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B E S T P R A C T I C E S

IN THE MERCHANDISING OF CONSUMERELECTRONICS ACCESSORIES

DEVELOPED BY CEAWITH ASSISTANCE FROM BDS MARKETING, INC

DECEMBER 2004



CEA BEST PRACTICES IN THE MERCHANDISING

Table of ContentsI. Overview

II. Key Research Questions

III. Industry Dynamics: Multiple Challenges to Growing

Accessory Sales

IV. Project Description, Scope and Objectives

V. Project Approach: Three Phases, Three Key Levers

VI. Research Methodology

VII. CE Best Practices

VIII. Non-CE Best Practices



OF CONSUMER ELECTRONICS ACCESSORIES

Best Practices in the Merchandising of Consumer Electronics

AccessoriesAccessories are typically low-cost, high-margin items that help consumers receive maximum

benefit and enjoyment from their primary consumer electronics (CE) product purchase. The

purpose of the CEA Accessories Division Best Practices Research project is to identify key

retail initiatives that promote the sale of accessories at retail stores and develop case studiesthat can be provided to retailers to help them improve their business.

The goal of the initiative is to show the importance of this CE product sector and to encourage

CE retailers to place greater emphasis on promoting the sale of accessories.

Through these retailer education and awareness efforts, consumers will recognize the need to

“maximize the experience” through accessory purchases.

Key Research QuestionsThroughout this document, readers will get answers to the following questions regarding

innovative approaches to CE accessories sales:

n What are the most innovative, high-impact, proven methods for growing accessory sales?

n Are some of these best practices more suited to particular channels? Particular product

categories?

n How have suppliers addressed the most pressing challenges such as self-service, non-

commissioned floors?

n Are there any solutions that work to the mutual benefit of suppliers and retailers? Are

there any silver bullets?

n What lessons can be learned from the non-consumer electronics industries?

n What makes a supplier a good partner from the retailer perspective?

Industry Dynamics: Multiple Challenges to Growing Accessory SalesMultiple forces make growing accessory sales an increasing challenge. These factors are

identified as follows:

Retailer Requirements:

n Strengthening retailer brand equity while leveraging supplier brand franchise

n Dominance of mass merchants and chains

n Explaining increasingly sophisticated products to time-impoverished consumers

n Shortened product lifecycles

n Commoditization of big-ticket items

n High turnover of sales associates

n Minimizing costly returns

Manufacturer Challenges:

n Perceived lack of commitment by retailers’ corporate headquarters to growing accessory

salesn Self-service and non-commissioned floors

n Diminishing market share of independents

n Achieving adequate return on investment (ROI) on promotions

n Achieving in-store execution

n Training sales associates

Consumer Demands and Expectations:

n Greater convenience and superior service

n More knowledgeable sales associates

n Understanding of complex products



2 CEA BEST PRACTICES IN THE MERCHANDISING

n Integrated solutions that work

n Flexibility to research online

n Broad product assortment

n Useful point-of-sale (POS) information

Product Evolution:n Shortening product lifecycles

n Increasingly complex products

n Success of new merchandise categories offering few attachment opportunities (e.g.,

personal audio)

n Long-awaited, much anticipated “convergence” has begun to emerge without simple,

integrated solutions

Project Description, Scope and Objectives

Project Description:

n Confidential, primary research with leading manufacturers and retailers, both within

and outside of the CE industry, to identify best practices in the merchandising of CE

accessories at the point-of-sale

Project Scope:

n Across the full spectrum of formats, including mass, national CE chains, independents

and online

n Across various merchandise categories, including audio, digital imaging, gaming, home

networking, home theater and storage, mobile electronics, personal computing, video and

wireless

n “Merchandising” to include key elements of planning and in-store execution

o Joint account planning and other collaboration between manufacturers and

retailers

o Visual merchandising, kiosks and other POS information

o

Assortment and physical adjacencieso Recognition and reward

o Sales associate training

o Packaging and design

Project Objectives:

n Generate high impact, actionable recommendations

o Ideas that are innovative yet proven in-market

o Practices that mutually benefit manufacturers and retailers

o Can be used in many/specific formats and merchandise categories

o Leverage the findings and conclusions in the Total Sales white paper

Project Approach: Three Phases, Three Key Levers

Phase I: Identify Best Practices

Objective

n Develop a refined list of 30 best practices in accessories retailing (20 CE, 10 non-CE) to

be researched and documented through interview, questionnaires and site visits

Key Activities

n Generate strawman list of best practices

n Identify manufacturer and retailer contacts




n Confirm willingness of manufacturers and best practice retailers to participate

n Develop data gathering tools:

– Qualitative and quantitative evaluation criteria for each of the key challenges(1)

