The Official Omega 5 Oil Site: The outlook for QVC

Fashion designer Chloe Dao easily plays to the QVC studio cameras, making it seem as if hawking clothes on live TV at 1 a.m. is as natural to her as stitching a hem.

In a yellow blouse with polka dots, she chats with QVC host Jacque Gonzales about her Simply. Chloe Dao line to get the phones to light up with buyers.

"I love your clothing," Gonzales coos, calling pieces "too cute" and "adorable." Dao, a winning designer on reality TV show Project Runway, caresses a tunic top: "It is 100% silk. Luscious silk. Dreamy silk."

The banter may be casual, but behind the scenes in the shopping network's studios, the pace is anything but. Models in an off-set changing room hastily switch in and out of Dao's fashions. Nearby, a QVC crew lays out necklaces and earrings for the "designer jewelry gallery" show coming up at 2 a.m.

One level above the stage, a line producer scans screens that constantly update call volume and sales figures. He directs camera angles for product-enhancing shots, while feeding dialog tips into Dao's and Gonzales' earpieces.

After 22 years in business, QVC has made an art of hawking everything from computers to crab cakes. Many of its TV segments — live, 24 hours a day, every day except Christmas — are as successful with direct sales as Dao's.

But looking ahead, QVC must figure out how to keep the business healthy as the media and retail landscapes undergo seismic shifts. It needs to remain "relevant" (in marketing speak) to consumers while enticing a new generation of shoppers and battling a perception that direct-response TV retailers sell just hokey, flimsy or kitschy goods.

Among efforts so far, QVC has added more brand names to its product mix, upgraded its website to reflect its increasing importance to overall sales and launched its first national multimedia ad campaign.

The initiatives come as QVC copes with a slower economy. Revenue rose 5% in 2007 to $7.4 billion, vs. 2006. The average yearly growth from 2001 through 2006 was 12.3%.
Consumers are "being more cautious with their dollar," says CEO Michael George. "We are by no means immune."

Increasing challenges faced by West Chester, Pa.-based QVC:

•More competition for cautious shoppers. Rivals on every front — stores, other direct sellers and e-tailers — are scrapping for every dollar. "It's more competitive than ever," says Dan Butler, merchandising vice president at the National Retail Federation.
Rival shopping network HSN, for instance, also just upgraded its companion website and is ramping up its advertising.

•More choices for TV viewers. QVC keeps its prime channel location — with about 80% of its programming on channels 35 or lower — by paying cable operators a percentage of net sales, as well as extra fees. But new services, such as video on demand and TV shows streamed via the Web, could dilute the value of that real estate.

In the past, the location meant channel browsers could "bump into" a product they liked on air, says Fred Siegel, who was QVC senior vice president of marketing from 1993-98 and and is now involved in ventures such as TV production and home security. With video-on-demand, "They don't just surf around," he says. "They'll say, 'What's on HBO on-demand that I haven't seen?' "
•Home-shopping image. QVC reaches 93 million U.S. households, but only about 10% have bought from the network. One snag: Many people still view TV-based home shopping as lowbrow — even though QVC sells brand-name goods, sophisticated electronics and fashions from couture designers.

As QVC put it in its September 2007 employee newsletter: "The home shopping stigma is alive and well."

Leading QVC into its future are relatively new managers: George became CEO of the Liberty Media-owned network in 2006. Chief marketing officer Jeff Charney also joined that year. Claire Watts, former executive vice president of merchandising at Wal-Mart Stores, became the U.S. commerce president on May 1.
Despite challenges, QVC has in its favor fiercely loyal customers. They typically have a deep affinity for the brand, says Jeffrey Rayport, author of Best Face Forward, a book on customer service.

QVC devotees readily call into the live segments to offer product testimonials, are up on the personal lives of their favorite program hosts and generally view the channel as entertaining. "As weird as it may sound, for people who love the network, it's good company," Rayport says.
Pretty picky in host selection

QVC works hard to build that loyalty.

