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A&O Group launches C-pen 3.5 Digital Highlighter

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Advertising Management - HSN Case

HSN is a multi-channel retailer which conducts marketing and sales through a wide range of third party and private label merchandise sold directly to consumers through two main operating segments; HSN and cornerstone. The company has refined its model and established a presence in various distribution outlets such as television, on-line  mobile catalogues, and retail outlets in effort to broaden its customer base. This wide distribution of sales outlets Reduces risk associated with consumer dependence on a single medium of exchange (one channel). (Data Monitor 360, 2011)

HSN Is a retailer and interactive lifestyle network, which offers a wide assortment of products through its television home shopping programming on the HSN television network division, and through its business-to-consumer internet commerce site. The TV network offers 24 hour service, 7 days a week; programming is subdivided into separately televised segments, which offers a strategically placed host who presents and communicates information regarding the products featured. The HSN commerce site sells all of the merchandise offered on the HSN television network together with favourable products and exclusive merchandise only sold on HSN.com (Data monitor 360, 2011)

Today HSN is available in 95 million homes as well as on mobile devices such as the iPhone,  iPad touch, and Android. Consumers are able to watch a live HD feed and place orders. HSN also uses social media tactics in order to advertise its brand on YouTube, Facebook, and Twitter (Business Source Complete, 2010). 

Cornerstone consists of a wide variety of branded catalogues and related websites, the base of which include Frontage, Ballard Designs, Garnet Hill, Smith Noble,  The territory ahead, Travel smith and improvements, including 20 retail outlet stores. Content provided by Cornerstone’s websites include accessible features such as decorating tips, measuring and installation information, online design centres  as well as an additional feature that allows customers to browse the related catalogs online. (Data monitor 360, 2011)

Smart Business models generate cycles that over time, allow them to operate more efficiently by decreasing costs and increasing revenue.  The HSN business model has grown to become the source of their competitive advantage. Since the HSN originated in 1992, which served on a local channel called ‘’the home shopping channel’’ their effort to continually refine and tweak the companies vision and  business model has allowed them to attract the attention of a national audience in the form  of a televised sales pitch to consumers for goods and services.  HSN has been able to develop an innovative business model to meet the change in regulation, technological change, globalization and sustainability. HSN has dimensionalized their business for people by creating a venue where consumers are able to watch their show, and learn about the products; whereby, celebrities and models are able inspire consumers and gain confidence in their products. They have revolutionized their delivery system by integrating a 360 degree platform incorporating television, web, podcasts and other multimedia content (Business source database, 2007). This strategy was implemented to help create a lifestyle for customers; their mission on TV and the internet is to increase their ‘’active’’ customer base and viewership. Advertising their products is not solely about the product itself, it’s about the innovators of the products telling the active viewer about how they came up with the product, what the product can do for them, and where they can see the product.  On HSN’s website each product has a three dimensional view, as well as interactive tools that give consumers brand specific ‘’how-to’’ videos designed to allow the customer to be more involved in the motives that drove the entrepreneur leading to their creation, and how they can benefit each consumer. These demo videos create longer session length, increased interest, and a more effective delivery of each products attributes (Business source database, 2007). HSN’s direct-to- consumer business model gives great ability to maximize the experience of the customer and create more than just a transaction relationship. Their non-linear business platform allows HSN to create experiences across multiple platforms, which creates content that can live beyond their TV show.  HSN essentially creates a lifestyle to a target demographic, which these customers are able to engage with creating a want for that product and a much easier product sale (Wall Street Journal, 2009)

            HSN has targeted consumers grouped into similar characteristics, needs, or purchase behavior; the main purpose of their segmentation is to differentiate their promotional efforts tailored to their particular consumer groups which they have targeted. The benefit of their segmentation allows HSN to focus on specific attributes of products that consumers consider when placing an order through HSN. HSN’s consumers are segmented to coincide with their benefits sought; these segments are then advertised to in effort to pitch specific products that will fulfill attitudinal outcomes such as demographic characteristics, lifestyle characteristics, and psychographic characteristics. Among the benefits sought by consumers shopping at HSN, quality of products has been the most frequently identified benefit (Harden, 2008; James and Cunningham, 2009; Park and Lennon, 2009). Major improvements in sales have come from targeting female consumers who have integrated themselves in the workforce leaving them less time to fulfill their shopping habits, but still wish to purchase items that would normally have to be selected at specific retail outlets. The rise in female employment along with higher wages and acceptance in the workforce have given them significant purchasing power and the ability to increase spending habits on products that will fulfill their needs and interests.  Women place high emphasis when buying items on brand loyalty, perceived value, and exclusivity which have created a demand for clothing, cosmetics, and fragrances/ accessories that women desire in order to look good, feel young, and enhance their image. HSN’s has established that 83% of their viewers are female with the majority of them being over the age of 40 years old. HSN has used this targeting strategy to improve its image to these working class women by eliminating old dormant products and replacing them with new products and designer exclusives. Increased sales have benefited by targeting this sub segment of Home-shopping through strategic advertising methods by HSN by implementing celebrities and hosts to portray products that fulfill these needs, some examples include,