– Manufacturer and retailer questionnaires for gathering financial and operating details

of each best practice

– Interview guidesn Refine case-study template

Notes: (1) Increasing Profits through Effective Retailing of CE Accessories, Consumer

Electronics Association, October 15, 2002

Primary Deliverables

n Refined list of 30 target best practices

n Contacts within best practice companies

n Calibrated set of seven key challenges

n Questionnaires and interview guides

n Refined case study template

Summaryn Hypothesis driven approach

n Independent, fresh perspective

Phase II: Conduct Interviews and Selected Site Visits

Objective

n Conduct telephone and on-site interviews with identified manufacturers and best practice

retailers

Key Activities

n Conduct telephone interviews with identified manufacturers and retailers

n

Submit and secure return of completed manufacturer and retailer questionnairesn Conduct retailer site visits

– Conduct interviews with store personnel

– Gather sample collateral materials

– Photograph merchandising displays

n Evaluate each best practice using the metrics developed for the seven key characteristics

n Conduct mystery shops using BDS Marketing Inc. merchandising representatives

– Gather additional data and information

– Validate quality and consistency of store-level execution

Primary Deliverables

n Telephone and on-site interviews

n Completed questionnaires

n Evaluation of each best practice using calibrated set of seven key characteristicsn Completed mystery shops

Summary

n Lengthy, probing, individual interviews

n Confidentiality for maximum participation

n Personal relationships




Phase III: Document Key Findings and Conclusions

Objective

n Richly document each best practice, synthesize findings and conclusions across best

practices and recommend improvements for program

Key Activities

n Complete template for each best practice researched and observed

n Complete a financial analysis of each best practice where sufficient quantitative

information was provided in interviews and questionnaire responses

n Synthesize insight and learning across all individual best practices to identify overall best

practices principles and guidelines

n Develop recommendations to strengthen and improve best practices effort going forward

– Questionnaires

– Case study templates

– Qualitative and quantitative evaluation

– Overcoming confidentiality concerns

Primary Deliverablesn Completed template for each best practice

n Synthesis of key findings and conclusions

n Overall and relative evaluation for each of the seven key characteristics

n Recommended program improvements

Summary

n Synthesis of findings

n Innovative ideas

n Proven solutions

Research Methodology

Consumer Electronics Industry

As part of the research effort, BDS Marketing conducted 33 in-depth interviews with CE

suppliers and nine interviews with CE accessories manufacturers. The title of each contact and

respective product categories are as follows:

n Senior Marketing Communications Manager (audio, connectivity, digital imaging,

personal computing and wireless communications supplier)

n Global Category Manager, DVD and Media Products (“other” supplier)

n President (audio, connectivity, digital imaging, gaming, home networking and storage,

home theater, personal computing, video, wireless communication and “other” supplier)

n Director of Marketing, North America (wireless communication supplier)

n Vice President, Sales Development (audio, connectivity, home theater and video supplier)

n President (gaming supplier)n Vice President, Mobile (wireless communications supplier)

n Global Public Relations and Marketing Manager (audio, personal computing and “other”

supplier)

n CEO (audio, home networking storage, mobile electronics and video supplier)

BDS Marketing interviewed 24 CE device manufacturers. The title of each

contact and respective product categories are as follows:

n Senior Director, Retail Sales (audio and personal computing supplier)

n Field Technical Group Project Manager (audio and home theater supplier)

n Director Sales, Western Consumer Imaging (digital imaging supplier)

n Marketing Program Manager (home networking and storage supplier)




n National Field Manager (digital imaging supplier)

n Channel Marketing Manager for Retail/Catalog (home networking and storage supplier)

n EVP, Sales, Marketing and Product Development, Accessories (wireless communication

supplier)

n Director, Sales and Marketing (home theater and wireless communication supplier)

n Marketing VP, Digital Products (audio, digital imaging, home networking and storagesupplier)

n VP Marketing (home networking and storage supplier)

n Senior Product Manager, LCD-TV supplier (video supplier)

n General Counsel (audio, gaming, home networking and storage, home theater, personal

computing and video supplier)

n SVP, Corporate Marketing (audio, gaming, home networking and storage, home theatre,

personal computing and video supplier)

n SVP, Corporate Strategic Marketing (“other” supplier)

n Director of Marketing (gaming supplier)

n Director of Sales (gaming supplier)

n Director of Merchandising (gaming supplier)

n Senior Manager, Strategic Marketing (personal computing supplier)

n Director, Channel Services (audio, digital imaging and personal computing supplier)n President (audio, home theater, personal computing and video supplier)

n Vice President, Business Development (audio, home theater, personal computing and

video supplier)

n Manager Retail Sales Support (audio, connectivity, home networking and storage, home

theater and video supplier)

n Senior Vice President (connectivity, home networking and storage, home theater and

video supplier)

n Director of Worldwide Product Management and Engineering (connectivity, home

networking and storage, home theater and video supplier)

