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MARKETING

TV or Not TV

How businesses are selling products through TV shopping channels such as QVC and Home Shopping Network.
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You don't care about TV home shopping yet. But you will.

The greenroom at home-shopping broadcaster QVC really is green. Green rug, green walls, green upholstery. Everything the color of money.

Like greenrooms everywhere, it has a TV tuned to the live feed from the studio. Next to the TV on the credenza sit two computer monitors. One lists the products QVC is featuring on the air at that moment. It has a column for sales and a column for inventory, and it updates the information every five seconds. The other displays a multicolored horizontal bar - green for calls to live operators, yellow for calls to the computer, and red for occasional overloads (indicating a buying frenzy in progress). As calls come and go, the bar quivers.

Not long ago Quay Hays, head of General Publishing Group, in Los Angeles, got to see the bar quiver, swell, and turn red. It was a Friday in November, around suppertime. Author Frank Coffey was in the studio to pitch a book from GPG's fall list: 60 Minutes: Twenty-five Years of Television's Finest Hour. Two weeks earlier Coffey had spent a whole day at a printing plant in Willard, Ohio, autographing 3,000 copies of his book for shipment to QVC's warehouse. Now, as Hays waited in the greenroom, the perky QVC hostess put aside the white teddy bear that sings Christmas carols when you wave your hand in front of its face and held up Coffey's book.

"There were about 15 people there," Hays recalls. "Our group, our rep, the book buyer from QVC, and two people who were going on after us to sell porcelain from Norway. We just started watching the author talk, and we started watching those numbers build on the computer screen. Pretty soon every operator was busy, and there were calls on hold. And the number kept rising. First it was 1,000, then 2,000. Five minutes into the show, people were jumping up and down in the greenroom, yelling, 'Get him off! We don't have any more inventory!' "

The book's second appearance, despite airing opposite a "60 Minutes" anniversary special on CBS, was also a sellout: 5,000 books in 12 minutes. All told, in 17 minutes on QVC, the book sold 8,000 copies and racked up $240,000 in sales.

"What immediately entered my mind," Hays says now, remembering that lightning in the greenroom, "was 'We want to sell all our books this way!' "

Maybe he will. And maybe one day, despite what you're thinking now, you'll sell your products that way, too. True, home shopping is currently just a $2.5-billion speck in the trillion-dollar retail universe. But the arguments in its favor only begin with what Hays learned firsthand - that this is a distribution channel with enormous power, even in its technological infancy.

Add to that the buzz quotient. First Barry Diller ended his post-Fox sabbatical and joined forces with QVC. Then came Diller's high-profile pursuit of Paramount (even though he lost); the announcements by Spiegel (a cataloger) and R. H. Macy (a department store) of plans to create their own home-shopping services; the tantalizing speculation surrounding experiments with true interactive networks involving Time Warner, Microsoft, and others; and the sum of so many paradigm-shattering, eye-popping personal experiences like Hays's.

Imagine a TV dial with 500 channels, 400 of which sell everything from wristwatches and hiking boots to accounting software and consulting help. Imagine, ultimately, info-highway-bred interactivity enabling customers to summon product reviews, ask questions, and sample services from the comfort of their Barcaloungers.

Why wouldn't it work? Why shouldn't it work for you?

"This is the beginning of a very important transition," says Gary Arlen, a consultant to interactive merchandisers. "Now is the time to determine how your product might fit into all this."

Of course, who could be blamed for discounting all this hype? For thinking of TV shopping and remembering only the Exorb-it 2000 (more than a sponge, it's a "high-tech suction block") or the Tank Topper (a wicker planter/toilet accessory that takes care of the plant-watering chore automatically)? You have doubts. We understand. Here, then, are some questions and answers about the most maligned, misunderstood, and (maybe) underestimated sales channel in existence.

Isn't a lot of the stuff they sell on TV schlock? Karen Fried thought so . . . at first. She's the inventor of a word game called Think-It Link-It. When a QVC buyer approached her early last year, she backed away. "I had gone to great pains to create an upscale image for my product," she says. "It was critically important that I stand apart. Now I'm going to be on QVC?"