-          Ivana trump known for her elegance was featured on the HSN in 2010 to display her new fragrance ‘’scent unsmelled’’ coupled with her known prestige and implied taste that enabled consumers to become compelled to buy the product (Lydia Fink, 2008).

-          HSN announced partnerships for new collections with well -known fashion designer David Rodrigues, celebrity designers Tina Knowles and Tori Spelling, entertainment expert Colin Cowie and Elle Magazine (Mike Duff , 2009).

-          Carol Brodie launched her collection of high end jewelry exclusively with HSN, in 2011 her $3000 pair of diamond earrings  sold out of 2500 pairs within one display session

 (PR News Wire, 2011).

-          In 2010 Mary J blige, who is a famous musician launched her fragrance called ‘My Life Blossom’’ which sold 100,000 units in 2010 (Business Source Complete , 2010)

-          In 2011 Jennifer Lopez kicked off the HSN’s 34^th birthday with her new fragrance ‘’love & light’’ (PR News Wire, 2011).

-          HSN's 34th Birthday celebration continues through July 31 with special appearances by some of HSN's most famous personalities including: Serena Williams on July 18; Martha Stewart and Tori Spelling on July 21; Mariah Carey on July 25; Vern Yip on July 26; and IMAN on July 28 and 30 (Business Source Complete , 2010)

HSN’s advertising campaigns are geared towards strengthening its brand positioning, and clearly attract new customers.  They do this by offering exclusive distribution of certain products, which builds anticipation for that product not offered on other mediums of exchange. HSN’s advertising campaigns are put strategically in place to build trust with existing, and future consumers; for example in 2001 HSN launched a 30 million dollar national ad campaign to strengthen is brand positioning by introducing an NFL shop merchandise package with print ads in People magazine, TV guide, and the NFL insider magazine. In one add a football fan is found with his official NFL football Helmet, and HSN exclusive, he catches his steak as if it were a football. A voiceover intones that with every purchase, ‘’you’ll get a rush of adrenaline, absolutely free’’.  The advertisement noted above is to portray that the thrill of shopping doesn’t stop once you hang up (Monica Hogan, 2001).  HSN has invested in great personalities and they want to expose them to the public; a big draw to their advertising and promotion has come in the form of sweepstakes featuring multiple prize packages that range from a 10,000 dollar ring, a trip to New Orleans, and 2008 Cadillac CTS. HSN will run promotional spots during high profile events, so it has purchased spots across NBC universal Cable networks to run during coverage of Olympic games which has a massive number of viewers tuned in at all times, across several nations.

HSN revitalized their advertising campaign when they brought inn their new CEO Mindy Grossman, who initiated a 360 degree change in the company’s product mix by eliminating old dormant styles and implementing newer products and designer exclusives. With the help of Mindy Grossman HSN was able gear its advertising campaign towards a lifestyle programming station by enabling the entrepreneur to tell stories behind the product and bring it to life in a unique way (Journal of the International Academy for Case Studies, 2011). HSN knew that the only way to advance their advertising campaign was to become a leading interactive multichannel retailer; they achieved this by forming strategic alliances with company’s such as Apple, launching a new dynamic application which extends the company’s advertising reach to the millions of iPad users across the world.  HSN will be the single distributor of retail products offered on a video centric iPad which gives them the perfect platform to deliver a customer experience relating to trendy entertainment, and lifestyle programming.  The video iPad allows customers to stream live video from the HSN network or watch previously aired content they may be interested inn; HSN will be the only retailer to offer 15 video on demand across multiple product categories such as fashion, jewelry, kitchen, electronics, shoes/handbags, and home accessories (News RX, 2011). HSN continued to revamp its advertising campaign by announcing a multi-year partnership campaign with Kraft foods which is the second largest consumer goods food company in the world today.  The program will give the HSN the ability to sell and advertise cooking products on Kraftfoods.com, as well give Kraft foods content space on HSN.com and other HSN distribution channels. The foundation of this relationship ties into HSN’s new vision to provide consumers with a unique experience in the kitchen through home cooking ideas matched up with quality cookware; this business partnership led to continual development of their advertising campaign by matching highly relevant content (Kraft food network) with interactive shopping which creates a multimedia platform for new product launches (Vertical News, 2011). 