During the research process, BDS Marketing interviewed an additional 10 retailers and

conducted more than 45 store visits. The interview approach was as follows:

n In-depth, lengthy and appropriately structured interviews

n Sources included referrals from suppliers, CEA references and from professional

relationships

n Confidentiality generated more candid, less guarded dialogue

The store visits included:

n More than 45 store visits spanning a 3-month period

n Multiple formats visited including mass merchant, national CE retailers, national PC

retailers and national OSS superstores, independents and selected specialty high-end

retailers

The retailers visited are qualified as follows:

Retailer A: National CE retailers

Functional Area: Merchants, category managers, customer experience managers,

store design professionals

Retailer B: National office superstores

Functional Area: Merchants, category managers, senior inventory management




Retailer C: Specialty online retailers

Functional Area: Executive management

Retailer D: Independent CE retailers

Functional Area: Senior marketing management

Retailer E: National PC and accessory retailers

Functional Area: Senior marketing management

CE Best Practices: 12 Best PracticesConsumer Electronics Industry

1. Cross-merchandising – Accessories merchandised in multiple locations throughout the

store (e.g., connectivity)

2. Physical adjacencies – Accessories are located adjacent to host devices (e.g., ink with

printers, flash with laptops)

3. Experiential marketing– Opportunities for customers to experience products and

accessories (e.g., gaming)

4. Lifestyle and solution selling– Lifestyle and technical solution selling via kiosks (e.g.,

laptop, PDA, digital still, camcorders)

5. Reward and recognition – Sales team recognized/rewarded on achieving goals on

accessory presentation, sales and mix

6. Sales associates training – Sales associates trained in solution selling with physical

demonstrations and personal ownership

7. Packaging for iconic brands – Attractive, visually relevant packaging for accessories

associated with iconic brands

8. Simplified visual merchandising– Simplifying the shopping experience through visual

merchandising, category level information

9. Assortment and suggestive selling online – Deep assortment of accessories online and

accessories recommendations at check-out

10. Leveraging bricks-and-clicks – Provide full breadth of accessory selection by offeringonline access to customers in-store

11. Supplier and retail partnership – Achieving true supplier-retailer partnership by

integrating sell-in and sell-through plans

12. Incentive compensation on attach rates – Progressive category-based commission

structure based on attachment rates

Retailer Best Practices: ( 1 ) Cross-merchandisingConsumer Electronics Industry

Description

n Accessories merchandised in multiple locations throughout the store, usually adjacent to

or within close proximity to host products

n Example product categories – Most prevalent with high-end connectivity

– Also occurs with flash media and memory

– Photo-quality paper with digital imaging

n Channels and formats where successfully executed include

– National CE and computer superstores

– Independent retailers

Retailer Benefit and Responsibilities

n Retailers should enjoy higher attach rates with no incremental effort (i.e. advertising,

promotion, training, etc.)




– Increased impulse purchases

– Increased customer satisfaction, fewer returns

n Ensure collaboration among buyers in different merchandise categories with suppliers to

secure multiple store locations

– Industry leaders have created HQ roles in which managers are responsible for the

store environment – Creates ownership for the consumer experience

– Requires changes in merchant behavior

Consumer Benefit

n Promotes a simple, intuitive shopping experience

– Convenient

– Makes the store easier to shop

– Reminds consumer of need for accessories required to complete the solution in a

self-serve or non-commission selling environment

Supplier Benefit and Responsibilities

n Suppliers benefit from higher attach rates

n Persistence in working with retail merchants who are not motivated to create cross-merchandising opportunities and whose organizations do not promote such collaboration

n Educating and training store associates help them understand when and how to complete

the solution for the customer through accessorizing their purchase

n Outreach efforts to retailer executive management

Retailer Best Practices: ( 2 ) Physical AdjacenciesConsumer Electronics Industry

Description

n Accessories are located adjacent to host devices within the store, sometimes in multiple

locations

n

Example product categories – Ink cartridges with printers

– Flash memory with laptops

– Gaming controllers and software with consoles

– Connectivity with audio, video, home theater

n Channels/formats where successfully executed include

– National CE and computer superstores



n Retailers should enjoy higher attach rates with no incremental effort (i.e. advertising,

promotion, training, etc.)