Eventually, however, Fried changed her mind - and found TV selling worthwhile, even if sales were only so-so by QVC's standards. (In the early days of electronic retailing, selling $10,000 worth of merchandise in one hour was considered excellent. Nowadays, the network would like to do at least that much per minute.) After two tries, QVC stopped inviting her back. But her biggest worry - that appearing on a home-shopping channel would somehow taint her product's image - disappeared once customers began approaching her at game demos in swanky toy stores like FAO Schwarz, saying, "Gee, I saw you on QVC."

* * *

So it's not just mall grazers and shut-ins who shop on television? Not anymore. The demographics are clearly improving. Recent surveys paint a fairly attractive portrait of home shoppers: 25% in the target 25-to-34 age range, and an average household income of almost $35,000. Women buyers still outnumber men - by about three to one - but men are starting to watch. Ask around. Even if you've never bought anything on television, chances are, your friends have. (If they'll admit it, maybe you should, too. The stigma is fading. It's OK to shop at home.)

* * *

Bought what, exactly? What sells? Besides jewelry? The product line is expanding, but slowly. No one is more aware of the medium's current limitations than tiny ValueVision, which broadcasts to 10 million households from Eden Prairie, Minn. At ValueVision, rings, bracelets, necklaces, and pins account for 70% of all sales, compared with just under 50% at QVC and HSN. "When you're in 50 million homes," says Mark Payne, ValueVision's chief financial officer, "you can put on lots of things with adequate success. Last year QVC did an hour of throw pillows."

* * *

What else sells? Stuff you can demonstrate. If it begs an explanation or requires an elaborate presentation - that is, if it's a fitness machine, a cooking gadget, a new kind of engine additive - it could fare better on a home-shopping channel than in a store, where the burden lies with a salesperson who may or may not be up to the task. That's why Bob DeBoyace (who also brought us the Exorb-it 2000) thought of QVC when he came across the Bloomin' Aquarium on a recent buying trip to Germany. "It's like an upside-down goldfish bowl that when you put flowers in it, magnifies them about two times and preserves them," DeBoyace explains - or tries to; it's not easy. Home shopping gives him the 15 minutes he feels he needs to show people how the product works.

* * *

Why not just do an infomercial? Because first you'd have to produce it, and then you'd have to pay to put it on the air. Home shopping is free.

* * *

What do the home-shopping broadcasters look for in a product? Because home shopping is live television, it can capitalize on demand faster than anybody else can. Seconds after the last Super Bowl ended on NBC, for example, QVC was offering the same limited-edition hat the Cowboys were wearing at that very moment in the locker room. Sales topped 18,500 units.

Wide appeal works, too. One day home shopping, like other retail outlets, will become segmented. Already the channels are getting more sophisticated at planning shows around product categories and spinning off sibling channels (see "What's On," page 5) aimed at narrower markets. Technological advances will only accelerate the trend. But for now, it helps to have a product that most people watching would at least consider buying.

Finally, home-shopping channels crave exclusivity. Basically, that's been true ever since HSN invented home shopping. But back then, television was the last stop on the retail journey, a way to unload merchandise deemed unsalable by any other means. Deep discounts were the norm. And exclusivity was defined in slightly different terms - as in, "You won't find it anywhere else . . . not anymore!" You'll still find plenty of closeouts on home-shopping channels, especially in categories plagued by short product-life cycles (read electronics). Lately, though, the emphasis has tilted the other way - to products just starting out. Says Doug Briggs, QVC's president of electronic retailing, "More and more, we're doing product launches."

* * *

Why would I want to launch my product on a home-shopping channel? Listen to Frank Montemurro, a manufacturers' agent: "For small people, it comes down to cash flow and risk. It may be very easy to sell in 100,000 units to the traditional retail universe, but sell-through may be very limited, and advertising is expensive. I spent 20 years marketing products the traditional way with big advertising bucks. The amount you need today is staggering. This is a very clean way of doing business."

After a while you move on - to catalogs, to mass merchandisers, to Bloomingdales if that's your market. Products do age quickly on TV; Montemurro says 18 months is about the average life span, two years if you're lucky. But when you're just starting out, the advantages of taking the home-shopping route can be compelling. You get national reach; the equivalent of free advertising; instant market feedback ("You learn what the hot buttons are," says Montemurro); immediate results ("Boom!" says Hays. "The inventory's out, people are happy"); high short-term volume; and vendor-friendly terms (net 30 is the rule).