HSN plans to launch a gaming digital commerce portal in  2011; the launch of this digital arcade is a strategic move by HSN to combine what people currently do online more than any other activity which is shopping and gaming. The multichannel retailor said this year on may 31 that the motif behind launching their gaming portal is to allow people to play games online while watching the HSN streaming live video in HD; this will allow them to view the specific item on air, and view the most recent 15 items aired all in one screen.  This Ecommerce portal will host 25 different variations of games, including ‘’Today’s special jigsaw puzzle’’, ‘’Lights Camera Subtraction’’, and ‘’Crossword Puzzles’’.  The arcade will be featured on advertising mediums such as Facebook and Twitter, where players will be able to share their scores and achievements with Facebook and Twitter friends.  The launch of this platform is to continually develop and differentiate their shopping experience by implementing content and commerce in an innovative way (Ali Haseeb , 2011).  

HSN’s ultimate goal for future advertising objectives is to produce Brand loyalty by building awareness across multiple digital platforms and inspire customers to tune in and make a purchase. They have achieved this by giving consumers a more effective delivery system, and more options and platforms to exchange their cash for goods on; they are now a store, a network, and an online store all in one. The home shopping network has been able to influence the market into revolutionary buying habits by combining innovative platform shopping, with exclusive brand recognition, and creating an exciting shopping experience centered on the popular personalities that headline these products.

            The home shopping network has expanded into other countries in the world; they sell and advertise their products on TV, Catalogs, and the internet (HSN.com). In effort to gain brand recognition with culturally diverse nations HSN has partnered with ‘’Look Good….Feel Better’’ campaign which is national public service program that helps women with cancer manage their battle with the disease. Through this program, volunteers and beauty professionals teach women fighting cancer techniques that help maintain their physical presence against the side effects of their treatment.  HSN will host three live on air events featuring notable beauty brands and will donate $5.00 from the purchase of every product sold. The’’ Personal Care Products council foundation’’ will advertise the ‘’Look Good….Feel Better’’ campaign on a national scale in effort to raise as much capital for the foundation as possible. The Personal Care Products Council is the leading national trade association representing the global cosmetic and personal care products industry, which is a very strategic partnership acquired by HSN in order to promote their brand and show that they care about the worldwide community (Google Finance, 2011). In the Home Shopping marketplace today HSN will be able to expand its advertising medium to their target demographic in other countries with the use of web and GPS-enabled phones, Viral Marketing and additional fun mobile phone Apps; all ways to cost effectively reach consumers in the future. Loyalty schemes, vouchers and rewards through social media platforms are very common in Japan, and will become much more widespread in the United States and through European Countries in the near future. HSN’s advertisement campaign would benefit greatly in countries where the women’s employment rate is over 70%; these countries consist of Norway, Denmark, Sweden, and Thailand which has emerged as the leading market for employed women with an employment rate of 72% (Passport GMID, 2011).  

If the Home Shopping Network were to start up today advertising efforts would have to be capable of establishing presence in multiple retail channels, their effort to advertise efficiently would lie in their ability to create alternate platforms for their consumers, creating more options for the user. HSN’s ability to advertise to consumers lies in their ability to create more than just a purchase; it would be very important that they create an exciting and inspirational sales pitch either by introducing products with celebrities, models, or the entrepreneur of that product who could convey a persuasive message and create intrinsic value to the customer.  Exclusive distribution of name brand products to consumers would be put in place to create immediate brand loyalty; in a direct to consumer market such as home shopping, HSN would have to build strong relationships fast. The importance of exclusivity cannot be exaggerated in today’s environment;  end users are able to create their own demand by purchasing content on whatever platform they see suitable for their needs; the internet provides end consumers with an endless supply of products with varying prices.  It would also be beneficial for the HSN to establish strategic alliances with brands that provide consumers with digitized tools that can provide a live feed to products associated with the Home Shopping Network, such as we saw earlier with their exposure to the iPad. The adoption of new technology within the Advertising industry has given Home shopping channels a new opportunity to provide audiences with advertisement options that extend far beyond the advertising methods of the past.  The products that the HSN promote would have to be complimented by their online presence in giving viewers more options as well as in catalog format.  If the HSN were to launch today, the key factor of their success would be to have an innovative delivery system of multi-channel retailing which would allow them to advertise to primary segments, and sub segments which are currently under-utilized.  Multi-retailing channels would allow the HSN to target more specific segments of the market which would allow them to advertise products that would directly benefit from these advertisements.  The issue of convenience also plays a major factor in the decision making process of a target consumer, allowing consumers to place a purchase on multiple platforms gives a much more effortless and efficient process which will lead to an immediate increase in sales. If HSN were to establish a presence today there business model would have to be geared towards becoming the leader in transactional innovation, by offering live streaming video on HD, as well as TV online, and mobile devices. 