– Improved customer satisfaction

– Fewer returnsn Responsibility is to continually remain aware of which accessories should be located

alongside host devices and ensure that the store layout is compatible

n Additional leverage can be achieved through superior

– Signage and visual merchandising

– Instructional materials

– Advertising and promotion

Consumer Benefit

n Promotes simple, enjoyable shopping experience

– Convenient




– Makes the store easier to shop

– Reminds consumer of need for accessories required to complete the solution in a

self-serve or non-commission selling environment


n Suppliers benefit from higher attach ratesn Primary responsibility is to educate and train store associates to help them understand

when and how to complete the solution for the customer through accessorizing their

purchase

n In addition, collaborate with store design personnel to ensure appropriate adjacencies

during store resets

n Work with retailers to help them improve skill and proficiency in adjacencies – which one

leading retailer described as an “art form”

Retailer Best Practices: ( 3 ) Experiential MarketingConsumer Electronics Industry

Description

n Leading retailers are providing consumers with the opportunity to experience products

and accessories

n Particularly relevant in complex, costly CE

– Home theater and high-end audio

– Gaming

n Retailers provide environments that replicate the entire experience, often seeding trial

areas with experienced sales associates and “enthusiasts” (e.g., gamers)

n Channels/formats where successfully executed include

– National CE superstores



n

Benefits are multiple, including – Drive store traffic

– Increase interest and participation in the category

– Demonstrate how accessories complete the solution

n Challenge is for accessory suppliers to achieve presence and generate awareness in an

in-store demonstration when the host brands have enormous brand recognition

– Retailers must work with accessory suppliers to create exciting, high-impact

opportunities within the constraints inherent in this format

Consumer Benefit

n An exciting opportunity to experience the category and all the fun and/or function it can

provide without having to go to the expense or take the risk of making a purchase

n Also, a forum for the exchange of ideas with other enthusiasts

n Great for beginners as well


n Tremendous platform for creating category awareness and interest, and building brand

awareness and loyalty

n Important opportunity to demonstrate the importance of accessories in completing the

entire experience

n “Watch-out” is competing for attention with other brands




Retailer Best Practices: ( 4 ) Lifestyle and Solution SellingConsumer Electronics Industry

Description

n Leading retailers are providing lifestyle and technical solution selling via kiosks (e.g.,

laptop, PDA, digital still, camcorders)n Like experiential marketing, lifestyle and solution selling is particularly relevant in

complex, costly CE categories

– Digital imaging and camcorders

– Personal computing, PDAs, MP3 products

– Home networking

n In-store kiosks demonstrate exactly how a set of free-standing CE devices can work

together as a suite of products offering greater power, flexibility and a wider range of

solutions

n Executed mainly in national CE superstores


n Benefit is to generate interest in the category and educate and inform consumers about

how products work together more powerfully as part of a solution to improve their lives – Illustrate the role of accessories

n Challenge is for retailers to collaborate with suppliers to integrate accessories into

lifestyle and technical solutions by overcoming

– Host manufacturer ownership of kiosk

– Strong brand identification with host manufacturer

n Solutions may lie in co-branding, co-promotion, adjacencies

Consumer Benefit

n Opportunity to experience the full range of functionality that a suite of products can offer

as a solution

– Educates the consumer

–

Generates enthusiasm and interest – Offers more persuasive and comprehensive experience than a sales pitch or

marketing collateral materials

n Same concept has been executed as an educational island shipped directly to store and

ready for deployment in proximity to the core merchandising areas within the store

– Excellent educational material for consumers


n Benefits to host suppliers are many

– Stimulates demand for solutions

– Leverages and strengthens host brand

– Pre-empts niche players

n Challenges to accessory suppliers may be considerable

– Achieve awareness of role of accessories – Break through clutter to promote accessory brand

n Should pull through accessory purchases with creativity

– Physical adjacencies

– Co-branding

– Co-promotions




Retailer Best Practices: ( 5 ) Reward and RecognitionConsumer Electronics Industry

Description

n Sales team recognized and rewarded on achieving goals on accessory presentation, sales

and mix – Typically underwritten by major accessory supplier

– Recognition down to the department level

– Includes store management (e.g., GMs, DMs, RVPs)

– National, annual recognition programs

n Applies to many merchandise categories

n Most prevalent in national chains, where the major players have migrated from

commission to non-commission; not relevant to mass merchants


n Many benefits to retailers

– Improved customer satisfaction, retention

– Fewer costly returns

– Higher attach ratesn Developing individualized recommendations (the quintessential goal of such programs)

requires extraordinary levels of sales associate competence

– Asking questions to recognize need

– Crafting solutions with pictures and e-learning

– Having skill to recommend appropriate solution

n Potential to sell soft services (broadband, digital management)

