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INDUSTRY EXPERTS PROVIDE PERSPECTIVE ON INTERNATIONAL TRENDS IN DIRECT-TO-CONSUMER COMMERCE IN 2011

By Vitisia Paynich

Electronic Retailer Magazine – February 2011

What does the future hold for direct marketers and retailers in 2011? The proverbial answer, of course, is: Nobody knows for sure. After all, if there were a crystal ball that revealed all the answers, the U.S. direct-to-consumer market would be worth even more than its substantial $300-billion figure. Yet, what about D2C commerce on a global level?

Again, the answer is anyone’s guess; however, emerging trends currently taking place in the international marketplace offer some clues into the types of opportunities awaiting those willing to dip their toe into foreign waters.

Electronic Retailer asked some of the industry’s leading experts to provide insight into the trends they see occurring today on the international stage and to shed light on the areas in which U.S. companies might want to point their global compass.

DRTV and Global Partnerships
As the economy remains on the mend and while some direct marketers hesitate to expand their business outside of their own backyard, others are gaining traction in markets throughout North America and Asia.

“Obviously, the economy has a big role in markets being successful, but it has less of a role than people think,” says Katie Williams, president of The Sylmark Group, a direct marketing company in Van Nuys, Calif. She adds that there are a number of markets with sluggish economies that are actually doing well in the DR space. “Where we are seeing the most growth is dependent on where we have found really savvy partners,” she says.

These are very experienced direct marketers who have grown their businesses by integrating DRTV, home shopping, online and retail best practices, and building their brand globally.

That multichannel thinking has also helped Sylmark and its partners to prosper in markets like Canada. According to Williams, “Despite its somewhat small size, Canada is actually one of the most important international markets for us. There are so many similarities of products that we’ve been able to build into brands here and it’s easy to do.”

Cecilia Turner, president of International Commerce Agency LLC – IComm, a direct marketing company headquartered in West Chester, Pa., says that some of her company’s international distributors are far more experimental than U.S. marketers in trying new ways to market. Some of them incorporate in-home sales—like party sales—into their DR business model. Others, Turner says, have developed a more refined level of customer service for a one-on-one customer interaction, which is why IComm has focused its attention on markets like Japan.

Sylmark also enjoys great success in Japan, even though the country is struggling through tough economic times. Again, Williams attributes her company’s good fortune to the quality of partners they’ve aligned themselves with in Japan.

“Ten years ago, many people didn’t even do upsells or continuity, very few people did retail, and nobody was doing online. Thus, she says, the international leaders of today are those who have really started adopting more sophisticated marketing techniques. “I think the trend will be that we’ll see more of that.”

Harry Hill, president and CEO of Oak Lawn Marketing in Japan, says that many trends will take place throughout the coming year in Japan. “The transition from analog to digital will occur in July. This has resulted in the BS platform becoming the de facto standard in addition to terrestrial television. Cable and satellite combined have maxed out at about 22 million households, but as of July, the BS platform will reach almost 40 million of Japan’s 47 million households,” he says. “This makes the BS platform even more powerful than it is today, but the Ministry of Telecommunications is requesting the broadcasters to reduce the amount of DR slots from about the current 33 percent of programming to 27-28 percent.”

Therefore, according to Hill, viewership will be up but available slots will be down. The telecommunications companies will fill up the analog bandwidth and within the next several years, each of the major carriers will essentially become mobile media companies, particularly with the explosive growth of smartphones. What’s more, with the continuing upgrades of mobile infrastructure as well as the spread of smartphones, high-speed and high-quality video delivery to handsets is becoming increasingly prevalent.

Turner has also witnessed incredible growth taking place in other parts of Asia. “We’re seeing more and more of these territories opening up to American products and programs. These are extremely large markets with growing middles classes and [expanding] buying power,” she explains.

In addition to Japan, Turner says Korea has been one of her company’s strongest markets, not to mention among the leading international markets in general.

