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Why QVC Is Sold on the Internet

Forget about costume jewelry and vegetable peelers. Today’s QVC is a $3.5 billion retailing juggernaut whose strategies for the future are worth their weight in gold.

What does QVC know about selling products on the Internet that the one-time glamour sites of e-commerce — now defunct retailers like eToys and Pets.com — never figured out? More than enough to fill a 30-minute infomercial. Indeed, while it’s easy to look down upon much of the merchandise that gets sold over the airwaves, executives who want to understand the future of Internet retailing might want to look to the strategies being developed at QVC.

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First things first, though. This is not your grandmother’s QVC. The TV network that first achieved fame selling costume jewelry and vegetable peelers can now move 22,000 Gateway computers in a day, and it routinely sells such gold-card merchandise as digital cameras and pricey home-theater systems. All told, QVC posted $3.5 billion in sales last year, including $194 million from iQVC, the company’s Web site — an 80% uptick over the previous year, and 6% of QVC’s annual revenue.

For all but the largest online merchants, that would be a blowout year and achievement enough. But iQVC also has customer service embedded in its DNA. The site offers sophisticated order tracking and a live voice at the other end of the phone 24 hours a day — which may explain why iQVC gained the number-one ranking for “general merchandise” in Forrester Research’s latest Power Rankings poll, ahead of Amazon.com, BestBuy.com and buy.com.

Many other e-tailers would have looked at those numbers and had begun hatching grand plans for an iQVC IPO. But don’t bother calling your broker. Although QVC has high expectations for its Web site, the company’s managers haven’t wavered from their original conception that iQVC remain firmly cast in a supporting role to the TV channel, a tender to the mother ship.

And therein lies the beauty of this story — back in the land of “old” media: television. It was on the air, selling Riddex Plug-In Pest Repeller Units and Ron Popeil’s Digital Showtime BBQ & Rotisserie Oven, that QVC first figured out how to win the trust of buyers and close on a sale in real time. Today’s Web success has built on those insights, adding an interactive component to QVC’s relationship with its customers. And, in a virtuous circle of merchandising, insights from the Web are now driving more sales on TV.

Here are some of the things QVC has learned about making that cross-channel leap.

Build a community — then add a feedback loop.

Do you know Judy Crowell? She’s QVC’s exercise guru, and when she talks, people listen. Not only that, if she tells them that the Pilates Performer exercise box is okay for viewers with back problems, they believe her. “Judy is a person our customers trust,” says Steve Hamlin, vice president of operations for iQVC. QVC learned early on that building programs around on-air hosts like Knoll provides a continuity that keeps loyal customers coming back, creating a community among viewers. It also moves products: The Pilates Performer with Workout Video was the second best-selling product on iQVC last year.

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So too, with Steve Bryant, QVC’s electronic Bob Vila. Bryant hosts sessions on computers, digital cameras, and other high-tech toys.

Now iQVC has taken those relationships one step further. To help figure out how to pitch a product for maximum effect, iQVC often has on-air chat sessions one hour before the day’s featured product — called “Today’s Special Value” — is aired.

On December 3, 2000, for instance, QVC planned to put a Gateway computer up at midnight as the TSV. At 11 PM, Bryant hosted a chat session to talk about the computer. Hamlin says, “Between 400 and 500 people showed up, asking about the system’s compatibility with digital cameras, wanting recommendations for peripherals, and asking what software applications were included. Producers scripted the show for the following day around those questions.” The next day, the on-air host delivered a marketing spiel designed to push those hot buttons. The result: QVC sold every Gateway computer offered in the special — 22,000 in all.

“This method gives us the potential to do a better sell, because it’s based on what customers tell us directly,” says Hamlin. “On TV, we have the ability to sell, but we’re doing all the talking. The Web chat allows us to do the listening.”

Bryant follows up with monthly general electronic chats, when he answers questions about products that people have already purchased and things that they plan to buy.

Figure out how to capture the sixty-first minute.

As successful as QVC’s TV formula has become, it can only feature a limited number of items. The color TV offered in a 17-inch screen on the air might not induce a purchaser who was looking for a 19-inch screen, for instance. But directing that buyer to iQVC to view a wider selection often results in a sale. Indeed, 35% – 40% of iQVC’s daily sales come from products shown on QVC that day. “We’re trying to capture what we call the sixty-first minute,” says Hamlin. “We’ve got limited time on TV to sell our products, so we bring people to the Internet to continue the experience.”

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One way the company achieves that goal is by having celebrity hosts — Joan Rivers, Carol Alt, Suze Orman — lead online chat sessions when their TV airtime is up. This has proved a spectacular way of hanging on to viewers who might otherwise flip the channel. “In March, we had a TV show with Tovah Borgnine,” Hamlin says, “and we had her do a Webcast afterward. We figured if we did a Tovah show and then a Craftsman tool show, the Tovah audience would go away. The chat allowed us to transfer that audience to the Web.”

And after customers were done chatting with Tovah, chances were good that they’d spot one of the 100,000 items iQVC has for sale — 60% of which will never have their moment in front of a TV camera.

Use the Web to drive prices — up!

Years before eBay got started, QVC’s merchants learned the secret of pricing for an electronic mass medium: start low, create demand, and raise prices — the exact opposite of how it works in the brick-and-mortar world. Now that QVC has figured out how to use the interactive charms of the Web to refine their sales pitches, they’ve become even more skillful at this trick.

Each day, the item chosen to be “Today’s Special Value” gets pushed relentlessly throughout the day and accounts for about 20% of QVC’s daily revenue. Over the course of the day, the price of that item actually rises as demand is flamed over the airwaves and on the Web.

Love all customers equally.

Of course, it doesn’t hurt that QVC has made ordering easier than falling off a couch, or that it offers customers a variety of ways of handling their transaction. “There are still a tremendous number of people who don’t trust the Net,” says Hamlin. “We just ran two separate promotions. Some 20% to 30% of customers found the item on the Web but still called in with their credit-card information.”

Processing orders over the phone costs the company more than processing online orders, but QVC doesn’t mind. “Our strategy is not to force customers to buy on the Web,” says Hamlin. “We don’t offer people discounts to buy online. We believe that offering one thing to one customer and not offering it to the other side of the house is bad for business overall.”

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So, with its revenue hoard and proven feel for e-commerce, why didn’t QVC spin off its profitable Web retail channel in the days when blockbuster Internet IPOs were all the rage? Because they firmly believed that their biggest mistake would be to cut loose the Internet channel and start breaking up its shopping community. Today, that looks pretty shrewd. “Because we’re a part of QVC and big brother was watching, we didn’t get caught up in some of the marketing nonsense like high customer-acquisition costs and mass discounting,” says Hamlin. “Our strategy has always been: one voice, one message.”

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