Consumer Benefit

n Overall focus is to increase customer satisfaction, with individualized recommendations,

when practiced with highest degree of proficiency

– Complete solution sale

–

No need for return visits – No unnecessary returns

n Focus on communication at the store is on what the product will do for the consumer,

how to use it at home


n Primary supplier benefit is higher attach rate

– Ancillary benefits of loyalty, sense of ownership

n Requires partnering with retailer in structuring high-impact program with aggressive,

effective training and an attractive set of rewards for retailer personnel at multiple levels

Retailer Best Practices: ( 6 ) Sales Associate TrainingConsumer Electronics Industry

Description

n Sales associates trained in solution selling with physical demonstrations and personal

ownership

– Learn and earn

– Opportunity for personal ownership

– Builds sales associate loyalty and experience

n Prevalent in connectivity and power protection where market leaders have established the

gold standard in the industry for supplier performance

n Extends to all channels and formats except mass merchants





n Many benefits to retailers

– Product training provided by supplier

– Motivational tool that builds loyalty, reduces turnover

– Induces behavior that increases retailer profitability

– Provides sales associates and customer contact teams the tools they need to discuss products with confidence

n Sales associates develop enthusiasm for and experience with supplier products and

accessories

– More persuasive in making recommendations

Consumer Benefit

n Sales associates who are trained to make consumers aware of the accessories that are

required to complete their solution and that are most appropriate for their needs

n Convenience and customer satisfaction

– No need for return visits

– No unnecessary returns

Supplier Benefit and Responsibilitiesn Drive superior performance at retail

n Generates loyalty, sense of ownership with sales associates

n Produces more skilled and knowledgeable sales associates

n Crystallizes the message about importance of attachments

n Strengthens brand awareness

Retailer Best Practices: ( 7 ) Packaging for Iconic BrandsConsumer Electronics Industry

Description

n Attractive, visually-relevant packaging for accessories associated with iconic brands

n

In any merchandise category where there are iconic brands with a distinctive and uniquegraphic identity

– Also requires significant presence in-store with a considerable number of facings,

substantial lineal footage, end caps or free standing displays

n In national chains, mass merchants and regional independents

n Typical in many accessory categories including connectivity, wireless, personal and

conventional audio, etc.


n Simplifies and rationalizes assortment decisions

n Improves department and overall store appearance

n Communicates a clear, consistent message to consumers

n Builds category leadership opportunities for host brands

n Should drive attach rates and higher margins

Consumer Benefit

n Fresh, visually-relevant and attractive packaging simplifies shopping and selection for

consumers

– Leverages “authority” of the host brand

– Provides comfort and convenience


n Leverages strong brand identity of host manufacturer, and their significant presence

within store




n Typically involves private label or licensing arrangement

n Most successfully executed through a formal collaboration with host device manufacturer

but also can be executed through copycat strategy

n Suppliers most successful in this approach frequently refresh their packaging in highest

potential categories

Retailer Best Practices: ( 8 ) Simplified Visual MerchandisingConsumer Electronics Industry

Description

n Simplify the shopping experience through visual merchandising and category level

information

n Merchandise categories include wireless, audio, video, storage

n Most common among mass merchants and wireless retail

n Involves multiple elements when executed successfully

– Color

– Graphic identifier

– Interpretive material at POS

n Packaging offers clear delineation of merchandise categoriesn Interpretive materials explain benefits and how products work


n Primary benefit to mass merchants is making complex merchandise categories more

readily accessible – and easier to shop – for consumers who are not enthusiasts

– Builds credibility with consumers

– Drives category sales and growth

– Increases accessory sales

n Allows wireless retailers to clearly identify and distinguish different categories of

accessories (e.g., power, data, distribution, mobile communication) and to identify

appropriate product in a category with few universal accessories

Consumer Benefit

n Makes shopping self-serve formats easier

n Simplifies decision making in mass merchant channel

– Mass merchant channel caters to women (80%)

– Women typically purchase for someone else

– Not primary consumer, less adventuresome in CE

– More responsive to personal advice

– Manages product complexity

n Simplifies complex categories

n Makes consumer electronics more accessible


n Suppliers must work aggressively in partnership with retailers to conform to retailer leadership in this area

– Opportunity to influence interpretive materials

n Requires package design consistent with each individual retailer color scheme and

merchandise display requirements

n Typically requires supplier to subordinate their brand

– Eliminate brand identity entirely

– Use colors, icons, host brand

– Feature retailer brand




Retailer Best Practices: ( 9 ) Assortment and Suggestive Selling OnlineConsumer Electronics Industry

Description

n Deep assortment of accessories online and accessories recommendations at checkout

n Best practice online CE retailing includes – Carrying entire lines of accessories