It is extremely selective when choosing those chatty hosts. Last year, it screened more than 3,000 applicants and chose three. New hosts are trained for at least six months before getting their own on-air slot.

Meanwhile, vendors, such as designer Dao, must go to "Guest Excellence" class to learn how to best pitch their wares. They are schooled in QVC's "backyard-fence" style, which means conversing with viewers the way they'd chat with a friendly neighbor.

Every product gets a rigorous review before being shown on TV. In selecting the goods, QVC staff "look for a product that is complex enough — or interesting enough — that the host can talk about it on air," Rayport says.

QVC also counsels vendors on how to make products audience-appropriate. For instance, Dao says that she was coached not to show too much skin when creating her line. Designs also have to fit — and flatter — sizes from extra small to 3X. "It's a learning process," says Dao. "But I'm open (to it.) I just want to create great clothes for everyone."

The representatives at QVC's four U.S. call centers, which handled more than 181 million calls last year, also get extensive training on how to keep customers happy.

Yet, QVC has barely tapped its potential: 95% of revenue comes from repeat customers. Of 93 million U.S. homes reached, a core 1.8 million account for 10 or more sales a year. Another 7.3 million buy at least one item a year.

While George wants to bring in new customers, he says his main goal initially is more sales from the customer base.

Rayport says QVC needs to make new buyers a priority, particularly new ones under age 30 to replace aging customers. QVC won't give details on the average age of its mainly female audience, but independent research firm BIGresearch pegs it at 54.

"As your core customer base ages, you need to refresh the franchise," Rayport says. Though, he adds, "how to do that without losing the audience that is sustaining you now — and for the foreseeable future — is a very tough problem."

With that problem in mind, QVC is avoiding wholesale changes to chase new buyers in favor of gradual, well-researched shifts in merchandising and marketing.

"We can't take a walk on the wild side with our customers," says marketing chief Charney.
Among QVC's endeavors:
•Expand and upgrade the product mix. QVC has bulked up on brand names.
Its jewelry selection now has more prestigious brands such as Tacori — which has created rings for stars such as Grey's Anatomy's Ellen Pompeo — and less generic gold and silver.

•Be more entertaining. QVC is getting out of the studio more often to broadcast from remote locations. It has sold hair care products from an upscale Manhattan hair salon, Yankee memorabilia from the team's famed stadium and National Football League merchandise from pro football stadiums.

It's also airing live musical acts. On April 28, American Idol alumnus Clay Aiken performed songs from his new album On My Way Here. That day, QVC received more than 15,000 orders for the $19.38 CD — which also came with a five-track bonus CD/DVD.

LeAnn Rimes, the Goo Goo Dolls and Elton John also have performed.

•Amp up the marketing. Last fall, QVC launched a TV, print and outdoor ad campaign with the theme "iQdoU?"

The company says it's insider lingo for "I shop QVC, do you?" Ads showed such products as computers, cosmetics and cake. They also featured celebrity vendors such as Whoopi Goldberg (who has a bedding line) and Heidi Klum (who has a jewelry line).
The goal is to make QVC and QVC.com destinations for shoppers, says Doug Rose, vice president for merchandising brand development.
What does my friend say?

Even as QVC courts musical stars and spends millions on ads, one of its biggest sales drivers remains word-of-mouth recommendations, says Rose.

That's how Kathy Sklar became a customer. The Bethesda, Md.-resident didn't think she'd be "remotely interested" in QVC's wares until a friend turned her on to the channel.
She's now purchased a camera, kitchen goods, jewelry — even outdoor lights.
Sometimes, she says, she watches QVC and thinks, "I had no idea that I needed this (item) — or that it even existed."
But if something catches her eye, she doesn't hesitate.
"I've come to believe in QVC," she says, "I'll say, 'What the heck, I'll try it.' "