Transaction Cost Economics

Transaction cost economics is a strategically articulated combination of law, economics, and organizational theory of a firm.  TCE provides a framework designed to increase the efficiency of transaction costs incurred by an entrepreneur or a firm by using economic theory in making key decisions regarding resource allocation. Transactions can be very complex, thus it is very important that both parties in any transaction agree on terms that establish a partnership in effort to promote a culture where both agents work to ensure mutual success. Without laying this foundation attempts to form outsourcing relationships could potentially become consumed by terms and conditions.  Proactive firms outsource for a common reason, that their in house operations are too expensive, ineffective, or both. For example it may be cheaper to produce in house, but wasteful of employees time, or may be cheaper to outsource because the firm does not have the adequate knowledge or technology to produce the output.  TCE is concerned with the governance of a firm’s efficiency; making efficient decisions concerning the coordination of resources either in house or in the market creates an opportunity to produce cost savings, and charge a premium price. In the coordination of resources a firm must identify core competencies central to their competitive advantage, which should remain in house. Any function of a firm that is a special purpose asset needed to operate efficiently should remain in house, specifically because if a change is needed and there is an existing demand (product order) the power has shifted to the outsourced provider.  TCE observes a firm as a government structure that has the ability to reduce uncertainty by controlling situations within and outside the firm, the amount of information needed to explore every angle of an opportunity is too great due to the existing mutual knowledge of the market. This can be overcome by introducing a well-articulated contract thus reducing uncertainty creating a competitive advantage.  The more uncertainty that exists the more difficult it is to use a contract when employing the market.  Very complex contracts enhance the prospect of self-interest (the more complex a contract is the more incomplete it is) which can be described as the hazard of opportunism, where one party may make an investment in support of the contract which the other party does not want to pay. TCE resembles game theory, it is a strategic process where the winner gets paid and the looser gets played.

After Dragone had stepped down as CEO, Keurig outsourced the search for a new CEO through Onsstott group which is an executive search firm that specializes in this area and has a large network of people. In light of TCE this was a good decisions Onstott group would have a much wider range of proximity in attracting potential personnel to fill in as the new president of the company. This gave a greater opportunity to keurig to find a candidate that best fit the company’s target outcome.  By outsourcing this function keurig created an efficient transaction, the terms of contract could be clearly stated, and could rely on the market to reduce uncertainty. The Onstott group presented them with many qualified candidates; it was up to Keurig to decide who they would hire.

The decision was made to outsource marketing of the K-Cup by licensing the firm’s technologies on non-exclusive basis to coffee roasters who would market K-Cups under their own brand.  Creating alliances with established channels of distribution and marketing experience was a good decision. By doing this they have created a performance partnership, which in this case would benefit both parties involved. Establishing this relationship aligned the interest of both firms, creating a win-win situation, allowing the established brands to generate revenue through the innovative product, as well as create awareness for keurig. A contract in this case would be very easily stipulated, and uncertainty would be reduced.

Keurigs decision to conduct market analysis on existing customers within the firm was a good decision, Stevens ( V.P sales and Marketing) used existing brewers and k-cups to  gain information on end users reactions to the product, grouping its potential customer base into 3 main categories. To be specific and according to TCE market analysis can be an outsourced function, but because Keurig had already ordered existing brewers and k-cups, and Stevens had been brought on to service the massive roll out which was not even close to happening, he used his time efficiently to assess market demand, and create an effective sales pitch by placing brewers in office environments, asking questions and assessing end users reactions.  By doing this he reduced uncertainty, as well as gained valuable insight as to how distributors would sell both products to the OCS segment.