– Offering information about available accessories

– Scanning shopping cart for necessary accessories

– Making final recommendations at checkout

n Newest innovation in this area is online demonstrations of accessories including how they

work and why they are superior to earlier generations (e.g., connectivity)


n Retailer benefit includes

– Increased customer satisfaction

– Enjoyment in use of product and all functionality

– Higher attach rates and margins

n Successful execution requires: (1) synergy between website, catalog and call center, (2)ability to provide relevant accessories at the product level, and (3) offering of essential

accessories at checkout

n Most successful practitioners use information as a vehicle to add value to customers and

as source of competitive advantage

Consumer Benefit

n Full range of accessories easily available

n Ensures complete solution at time of purchase

– No need to shop other retailers or channels

– Minimizes returns because functionality assured

– Greatest customer satisfaction and enjoyment

n Website adds value throughout customer lifecycle

– Pre-sale research

– During purchase transaction

– Post-sale technical support


n Offers suppliers the opportunity to merchandise the full depth and breadth of their

accessory offering

n Must merchandise aggressively around new product launches when key selling points

include

– No need to shop other retailers or channels

– Minimizes returns because functionality assured

– Greatest customer satisfaction and enjoyment

Retailer Best Practices: ( 10 ) Leveraging Bricks and ClicksConsumer Electronics Industry

Description

n Provide full breadth of accessory selection by offering online access to customers in-store

– Combines the physical and virtual stores

– Work together to complete the customer experience

– Utilizes in-store kiosks that provide website access

– Offered in multiple locations throughout the store

– Sales associates trained to direct customers accordingly




n Most prevalent in national CE chains and office superstores

– Requires commerce website

– Available across all merchandise categories

– Observed in personal audio, video, mobile electronics

Retailer Benefit and Responsibilitiesn Enhanced retailer economics through ownership of the entire customer experience, broad

selection and assortment, high attach rates, optimized merchandising by channel

n Eliminates the need for customers to shop competitors

n Allows retailers to optimize use of in-store space

– Eliminates the need for retailers to display all items

– Reduces inventory carrying cost ($1+ million per item)

– Provides cost-effective channel for slow movers

– Gives customers widest assortment and selection

Consumer Benefit

n Greatest customer satisfaction and enjoyment

– Complete solution at time of purchase

– No need to shop other retailers or channels – Minimizes returns because functionality assured

– Expeditious fulfillment of online purchases


n Offers suppliers the opportunity to merchandise the full depth and breadth of their

accessory offering while providing retailers attractive economics

– Tailored assortment in-store

– Broader, deeper assortment online

– Minimized inventory carrying cost

n Allows suppliers to be fast and efficient in introducing new items since new item

introduction is simpler and faster online than with in-store reset

Retailer Best Practices: ( 11 ) Supplier and Retailer PartnershipConsumer Electronics Industry

Description

n Achieving true supplier-retailer partnership through the entire process from product

design to sell-in and sell-through

n Best of breed are in 360° relationship

– Solution-focused training

– Consumer visual solution merchandising

– Sales contests, awards and recognition

– Profit margins and dollar contributions in each category

– Annual sales and promotional planning

– Joint product planning and design – Category leadership

n Possible in all channels, merchandise categories


n True partnership benefits accrue to both parties with retailer benefits including:

– Enhanced margin, profitability

– Superior customer experience and satisfaction

– Customer loyalty and retention

n Most ambitious retailers are implementing collaborative planning, forecasting and

replenishment (CPFR), have top volume vendors on vendor managed inventory (VMI),




and do monthly sales analysis and forecasting with key vendors

Consumer Benefit

n Consumers experience the supplier-retailer partnership through seamless execution at

retail on all aspects of relationship


n True partnership benefits accrue from “embracing the retailer” with supplier benefits

including:

– Enhanced margin, profitability

– Superior customer experience and satisfaction

– Customer loyalty and retention

n Easy in principal, challenging in execution

– An aspiration for most, a practice for the select few

– Requires substantial investment of time, resources

– Most easily rationalized by category dominant players

n Secures position of unassailable competitive advantage for those who can execute on the

promise of this practice

Retailer Best Practices: ( 12 ) Incentive Compensation on Attach RatesConsumer Electronics Industry

Description

n Progressive, category-based commission structure based on attachment rates

n Activated in selected national chains and independents

n Observed in wireless and other merchandise categories

n Escalating commission structure with multiplier, e.g.,

– 50% of commission rate if no accessories

– 100% commission rate with 1 accessory

– 120% commission with 2 accessories

–

150% commission rate with 3 accessories – May include additional supplier incentives

n Tracked weekly or monthly by individual sales associate


n Provides incentive for sales associates to go deep in meeting individual customer needs

even where price points may be low

– Focuses associates on incremental accessory sales

– Provides extra attention to the customer

– Reinforces retailer identity as accessory destination

n Requires commission on sales floor

Consumer Benefit

n Focused, deep and personalized attention from sales associaten Makes retailer preferred destination for CE accessories

n No sale too small, no request too trivial


n Drives high attach rates and sales volume for suppliers

n Foundation for strong, enduring relationship with retailer




Non-CE Best Practices: Objectives Non-Consumer Electronics Industry

Objectives

n Seek insight into opportunities for CE accessory suppliers to profitably grow their

business through the merchandising of CE accessories at retail – Across a wide variety of non-CE industries

