BEST PRACTICES

IN THE MERCHANDISING OF CONSUMER ELECTRONICS ACCESSORIES

DEVELOPED BY CEA WITH ASSISTANCE FROM BDS MARKETING, INC DECEMBER 2004

CEA B EST PRACTICES IN THE MERCHANDISI N G

CONTENTS

Table of Contents
I. II. III. IV. V. VI. VII. Overview Key Research Questions Industry Dynamics: Multiple Challenges to Growing Accessory Sales Project Description, Scope and Objectives Project Approach: Three Phases, Three Key Levers Research Methodology CE Best Practices

VIII. Non-CE Best Practices

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OVERVIEW

Best Practices in the Merchandising of Consumer Electronics Accessories

Accessories are typically low-cost, high-margin items that help consumers receive maximum benet 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 studies that 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 Questions

Throughout this document, readers will get answers to the following questions regarding innovative approaches to CE accessories sales: n n n n n n What are the most innovative, high-impact, proven methods for growing accessory sales? Are some of these best practices more suited to particular channels? Particular product categories? How have suppliers addressed the most pressing challenges such as self-service, noncommissioned oors? Are there any solutions that work to the mutual benet of suppliers and retailers? Are there any silver bullets? What lessons can be learned from the non-consumer electronics industries? What makes a supplier a good partner from the retailer perspective?

Industry Dynamics: Multiple Challenges to Growing Accessory Sales

Multiple forces make growing accessory sales an increasing challenge. These factors are identied 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 sales n Self-service and non-commissioned oors 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

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n n n n

Integrated solutions that work Flexibility to research online Broad product assortment 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 Condential, 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 adjacencies o 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 benet manufacturers and retailers o Can be used in many/specic formats and merchandise categories o Leverage the ndings and conclusions in the Total Sales white paper

Project Approach: Three Phases, Three Key Levers

Phase I: Identify Best Practices
Objective n Develop a rened 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

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n n

Conrm willingness of manufacturers and best practice retailers to participate Develop data gathering tools: Qualitative and quantitative evaluation criteria for each of the key challenges(1) Manufacturer and retailer questionnaires for gathering nancial and operating details of each best practice Interview guides Rene case-study template

Notes: (1) Increasing Prots through Effective Retailing of CE Accessories, Consumer Electronics Association, October 15, 2002 Primary Deliverables n Rened 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 Rened case study template Summary n Hypothesis driven approach n Independent, fresh perspective

Phase II: Conduct Interviews and Selected Site Visits

Objective n Conduct telephone and on-site interviews with identied manufacturers and best practice retailers Key Activities n Conduct telephone interviews with identied manufacturers and retailers n Submit and secure return of completed manufacturer and retailer questionnaires n 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 characteristics n Completed mystery shops Summary n Lengthy, probing, individual interviews n Condentiality for maximum participation n Personal relationships

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Phase III: Document Key Findings and Conclusions

Objective n Richly document each best practice, synthesize ndings 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 nancial analysis of each best practice where sufcient 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 condentiality concerns Primary Deliverables n Completed template for each best practice n Synthesis of key ndings and conclusions n Overall and relative evaluation for each of the seven key characteristics n Recommended program improvements Summary n Synthesis of ndings 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 n n n n n n n n n n n n Senior Marketing Communications Manager (audio, connectivity, digital imaging, personal computing and wireless communications supplier) Global Category Manager, DVD and Media Products (other supplier) President (audio, connectivity, digital imaging, gaming, home networking and storage, home theater, personal computing, video, wireless communication and other supplier) Director of Marketing, North America (wireless communication supplier) Vice President, Sales Development (audio, connectivity, home theater and video supplier) President (gaming supplier) Vice President, Mobile (wireless communications supplier) Global Public Relations and Marketing Manager (audio, personal computing and other supplier) 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: Senior Director, Retail Sales (audio and personal computing supplier) Field Technical Group Project Manager (audio and home theater supplier) Director Sales, Western Consumer Imaging (digital imaging supplier) Marketing Program Manager (home networking and storage supplier)

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n n n n n n n n n n n n n n n n n n n n

