Case Study:
Desmond sizes up shopping
Fancy buying your knickers from a company owned by Richard Desmond? Well, half-owned. Avid readers of the Daily Express – and watchers of the newspaper proprietor’s Fantasy Channel – will get their chance to do just that from tomorrow, when Desmond launches the Express Shopping Channel. The joint venture between Northern Shell, his privately owned company, and N Brown Group, the mail order shopping group, will go live on Sky and NTL on Channel 637. The Express channel will cater to fashion ‘for real women’, offering lingerie for ladies up to size 48 and bras from B to HH – a cup size so large, one exec joked, that you could ‘take three people across the river in it’. It will also serve up a series of ‘lifestyle shows’ to highlight its fashion, cooking, DIY and gardening-related offering. For Desmond, who agreed to invest ‘a couple of million quid’ to set up the joint venture following a meeting with Lord Alliance, non-executive chairman of N Brown, the combination of Northern Shell’s television experience and marketing reach and N Brown’s catalogue business represents ‘a perfect marriage’. ‘I got on with [Lord Alliance], he was telling me about his mail order business, and I’ve wanted to go into shopping for a few years now,’ Desmond says. Executives involved in the creation of the joint venture say the division of responsibility between the companies has been clearly defined: Northern Shell will provide the joint venture with television expertise, the capacity of its studios and marketing initiatives through its newspapers and N Brown will provide ‘back-end’ services – the products being sold, the warehouses and call centres. ‘I think we’re bloody good at front end,’ Desmond says.
The channel’s shows, including six hours of live broadcasting, will be produced in newly refurbished studios at Northern Shell Tower, in London’s Docklands area – the same building where some of Desmond’s steamier programmes are edited. But can the brand that sells Posh and Becks features and stories about women who earn so much ‘they can’t get a man’ really sell frying pans and ladies shoes (which will be offered with up to triple-E-width fittings)? Desmond, who made headlines earlier this year when he launched a foulmouthed outburst against executives at the Telegraph group at a board meeting of their West Ferry joint venture, says the Express brand is ‘the most reassuring, trustworthy brand’ in middle England. The decision to launch a branded shopping channel represents a new experiment in the expansion of the Express brand name in a market that can be tough for new entrants. Chris Haslum, a Northern Shell executive who has been named managing director of the shopping channel, says today’s home shopping channels have been carried by the trailblazing work done by QVC, the first home-shopping network and market leader. According to industry folklore, customers watched an average of 50 hours of programming before they started ordering from QVC at the time of its launch nearly two decades ago. Haslum says it is ‘difficult’ to avoid adopting a similar model to the QVC one, although he says that the Express channel will offer customers ‘more humour, more fun, and more interaction’. Desmond takes a more direct approach in criticising the market leader, which is owned by Liberty Media, the investment vehicle of US media mogul John Malone. ‘I don’t think QVC do it very well, to be honest. When you see our channel, the products we’ve got [are] more relevant and the presentation is better,’ he says. QVC’s customers – and the 6.5m viewers who tune in every month – may not agree with Desmond’s view. The company’s UK arm reported pre-tax profits of £16m on turnover of £226m in 2003. Dermot Boyd, finance director at QVC UK, says the Express channel’s launch is a positive sign for the sector, adding that the group’s ability to cross-promote in the Express group’s newspapers and magazines would be an advantage that most start-ups lack. The Express channel is counting, in part, on the experience of Alan White, chief executive of N Brown. As group finance director of Littlewoods in the late 1990s, White shut down Shop!, a television shopping channel the company had set up as a joint venture with Granada. ‘I always felt it was an important part of the business. It got to the stage it was doing £40m of turnover. However, it had an expensive infrastructure and there were high costs involved in bringing customers to the channel,’ White says. The N Brown executive says the joint venture expects to break even in two years – in contrast to a flippant remark by Desmond, that he expects to make a profit from the moment the channel airs.
However, Desmond then adds, more seriously: ‘It took me seven years on OK! [the celebrity monthly mag] to make money, it took five years on the Fantasy Channel, but we’ve always found a way through. We’re winners.’ Perhaps unsurprisingly, White concedes that his initial response was a cautious one: ‘Having seen where things can go wrong, I think it is probably fair to say I had some degree of scepticism.’ One of his biggest concerns was whether or not the group would be able to create a channel with a low enough cost base to break even in a reasonable amount of time. Boyd at QVC agrees with the strategy: ‘It is a good idea to have the discipline not to invest huge amounts of money and try to get break-even early.’ White says his confidence in the Express channel is based on two key differences from the Littlewoods venture: Express Shopping Channel will have a clearer view on which products work well than Shop! did, and it will benefit from the growth in multichannel viewers. ‘We are focusing on customers from middle age and beyond and being a specialist in terms of fittings,’ he says. The extensive range of the group’s product offering, including clothes for women sized 12 to 32 and men with 66-inch chests, will be the Express channel’s most competitive advantage over the high street. In the meantime, people hoping to catch a glimpse of Desmond onscreen should not hold their breath. The newspaper owner says he has no plans to be a guest on the channel. Source: Stephanie Kirchgaessner (2004) Financial Times, 19 October. Reprinted with permission.
Q1. ‘The decision to launch a branded shopping channel represents a new experiment in the expansion of the Express brand name in a market that can be tough for new entrants.’ Suggest what marketing research might have been undertaken prior to making the decision to go ahead with such a venture.
Your answer must be, typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.