– Across a range of different retail formats

– Evaluate leading retailers and brands

n Identify best practices

– Compare and contrast where similar to CE

– Document where new to consumer electronics

Leading Retailers and Brands to Evaluate

n Harley Davidson

n John Deere

n Toro

n Honda

n Berlandsn Bosch

n Callaway Golf

n PUMA

n Estée Lauder

n L.L. Bean

n Crate & Barrel

n Clinique

n Williams-Sonoma

n Prince

n Elfa

n REI

n

Orvisn Galyans Sports & Outdoor

n Weber

n IKEA

n Anheuser Busch

n The Container Store

n Jeep

n Cabelas

n Land Rover

n Ford

n Thule

n Bass Pro Shops

n Nike

Non-CE Best Practices: 7 Best Practices Non-Consumer Electronics Industry

Overlap Observed in CE:

1.) Experiential marketing – Opportunities for customers to experience products and

accessories

2.) Levering brand for category expansion – Leveraging power brands for penetration of

adjacent product categories




Overlap Not Observed in CE:

3.) Aggressive commission structure – Technically proficient, highly commissioned sales

associates

4.) Engineered solutions – Structured selling process with collaboration in developing unique

solutions

5.) In-store breadth and depth of assortment – Full range of product offerings includesaccessories available in-store

6.) Catalog replication – Catalogs replicate in-store experience and strengthen brand

7.) Single brand dealer networks – Iconic brands use propriety dealer networks to offer

products and services

Non-Industry Best Practices: ( 1 ) Experiential Marketing Non-Consumer Electronics Industry

Description

n Opportunities for customers to experience products and accessories hands-on

– Land Rover leverages its adventure heritage to offer consumers the Land Rover

Experience, including driving schools, clothing and equipment

– Outfitters REI and Galyans offer customers authentic outdoor experiences through

climbing walls, vast displays of kayaks, mountaineering equipment and other

merchandise for the enthusiast. Shopping experience stays fresh with seasonal

changes in category focus.

– Estée Lauder makeover consultants offer women a complete transformation at the

POS that provides the foundation for an enduring relationship

Suppliers, Brands and Retailers

n Automotive: Land Rover, Jeep, Ford

n Outdoor: Galyans, REI

n Cosmetics: Estée Lauder (Prescriptives, Clinique, Origins)

Implications for CEn Truly interactive and engaging experiences increase consumer understanding of the

possibilities with their product choices. The outcomes drive loyalty and increase size of

the potential sale

Non-Industry Best Practices: ( 2 ) Leveraging Brand for Category

Expansion Non-Consumer Electronics Industry

Description

n Leveraging power brands for penetration of adjacent product categories

– Nike leveraged its authority in athletic footwear to enter the apparel and athletic

equipment categories, investing heavily in product development and celebrity

endorsement (e.g., golf, soccer) – Callaway transformed itself from a single product company (Big Bertha) by

diversifying into a full line of equipment and apparel

– Puma has revived a tired brand by investing in innovative products and fashion and

creating a cache around product ownership via limited distribution


n Nike, Puma, Callaway, Prince

Implications for CE

n A branded category or licensing or product expansion strategy could provide greater




growth opportunities at retail and synergies with consumers

Non-Industry Best Practices: ( 3 ) Aggressive Commission Structure Non-Consumer Electronics Industry

Descriptionn Technically proficient, highly commissioned sales associates

– Highly skilled and well-trained professionals

– Aggressive commission structure

– Intensive focus on customer satisfaction

n Examples in home design and cosmetics

– The Container Store sales associates provide design consultations to customers,

helping them select the right system of modular shelving for their needs and then

designing it to their individual requirements

– Beauty consultants provide individualized consultations and makeovers to women


n Cosmetics: Estée Lauder (Prescriptives, Clinique, Origins)

n Home décor: Container Store, Elfa

Implications for CE

n Solution commission structures directed at attachments and percent of total purchase

would deliver greater customer satisfaction and increased profits as well. Designing

programs within categories can drive success for both manufacturer and retailer alike;

particularly effective in highly complex categories with customization opportunities

Non-Industry Best Practices: ( 4 ) Engineered Solutions Non-Consumer Electronics Industry