* * *

How do I get my product on? You could try open vendor day at QVC, Wednesdays from 1 p.m. to 5 p.m., no appointment necessary. "That's very hard," says Montemurro. "The odds of getting your product on are at least 100 to one. Only a year ago the odds were much better. But with Barry Diller and all the publicity, QVC has been inundated with people."

Or you could call vendor relations at any of the channels and request a product-information form, fill it out, attach a photo (samples are discouraged; you won't get them back), and hope for the best. Again, it's a long shot. At HSN, in St. Petersburg, Fla., buyers process 1,100 product sheets a week. Seventy-five percent fail to make the first cut.

Finally, you could contact an agent: someone like Montemurro or Marybeth Hanson, both of whom deal mainly with QVC. For a commission on sales, your agent can present your product to a buyer, usher it through quality control, track it into the warehouse, train the host, script the presentation, and decorate the set.

Above all, don't be discouraged if it doesn't happen right away. Some 3,100 vendors, about 100 of whom are new to the network in any given month, ply their wares on QVC. "The key to retailing electronically is fresh, exciting merchandise," says Frank Isola, vice-president for purchasing at HSN. "We have the ability to use up merchandise very quickly."

They need you.

* * *

Say they want my product. Then what? The channels will want samples. They'll want to run a batch through quality control. They may ask you to repackage. Often they'll run a low-volume market test in the middle of the night to get a feel for demand. (The verdict is swift. "Sometimes as fast as 30 seconds," says Briggs. "Sometimes as long as four minutes.") Assuming your product is a hit, they'll decide how many they can sell, order exactly that, and schedule an appearance. Initial orders vary, but figure $10,000 at cost, minimum. (The selling price is up to them; a 50% profit margin is the target.) Finally, they'll want the full order sitting in their warehouse a good 10 days to two weeks before show time.

* * *

So they handle fulfillment? Completely - a decision that's all wrapped up with the sticky fact that as consumers, most of us don't feel comfortable dealing with home-shopping broadcasters yet. We're afraid of getting saddled with shoddy merchandise; hence the liberal return policy - 30 days, no questions asked. And since we're probably buying on impulse, we're not willing to wait the proverbial "six to eight weeks" for delivery. Which is why QVC and HSN, at least, strive to ship every order within 24 hours. And that, in turn, means they can't sell an item unless it's already in the warehouse.

* * *

What's the best time to be on the air? Network prime time is good, meaning weekdays, 8 p.m to 11 p.m. Saturday morning is better, which is sort of surprising. But that's when working moms are home and the only other option is watching cartoons with the kids.

* * *

What if I sell $100,000 worth of wick-wacks to QVC and get on the air a whole hour on Saturday morning, but nobody calls? First of all, you'd be gone long before the hour was up. Remember the bar? If the bar's not wiggling, the director tells the host, and the host yanks the product, pronto. But that's beside the point. You're asking what happens if the inventory doesn't go anywhere. Or maybe it goes, and a week later it comes back. (Returns in the industry are notoriously high.)

Understand, the home-shopping channels try hard to avoid those kinds of problems, and they do a pretty good job. The knowledge they've acquired about their customers and their buying habits is vast, sophisticated, up-to-the-minute, and ever expanding (and all the more valuable for being proprietary; they rarely sell lists, and they never share with vendors).

But sometimes they're wrong. In the past, when home shopping was mainly for disposing of closeouts, the channels took the hit. HSN claims that it still does, though some vendors report otherwise. But at QVC, more often than not, the inventory risk belongs to the vendor. Meaning that if QVC can't sell your wick-wacks, instead of getting paid, you get your wick-wacks back. Ordinarily, within two weeks, thanks to QVC's advanced inventory-control system. (If you ever run into Joe Hoeflich, owner of Belle Neckwear, in New York City, ask him what he did with all the Elvis postage-stamp ties he packaged specially for QVC; they bombed during a single appearance last October and never got another chance.)

"What would you do if you sold only 10 pieces out of 800?" is the question you need to ask yourself when you start thinking about home shopping, says Marybeth Hanson. "Would it put you out of business? Then don't do it."