Vietnam is another market that’s created tremendous growth for IComm. The company has also set its sights on larger markets in Asia. “China is a very interesting market for us this year because in the past, there has been a large DRTV industry in that territory, but it’s primarily been Chinese products and programs, and there are few players who are now entering with American products and programs,” contends Turner.

Given the country’s enormous population along with a rising middle class, Turner suggests China “could be quite fantastic for American suppliers.”

Following America’s Lead
“One of the strengths that I think most foreign companies see out of America is the ability to really tell that story and create an infomercial better than almost anyone in the world,” notes Williams. “And I see an international trend towards partnerships with American companies so that they can leverage those strengths.”

Turner concurs. “One of the trends we’re seeing are foreign distributors taking hold of their destiny in developing products themselves and shooting their own infomercials.” However, they are actually employing U.S. production companies to give their programs that look of an American infomercial.

“I think they really figured out that local production companies didn’t understand the direct-response sale and in order to get that kind of expertise, they needed to [partner] with the American production companies,” Turner explains.

This trend is taking place throughout Asia, Latin American and even Europe. Turner believes this raises the bar in the industry because these markets are “no longer just competing with all of the other American shows; you’re competing with this entire foray of foreign shows as well.”

A Change in Formats
Another key trend taking place in certain international markets is the 15-minute format, in which distributors will take a half-hour infomercial and edit it down to 15 minutes.

“And what we’re seeing even more recently are companies taking short-form shows from the United States—two-minute and one-minute versions—and building them out to a 15-minute format,” Turner notes.

However, she says it’s not enough to simply take TV footage and build it out to a 15-minute show. Some additional products must be added to the offer to boost the retail price. Turner explains that when you take these inexpensive short-form products outside of the U.S. and add a cost to them, the financials don’t work. Thus, you have to increase the retail price by offering a better product offer.

Comparing Live Shopping
Although the U.S. remains a global leader in live shopping, markets like South Korea take a unique approach. During a recent visit to CJ Home Shopping in Korea, Turner discovered that the channel devotes an entire hour to one product, whereas on QVC in the U.S., a product can get six to eight minutes of airtime.

And with only 24 products airing in a day, CJ creates a very competitive environment for marketers. “That’s why when a product is successful in Korea, it’s extremely successful,” says Turner “It’s one of the reasons there [are so many] opportunities in this market.”

Outside of Korea and Japan, live shopping is very small. Yet, as Turner notes, Asia is probably one of the areas where there is tremendous opportunity for growth due to the size of the economies.

Europe too is growing rapidly in the live shopping space. In Italy, QVC launched on Oct. 1, 2010. However, in Europe, the format is much different from its U.S. counterparts. The networks film a live program for about three hours and then rerun the program at different times.

The Strength of E-commerce
When it comes to analyzing the e-commerce market, Michael Guptan, head of technology investment banking at Duff & Phelps in New York, says, “At the 30,000-foot level, we clearly see that there is going to be more of a migration of people from the physical world to the online world in terms of commerce. So, as the dollars shift, that has implications for how goods are sold, how advertising is done, how buyers are found and how fulfillment is done.”

On the behavioral side, younger people are much more Internet savvy while the older generation—out of necessity—are less afraid of the technology and are more willing to try online shopping.

What are the technological factors for this shift toward online? Guptan says the Internet has become more commonplace and bandwidth has increased. In Japan, for instance, Internet connectivity is nearly at 110 megabytes per second, compared to the U.S. where connectivity is at about 15 megabytes per second.

“So, you can imagine as content grows, how much better shopping experience you can have if you were sitting in Japan than if you were sitting in the U.S.,” notes Guptan.

Although Japan is far more advanced when it comes to bandwidth, North America leads in Internet penetration at 77 percent, followed by Europe at 58 percent, with Asia trailing behind at only 22 percent. However, although Asia remains behind in Internet penetration, the mere fact that it has a higher population offers ample growth opportunities for marketers.