National Field Manager (digital imaging supplier) Channel Marketing Manager for Retail/Catalog (home networking and storage supplier) EVP, Sales, Marketing and Product Development, Accessories (wireless communication supplier) Director, Sales and Marketing (home theater and wireless communication supplier) Marketing VP, Digital Products (audio, digital imaging, home networking and storage supplier) VP Marketing (home networking and storage supplier) Senior Product Manager, LCD-TV supplier (video supplier) General Counsel (audio, gaming, home networking and storage, home theater, personal computing and video supplier) SVP, Corporate Marketing (audio, gaming, home networking and storage, home theatre, personal computing and video supplier) SVP, Corporate Strategic Marketing (other supplier) Director of Marketing (gaming supplier) Director of Sales (gaming supplier) Director of Merchandising (gaming supplier) Senior Manager, Strategic Marketing (personal computing supplier) Director, Channel Services (audio, digital imaging and personal computing supplier) President (audio, home theater, personal computing and video supplier) Vice President, Business Development (audio, home theater, personal computing and video supplier) Manager Retail Sales Support (audio, connectivity, home networking and storage, home theater and video supplier) Senior Vice President (connectivity, home networking and storage, home theater and video supplier) 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 n n In-depth, lengthy and appropriately structured interviews Sources included referrals from suppliers, CEA references and from professional relationships Condentiality generated more candid, less guarded dialogue

The store visits included: n n More than 45 store visits spanning a 3-month period 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 qualied as follows: Retailer A: Functional Area: National CE retailers Merchants, category managers, customer experience managers, store design professionals National ofce superstores Merchants, category managers, senior inventory management

Retailer B: Functional Area:

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Retailer C: Functional Area: Retailer D: Functional Area: Retailer E: Functional Area:

Specialty online retailers Executive management Independent CE retailers Senior marketing management National PC and accessory retailers Senior marketing management

CE Best Practices: 12 Best Practices

Consumer Electronics Industry 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, ash 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. Simplied 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 offering online 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 1.

Retailer Best Practices: ( 1 ) Cross-merchandising

Consumer 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 ash 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 Benet and Responsibilities n Retailers should enjoy higher attach rates with no incremental effort (i.e. advertising, promotion, training, etc.)

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Increased impulse purchases Increased customer satisfaction, fewer returns 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 Benet 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 Benet and Responsibilities n Suppliers benet from higher attach rates n Persistence in working with retail merchants who are not motivated to create crossmerchandising 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 Adjacencies

Consumer 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 Independent retailers Retailer Benet and Responsibilities n Retailers should enjoy higher attach rates with no incremental effort (i.e. advertising, promotion, training, etc.) Improved customer satisfaction Fewer returns n 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 Benet n Promotes simple, enjoyable shopping experience Convenient

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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 Benet and Responsibilities n Suppliers benet from higher attach rates n 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 prociency in adjacencies which one leading retailer described as an art form

Retailer Best Practices: ( 3 ) Experiential Marketing

Consumer 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 Independent retailers Retailer Benet and Responsibilities n Benets are multiple, including Drive store trafc 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 Benet 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 Supplier Benet and Responsibilities 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

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Retailer Best Practices: ( 4 ) Lifestyle and Solution Selling

Consumer 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, exibility and a wider range of solutions n Executed mainly in national CE superstores Retailer Benet and Responsibilities n Benet 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 identication with host manufacturer n Solutions may lie in co-branding, co-promotion, adjacencies Consumer Benet 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 Supplier Benet and Responsibilities n Benets 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

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Retailer Best Practices: ( 5 ) Reward and Recognition

Consumer 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 Retailer Benet and Responsibilities n Many benets to retailers Improved customer satisfaction, retention Fewer costly returns Higher attach rates n 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 Benet n Overall focus is to increase customer satisfaction, with individualized recommendations, when practiced with highest degree of prociency 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 Supplier Benet and Responsibilities n Primary supplier benet is higher attach rate Ancillary benets 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 Training

Consumer 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

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Retailer Benet and Responsibilities n Many benets to retailers Product training provided by supplier Motivational tool that builds loyalty, reduces turnover Induces behavior that increases retailer protability Provides sales associates and customer contact teams the tools they need to discuss products with condence n Sales associates develop enthusiasm for and experience with supplier products and accessories More persuasive in making recommendations Consumer Benet 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 Benet and Responsibilities n 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 Brands

Consumer 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 unique graphic identity Also requires signicant 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. Retailer Benet and Responsibilities n Simplies 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 Benet n Fresh, visually-relevant and attractive packaging simplies shopping and selection for consumers Leverages authority of the host brand Provides comfort and convenience Supplier Benet and Responsibilities n Leverages strong brand identity of host manufacturer, and their signicant presence within store