Description

nStructured selling process with collaboration in developing unique solutions – Ikea designers collaborate with customers in creating one-of-a-kind kitchens,

including appliances, cabinets, doors, hardware, countertops and lighting; customers

are encouraged to develop preliminary designs using the kitchen planning tool

available online

– Land Rover sales associates create individually tailored solutions combining satellite

radio, GPS and other high-end electronic mobile devices

– Thule is renown for fully modularized, highly engineered car rack systems including

carriers for bikes, skis, snowboards, water sport equipment and multi-purpose roof

racks


n Automotive: Land Rover, Jeep, Ford

n Other: Ikea, Thule, Bass Pro Shops

Implications for CE

n Customer solution design tools allow for higher initial sales and more programmed long-

term purchases. Allows customers to live with idea prior to purchase




Non-Industry Best Practices: ( 5 ) In-store Breadth and Depth of

Assortment Non-Consumer Electronics Industry

Descriptionn Full range of product offering includes accessories available in-store

– Outfitters such as REI, Galyans and Bass Pro Shops delight customers with amazing

depth and breadth of products and accessories – all in-stock – in even the most

obscure merchandise categories (paintball)

– Weber and retailer bbqgalore.com offer customers every possible item for a complete

grilling experience

– Berland’s House of Tools is the dream of every do-it-yourself woodworking

enthusiast, offering depth of product assortment available no where else under one

roof


n DIY Woodworking: Berland’s, Bosch, Dewalt, Delta

n Outfitters: Bass Pro Shops, Galyans, REI

n BBQ: Weber, BarbequeGalore.com

Implications for CE

n Expanded and well-identified lifestyle selection of product groups would provide

consumers a greater world of possibilities with each main solution, to increase total

revenue and margin opportunities. The “total sale” destination point

Non-Industry Best Practices: ( 6 ) Catalog Replication Non-Consumer Electronics Industry

Description

n Catalogs replicate in-store experience and strengthen brand – Crate & Barrel creates catalogs with high production values and quality that express

the unique retail environment that has been a signature of this distinctive retailer

– Cabelas, L.L. Bean and Orvis catalogs capture the fun, excitement and full range of

products, accessories and services available in their stores

– Williams-Sonoma catalog is visually exciting and offers access to the world of

gourmet food and cooking that are at the heart of this retailer’s customer proposition


n Hunting, fishing and outdoors: L.L. Bean, Cabelas, Orvis

n Cooking: Williams Sonoma

n Home décor and furnishing: Crate and Barrel

Implications for CEn Duplicating the experience with bricks-and-clicks strengthens the brand, increases

shopping frequency and customer satisfaction. Solution centers and flash demos could

increase long-term purchasing

Non-Industry Best Practices: ( 7 ) Single Brand Dealer Networks Non-Consumer Electronics Industry

Description

n Iconic brands use propriety dealer networks to offer products and services

– Harley-Davidson is known for the strength and competence of its network of




independent dealers, each of whom offers the signature Harley products, accessories

and services

– John Deere and Toro are offered through dealers that are fully supported by national

advertising, and company merchandising layout, product selection, quality control

and dealer code of conduct


n Motorcycles: Harley Davison

n Lawn and garden: Toro, John Deere, Honda

n Brewing: Anheuser-Busch

Implications for CE

n Full retailer merchandising dealership support can be created for both existing retailers

as a store within a store as well as additional single purpose stores. Strong multi-category

manufacturers as well as complete solution providers could benefit

Imperatives for CE Accessory Manufacturers: Three Key Levers

Holistic Selling Process

n Supplier embraces the entire sales process with 360° support, including participation in

advertising, promotions, floor merchandising and communication to sales associates

n Supplier treats the retailer as a conduit to the consumer and is engaged in all steps of the

retail selling process

– Direct relationship between the level and quality of support a supplier provides from

sell-in to sell-through and the emphasis of retailer at point-of-sale

� Result: Superior execution at point-of-sale

Proximity and Solution Integration

n Manufacturers and retailers strengthen the relationship between accessories and their host

products, integrating the merchandising of accessories with the product to which they

attach – Best opportunity for solution sale is initial purchase

– Specialty accessory-driven retailers may be an exception where sales associates are

highly compensated on attach rates

� Result: Superior execution at point-of-sale

Lifestyle Marketing

n Demonstrating to consumers at the point-of-sale how products can be enjoyed and used

to improve the quality of their lives

n Emerging trend in CE; several non-CE specialty retailers have demonstrated competence

(e.g., Berland’s, REI, IKEA)

– Creates loyalty, builds frequency, drives higher ring

– Consumers establish emotional connection, discover new ways to use product, find

the shopping experience exciting� Result: Superior execution at point-of-sale



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