“Certainly one of the things that I’ve seen occurring in e-commerce is a greater willingness to experiment with markets in Asia—more specifically, in the luxury market,” says Brooke Christian, senior vice president, global sales and marketing at TransPerfect/Translations.com headquartered in New York. “In the past, our luxury clients tended to focus on their brand site, but last year, we saw a number of them take the full plunge into an e-commerce site.”

Going Viral Means Going Global
Social media is a media platform that’s growing by leaps and bounds throughout the world. According to a study by CheckFacebook.com of the “Top Countries Ranked by Number of Facebook Users,” the U.S. yields the largest number with 146.8 million, followed by Indonesia, the UK, Turkey, France and the Philippines.

Although Italy is ranked eighth on the list, it has the highest percentage usage of Facebook of any country in the world. In fact, when the Italian version of the Facebook platform launched on May 14, 2008, the country experienced 906-percent growth in just six months.

Williams has seen firsthand the impact that the Italian consumer has had on social media. She says that one of her company’s popular global products, Miracle Blade, boasts about 60,000 Facebook fans. “I would say that 95 percent of them are from Italy,” explains Williams. Another one of Sylmark’s DR stars “Chef Tony,” has 250,000 Facebook fans, and again, nearly all of them are from Italy.

In Latin America, Christian says Brazil is also among the fastest growing social networking markets out there. He attributes that increase to the Olympics and World Cup, which will both take place in that country.

Hill says, “Social media in Japan is evolving. Tokyo is now the biggest Twitter market in the world. Facebook, after a slow start, appears to be making serious inroads in Japan and is expected to get a huge lift with the release of the movie ‘The Social Network.’ Japan per capita is the most active blogging country in the world and also the biggest contributor to YouTube.”

He adds, however, that the preference for the Japanese consumer has been to engage in social media anonymously through an avatar. “In a country that puts a premium on harmony, anonymity allows for a freer expression of opinion. That being said, the growth of Amazon and Rakuten online shopping and the recent surge in Twitter and Facebook indicate a growing comfort in Japan with social media,” Hill affirms.

International distributors also tend to use social media as a research tool to read what’s being said about a U.S. product to ensure that it has high customer satisfaction and that consumers aren’t complaining about its quality.

Mobile Growth in Foreign Markets
Japan and South Korea remain at the forefront of mobile commerce. In 2009, NTT Docomo and Oak Lawn Marketing formed an equity alliance that would elevate Japan’s global profile in the mobile market. According to Hill, “Interacting with NTT Docomo in order to test new channels of communication, applications and handheld media is extremely exciting. With the release of NTT Docomo’s LTE infrastructure later this year coupled with the explosion of smartphones, the handheld devices will prove to be faster and more powerful than most PCs. This will allow us to interact with our customers in many new and exciting ways.”

Christian believes marketers should also pay close attention to China and India over the coming year.

Guptan says what’s driving the mobile market are the growth in applications. “If you look at the iPhone, there are about 300,000 apps available in 2010, up from 150,000 in 2009,” he notes. “It basically gives stores, as well as retailers, avenues to either drive traffic to their website or [brick-and-mortar] stores by reaching people through different apps when they’re ready to buy.” For example, if a person is walking near a particular store, that retailer can offer a special discount that goes directly to his or her mobile phone.

And as the apps become more sophisticated, the opportunities for marketers become more abundant.

Keeping Up With the Consumer
While marketers realize the host of opportunities available across a multitude of platforms, they also understand that with new technologies come more educated international consumers.

“The days of international marketers taking something that’s selling in the U.S. say for $100 and trying to sell it for $200 in their market are over because everybody can see everything online,” says Williams. “Their customer base gets very upset when they see that they’re being charged a lot.”

As Turner puts it: “Consumers are definitely holding DRTV companies to a higher standard these days. We’re seeing it internationally and more than what we’re seeing in the United States. Consumers want exceptional quality and they want the best value for their money now.”

 

 
 
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