* * *

Are the terms negotiable? Of course. Plenty of people do deals that don't look anything at all like the model we just described. For example, Harvey Tauman's company, Hydron Technologies, makes a line of skin-care products involving a patented process that took years of research and development to perfect. When the time came, Tauman had no idea how to bring his products to market. So he approached Victor Grillo, president of Direct to Retail, a Natick, Mass., company that specializes in moving products up the retail ladder, from direct marketing to catalogs to store shelves. Grillo produced a series of direct-response television ads with actress Cheryl Ladd, but the results were disappointing. Then, in May 1993, Grillo got Hydron Plus (a hand cream) 15 minutes on the QVC Sampler Hour, with Tauman himself touting the product.

* * *

Tauman went on television? Why not? You see plenty of celebrities on home-shopping channels these days - Vanna White does shoes, Bobby Unser does engine treatments, Paul Prudhomme does cookbooks - but you see lots of regular folks, too. (Did anyone catch the basket weaver from Peterboro Baskets?) It's almost never just the host and the product -- that would be dull. In Hydron's case, nobody could recite the gospel with more conviction than the charismatic Tauman.

So Tauman went on the air and he did a beautiful job. "In minutes we sold out. Then I was on again the following month with three times as much, and that sold out. And the following month with much more than that, and that sold out. Then people all over the country started raving about the product."

Then last summer QVC came to Tauman and said, "We'd like to make an exclusive deal with you. We would like to develop a brand. We would like to do infomercials with it on various channels. We would like to bring the product to retail at the appropriate time and the appropriate places and really be involved major-league in developing the brand and making these things happen."

Both parties have since signed a comprehensive two-year agreement granting QVC exclusive rights to market Hydron Technologies consumer products not only on home-shopping channels in North, Central, and South America but also in direct-response TV advertisements and infomercials, which QVC plans to produce itself through a new division called QVC Direct. Eventually, QVC and Direct to Retail will join forces to bring the products to stores. Moreover, Hydron granted QVC stock options that kick in once sales goals are met.

So far, so good. Hydron's various products (all nine of them) have consistently sold out during regular 20-minute appearances on QVC. A Hydron Hour debuted at the end of April. Anyone who misses the show (or needs a refill) can order direct from QVC anytime by calling the toll-free number printed on the Hydron box.

* * *

Are partnerships like that common? Not yet, but maybe one day they will be. If the industry has its way, then as home shopping evolves, vendors and distributors will develop ever closer ties. "There are thousands of people in small companies out there who have great products but don't know how to bring them to market," says QVC's Briggs. "They don't have the capital, the know-how, the contacts. They don't know what to do with them. We want to be known as the place to bring those products."

* * *

How else will home shopping change? There will be more choices, for one. Meaning that if what we want is something to read, not a singing teddy bear, as consumers we'll have the option of choosing a channel that sells only books. And it may be coming sooner rather than later, with 500-channel cable systems. But step two, true interactivity, is when things will really start to get interesting. Having the freedom, say, to punch on the TV after work (or when the baby's napping), call up Books in Print, scan the best-seller list, maybe read a review or two, and order the book we want for delivery the next day (or better yet, download it and print it at home).

* * *

Sounds like a video catalog. Exactly. A lot of experts say the best indicator of the future of home shopping is the growth history of the $52-billion catalog industry. Right now the home-shopping channels are wrestling with the same issues of trust (consumers don't have confidence in them yet) and convenience (it's still lacking) that catalogs worked so hard to overcome. When home shopping catches up - and that's as much a matter of technology as anything else - then the market could explode.

* * *

When will that happen? Don't hold your breath. If you believe the hype, everything will be up and running and available universally by next Wednesday afternoon. More likely, interactivity - as we imagine it now - won't be along for the better part of the decade. But really, that's the wrong question. A better one would be, "At what rate will the technology continue to grow?" Psychiatrist Russ Ferstandig of Competitive Advantage Consulting explains:

"The future comes every minute. Because this is an amorphous thing, we tend to reduce it to a single concept. It's not. It's happening all the time. And we're in it."

* * *

Like Quay Hays before them, Ron and Mabel Howe of Eugene, Oreg., have come to QVC's headquarters in suburban Philadelphia, where TV selling's potentially limitless future meets the rather more prosaic here and now. Unlike Hays, they are here on open vendor day, in a windowless room crammed with cardboard boxes and empty dress racks. They sit side by side, facing Marthanne Summers, a QVC buyer, across a rectangular table. They are hopeful. Ron has removed his samples and laid them out on the table.