Keurig made a decision which promoted great opportunity to outsource sales offered by distributors of the OCS market segment, the sales pitch and presentation was developed in house but Keurig used the efficiency of the distributors to sell their product.  The sales process was developed to appeal to not just the office manager, but also the employees who would be utilizing the system. The sales pitch was asset specific, and a core competency which is why it was produced by Keurig, an effective sales presentation was directly related to market research on the OCS segment that was also conducted by an in house employee.  Keurig would be working very closely with how distributors would be positioning the Keurig system.

Keurig made a very pivotal mistake by investing in a special purpose asset by outsourcing the development of the k-cup packaging line. This was asset specific to the function of the company, and was a core competency central to the firm’s competitive advantage.  The only way that Keurig could have reduced uncertainty is by producing the development of k-cup packaging lines in house. Throughout the production of the packaging line change was needed on certain occasions, and Moore (outsourced supplier MTS) informed Lazars (Keurig) that he would not ship the first completed packaging line until he received an additional 180,000$ on top of the fixed cost already negotiated. Because stipulations of the contract were far too complex, uncertainty was increased and self-interest of the supplier created a bilateral monopoly putting Keurig in a very bad situation. Moore produced a product line that he knew could not be replicated fast, or efficiently even if reversed engineered by Keurig, he knew it could take months putting him in a position of power, especially knowing that a demand existed. Keurig was forced to make a payment to MTS in exchange.  Keurig had allowed MTS to position themselves as the only company capable of delivering the machines in the time frame required to meet the demand.  Short term contracts break down when asset specifity changes and power is shifted creating a hazard of opportunism where the supplier felt he made an investment in support of the contract which was far too complex to be certain demand existed. Keurig was forced to make a payment to MTS in exchange.  Keurig had allowed MTS to position themselves as the only company capable of delivering the machines in the time frame required to meet the demand.  Short term contracts break down when asset specifity changes and power is shifted creating a hazard of opportunism where the supplier felt he made an investment in support of the contract which was far too complex to be certain.

Keurig’s decision to outsource the development of its brewers was a mistake as these brewers were core competencies and central to the company’s future. The roll out schedule for brewing units and packaging lines were intertwined and equally important. Keurig also needed to maintain its timetable in order to continually develop its network of distributors and premium roasters, without precision timing of both the brewers and k-cups there distributors would be left empty handed.  Keurig was very concerned with the consistency and quality of the brewers that Vandelay industries was rolling out, they were being passed through quality checks with loose screws and parts falling out. Keurig should have realized that the brewers were also asset specific, and should have been an in house function.  The short term contract had broken down once again due to the fact that Vandelay industries had submitted its contract for the next order needed by fall and its price per unit increased significantly. The brewers and K-cups were the absolute core competencies of the company, they were essential in providing the distribution channels they had outsourced. 

Keurig’s major flaw throughout this entire case was outsourcing the designs for the K-Cup packing lines, and Brewers.  Any asset specific function which is absolutely essential to the firm’s survival should be done in house, if Keurig would have completed the designs in house they would not have been scrambling to find new suppliers who would have to reverse engineer everything.  They would not have had to rely on short term contracts as they did which ended up breaking down, and costing them large quantities of capital which could have been used much more efficiently.  High pressure situations would have been reduced, and they would not have had to rely on suppliers motives to be aligned with theirs. Without the designs they were left helpless with sharks in their swimming pool, if they decided to keep the designs in house they would have been able to stipulate terms on contract, liabilities, and aligned their pricing model with their business model.  By doing so they would have been able to assess the performance of the supplier, and choose to either extend contracts or terminate them, instead they were left with decisions to incur costs associated with their lack of knowledge concerning TCE.

In situations where reliance can be made entirely on the market mechanism the role of the entrepreneur is to coordinate resources that reduce uncertainty. Entrepreneurs recognize opportunities that exist and connect dispersed knowledge regarding products and demand to exploit a previously unrecognized opportunity.  The role of an entrepreneur is to provide an opportunity to an existing, or unrecognized demand in a way that benefits all parties involved. The reason that not all opportunities require a firm is because the market can be used as a much more efficient tool, the role of the entrepreneur in this case is to distinguish which tools to use in order to produce a product or service cheaper or faster by coordinating mutual knowledge of the marketplace.  The role of an entrepreneur is to seize opportunities and correct inefficiencies by coordinating resources around them. A true entrepreneur can create opportunities in the disequilibrium of the market with little or no capital required. My belief is that opportunities exist in front of us every day in the simplest form; it is up to us as the entrepreneur to allocate resources in a way that is creative and innovative and creates demand. Entrepreneurs must use carefully defined contracts in order to retain the rewards associated with contributions to their transactions.