The Tv Homeshopping wars: QVC and its competitors

Case Study analysis

Summary• Barry Diller, a former chairman of paramount

pictures and fox, Invested $25 million in QVC Network.

• He believed that, TV-home shopping could transform television from a passive entertainment provider into an electronic resource for shopping, entertainment, and related consumer services.

• John Malone was an ally who supported Dillers thinking, a CEO of TCI, own 22% of QVC through its programming subsidiary, Liberty Media.

Summary• QVC is one of two dominant players in the TV-

home shopping sector of the retailing industry. It faces three strategic challenges: – 1) the growth of its core business, especially with a

powerful rival, Home Shopping Network, as the industry matures and competition increases

– 2) the potential diversification of its core business to electronic platforms other than TV

– 3) the dependency of its core business on the evolving cable-TV infrastructure.

• Competitors: catalog one, MTV, retailers, new entrants

QVC

QVC had resources to move beyond TV home shopping as markets for such developed

Strategic Challenges and Case analysis

• How might the core channel offering be strengthened to establish long-term competitive advantages in arguably the most dynamic sector of an already turbulent retailing industry?

• As the TV-home shopping market matured and competitors entered, how would dominant players such as QVC and HSN maintain market share?

Challenges

• How significant a threat to TV-home shopping was the introduction of new technologies for electronic shopping involving on-line services, multimedia PCs with CD-ROM drives, and touch-screen kiosks? Could demand for electronic retailing services move away from TV-based systems? If so, should TV-home shopping ventures become players across the new platforms for electronic shopping delivery?

The needs have evolved and customers are more focused on quality information to purchase a particular product, they demand ease, less time consuming transaction and

lower prices.

• TV home shopping in the case has made the physical location of inventory and the actual site of buying and selling irrelevant.

• The traditional marketplace interaction between physical seller and physical buyer has been eliminated. In fact, everything about this new kind of transaction—what we call a market space transaction—is different from what happens in the marketplace:– The content of the transaction is different: information

about the products replaces the product themselves.– The context in which the transaction occurs is different: an

electronic, on-screen auction replaces a face-to-face auction.

– The infrastructure that enables the transaction to occur is different: computers and communication lines replace products lots.

Reasons why this concept was adopted

• Consumers cited many reasons for their displeasure with the marketplace in the case, including– lack of adequate parking, poor service,

unresponsive sales help, long lines, and growing crime rates. The appeal of TV-home shopping, like catalogs, was the opportunity to avoid these ills.

– At the same time, quality, price, and convenience were emphasized by consumers as reasons specifically for TV-home shopping

To be successful on a long term basis, they have to change their business plan from TV home shopping to online services, they have to incorporate the idea of a market space replacing the market place.

Physical Market Place• Product Procurement

– Buying over stock inventories – Helping manufacturer in

producing products• Order processing

– VRUs• Fulfillment

– Delivery cycle– Only limited products (fashion

category)• Customer service

– Memberships– Toll free lines

Virtual Market Space• Online website

– One click– Data base can be formed for future

• Delivery cycle can be improved– by focusing on delivery service

than inventory– All kind of products can be

displayed• Service

– Better quality– Reduced prices– Less time consuming– More specific search– Flexible– More information

Market Space

Value to customer

1. Things that QVC was doing right:– Membership incentives– Host

• Warm, likable, friendly• Creative while presenting• Interactive

– Reliable network service– Presentable studious

• Lighting• Colorful• Spacious

– Trying to bring new product offerings to customers

2. QVC was successful be they realized the changing market needs, they instilled the technological change and kept bringing about the required changes, introducing better technological solutions.

This market-space transaction allows for:

lower costs Convenience ubiquity buyers are willing to pay more because they get a better selection with greater convenience.

Space standardization model

Customer Demand

Place

Space

Problems in existing model• TV-home shopping buyers were excessively

demanding, because "they want exclusive merchandise, special sizes, quick delivery, and limited runs of specific items, making it very expensive to do business with them

• Manufacturers that sold to both traditional retailers and TV-home shopping companies were precluded from offering the same product to both channels because manufacturers could not afford to threaten their traditional channels of distribution

• Despite grossing nearly $600,000 in the first hour of its initial show, however, it determined that it could not earn a satisfactory return unless QVC changed its commission structure or could find a cheaper way to procure product

• For example, if a retailer purchased a shirt from a manufacturer for $10 and marked it up 100% (the traditional percentage) to a $20 retail price, the gross margin for selling the shirt in a store was $10. With the same markup, however, the sale on QVC or HSN would result in $0 margin (selling price $20 minus commission $10 minus cost of shirt $10). Moreover, merchandise returns on apparel items appeared to be far higher (20% to 28%)24 than for other merchandise groups (18%), presumably due to size and fit issues.

Issu

es f

rom

cus

tom

ers

side

QVC website’s screen shot