, 2010 at 4:43 am and is filed under Management, Marketing, Process, Product, Supply Chain. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.