The Howes didn't fly all the way from Eugene just for this. They had stopped at a trade show in Chicago on the way and were planning to exhibit at another one here in Philadelphia starting in two days. But trade shows are business as usual for the owners of Beautiful Wood Products, a $500,000 manufacturer of mirrors, jewelry boxes, wine caddies, and assorted gift items. And lately business has not been so good.

"The first six months are terrible," Ron had confessed while waiting to see Summers. "We need to find a market for our products that isn't as seasonal."

Summers admires the swan-shaped fruit bowl with attached banana hook ("The quality is real good") and lingers over the apple tray. She is cool toward the cedar hanger and the coaster set and unimpressed by the wall clock. She asks how big the company is (nine employees); how many fruit bowls it could make in a month (1,000 to 2,000; "I have the ability to add more," Ron assures her); and the cost per unit ($35 wholesale).

With QVC's expected profit margin, that means the fruit bowl is potentially a $70 item; in other words, not an obvious bargain. That, Summers suggests, might make it less suitable to be sold with housewares (which happen to be her specialty) and a better candidate for a special show devoted to handicrafts - whose viewers appreciate quality and expect to pay more for it. QVC has such a show, but unfortunately, that buyer is not available today. She would, however, be attending the same trade show as the Howes; could she look them up there?

Ten minutes and it's all over. Summers stands, shakes hands with Ron and Mabel on their way out the door, and then turns to a colleague: "On to the next! Is the lobby packed?"


WHAT'S ON

HSN

From: St. Petersburg,Fla.; since 1982

Reach: 30 million broadcast households; 30 million cable households

1993 financials: Lost $22.8 million on revenues of $1 billion

The skinny: Inventor of the genre; known for hard-sell tactics and aggressive pricing; reportedly on Ted Turner's wish list

QVC

From: West Chester, Pa.; 1986

Reach: 50 million cable households

1993 financials: Made $72.5 million on revenues of $1.2 billion

The skinny: Classier than HSN; features softer sell, firmer pricing

ValueVision

From: Eden Prairie, Minn.; 1991

Reach: 10 million cable households

1993 financials: Lost $1.9 million on revenues of $37.6 million

The skinny: Upstart formed by CVN vets after QVC absorbed CVN in 1989; bugs its bigger brothers by discounting what they can't sell; can handle smaller volume

Catalog 1

From: New York City; March 1994

Reach: 400,000 cable households (test market)

The skinny: Joint venture of Spiegel and Time Warner; uses catalog format, featuring pricey merchandise from Spiegel and Eddie Bauer to start, with that of Horchow and others to follow

TSM

From: St. Petersburg; summer 1994

Reach: 20 million broadcast households; 3 million cable households

The skinny: HSN spin-off; that's TSM, as in Television Shopping Mall

TV Macy's

From: To be announced; fall 1994

Reach: 15 million cable households

The skinny: Features merchandise from Macy's and Bullock's

Q2; On Q

From: New York City; West Chester, Pa.; spring 1994

Reach: To be announced

The skinny: QVC spin-offs; Q2 will feature 30-minute segments on weekends; On Q, aimed at a younger audience, will air on weekdays


FUN FACTS

The book was called 60 Minutes, but it sold out in five. 'We want to sell all our books this way,' says General Publishing's Quay Hays.

The King really is dead: The Elvis tie was quickly yanked off the air after QVC viewers failed to respond by calling in orders.

When spokesmodel Cheryl Ladd couldn't excite much demand for Hydron skin-care products on direct-response TV ads, Harvey Tauman took his products to QVC, went on the air himself, and sold all his merchandise within an hour.

The Bloomin' Aquarium, a flower container, takes advantage of home-shopping TV's ability to showcase products that need to be demonstrated.

Barry Diller brought new credibility to home shopping when he took over QVC.

At both HSN and QVC, jewelry still accounts for almost 50% of all sales.

As the home-shopping channels diversify their lines and tilt ever more upscale, celebrity presenters proliferate. Ivana Trump pitches her jewelry line on HSN.

The Exorb-it 2000, demonstrated live by a presenter on QVC, is a likely TV success because almost any viewer could use it.




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