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n n n

Typically involves private label or licensing arrangement Most successfully executed through a formal collaboration with host device manufacturer but also can be executed through copycat strategy Suppliers most successful in this approach frequently refresh their packaging in highest potential categories

Retailer Best Practices: ( 8 ) Simplied Visual Merchandising

Consumer 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 identier Interpretive material at POS n Packaging offers clear delineation of merchandise categories n Interpretive materials explain benets and how products work Retailer Benet and Responsibilities n Primary benet 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 Benet n Makes shopping self-serve formats easier n Simplies 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 Simplies complex categories n Makes consumer electronics more accessible Supplier Benet and Responsibilities n Suppliers must work aggressively in partnership with retailers to conform to retailer leadership in this area Opportunity to inuence 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

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Retailer Best Practices: ( 9 ) Assortment and Suggestive Selling Online

Consumer 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 nal 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) Retailer Benet and Responsibilities n Retailer benet 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 Benet 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 Supplier Benet and Responsibilities 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 Clicks

Consumer 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

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Most prevalent in national CE chains and ofce superstores Requires commerce website Available across all merchandise categories Observed in personal audio, video, mobile electronics

Retailer Benet and Responsibilities n 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 Benet 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 fulllment of online purchases Supplier Benet and Responsibilities 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 efcient 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 Partnership

Consumer 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 Prot 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 Retailer Benet and Responsibilities n True partnership benets accrue to both parties with retailer benets including: Enhanced margin, protability 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),

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and do monthly sales analysis and forecasting with key vendors Consumer Benet n Consumers experience the supplier-retailer partnership through seamless execution at retail on all aspects of relationship Supplier Benet and Responsibilities n True partnership benets accrue from embracing the retailer with supplier benets including: Enhanced margin, protability 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 Rates

Consumer 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 Retailer Benet and Responsibilities 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 oor Consumer Benet n Focused, deep and personalized attention from sales associate n Makes retailer preferred destination for CE accessories n No sale too small, no request too trivial Supplier Benet and Responsibilities n Drives high attach rates and sales volume for suppliers n Foundation for strong, enduring relationship with retailer

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Non-CE Best Practices: Objectives

Non-Consumer Electronics Industry Objectives n Seek insight into opportunities for CE accessory suppliers to protably 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 Berlands n Bosch n Callaway Golf n PUMA n Este Lauder n L.L. Bean n Crate & Barrel n Clinique n Williams-Sonoma n Prince n Elfa n REI n Orvis n 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

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Overlap Not Observed in CE: 3.) Aggressive commission structure Technically procient, 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 includes accessories 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 Outtters 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. Este 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: Este Lauder (Prescriptives, Clinique, Origins) Implications for CE n 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 Suppliers, Brands and Retailers n Nike, Puma, Callaway, Prince Implications for CE n A branded category or licensing or product expansion strategy could provide greater

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growth opportunities at retail and synergies with consumers

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

Non-Consumer Electronics Industry Description n Technically procient, 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 Suppliers, Brands and Retailers n Cosmetics: Este Lauder (Prescriptives, Clinique, Origins) n Home dcor: 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 prots 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 n Structured 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 Suppliers, Brands and Retailers 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 longterm purchases. Allows customers to live with idea prior to purchase

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

Non-Consumer Electronics Industry Description n Full range of product offering includes accessories available in-store Outtters 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 Berlands 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 Suppliers, Brands and Retailers n DIY Woodworking: Berlands, Bosch, Dewalt, Delta n Outtters: Bass Pro Shops, Galyans, REI n BBQ: Weber, BarbequeGalore.com Implications for CE n Expanded and well-identied 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 retailers customer proposition Suppliers, Brands and Retailers n Hunting, shing and outdoors: L.L. Bean, Cabelas, Orvis n Cooking: Williams Sonoma n Home dcor and furnishing: Crate and Barrel Implications for CE n Duplicating the experience with bricks-and-clicks strengthens the brand, increases shopping frequency and customer satisfaction. Solution centers and ash 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

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CEA B EST PRACTICES IN THE MERCHANDISI N G

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

Suppliers, Brands and Retailers 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 benet

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, oor 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., Berlands, REI, IKEA) Creates loyalty, builds frequency, drives higher ring Consumers establish emotional connection, discover new ways to use product, nd the shopping experience exciting Result: Superior execution at point-of-sale

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2500 Wilson Blvd Arlington, VA 22201 www.ce.org