The Teleshopping

Business in India
"Interested in reducing that 'extra flab' on your body in a matter of hours? Would you like to grow
hair on that balding pate of yours in just a few days? All you need to do is watch the television (TV)
and order the 'miraculous' products being advertised through the phone."

Welcome to the world of teleshopping networks, a phenomenon that had become a part of the lives
of Indian TV viewers by early 2000. Day in and day out, customers were swamped with images of
models showing off their 'fabulous flat abdomens,' 'blemish-free skins,' selling disease-curing teas,
wondrous kitchen and household equipment, on almost every TV channel.

Though teleshopping networks became operational in the mid-1990s in the country, their presence
was never felt as strongly as it was during the early 21st century. A majority of these infomercials1
were dubbed versions of English (or other foreign languages). Many consumers found it extremely
amusing to see foreigners mouthing chaste Hindi (and other regional Indian languages) while
advertising these products.

However, it was the nature of the products being offered by these networks that attracted the
maximum attention. Most of the infomercials featured products that claimed to provide miraculous
results. There were products, which could help one reduce weight and get into shape without
exercise or dieting. There were other products that promised to make people give-up smoking and
improve body posture. The range of products included creams, potions, solutions, toys etc.

Analysts questioned the reliability of such personal care products that claimed to beautify and tone
up the body in a matter of days. They considered these infomercials, which depicted common
people using the product and explaining its effectiveness, a farce. They argued that, these people
were paid to speak well about products.

Analysts criticized the teleshopping networks for trying to deceive the viewers into buying products
with the belief that those people had actually used them. Despite these allegations, teleshopping as
a concept was gaining popularity in India and more and more customers were showing readiness to
try innovative products.

Consumer marketing channels can be broadly classified based on the number of sales levels
between the manufacturer and the consumer. One-two-three-four level channels are the most
commonly used and involve wholesalers and retailers (also called mass marketing). Direct marketing
is a zero-level channel, wherein marketers interact with the customer on a one-to-one basis (Refer

1
Infomercials are commercials (advertisements) that are intended to provide information about the product/service being
advertised, in greater detail than the conventional advertisements. They are educational in nature, range from a few
minutes to half-hour in length and are shown as part of the regular programming on TV channels.

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Exhibit I for a comparison between mass marketing and direct marketing and various kinds of direct
marketing techniques). Direct response marketing motivates customers to take prompt action.

The prerequisites for a promotion technique to be considered as direct response marketing included
placing an order directly before the potential customer and prompting the customer to take
immediate action (such as requesting for additional information or making a purchase decision).
Teleshopping is another name for Direct Response Television (DRTV) shopping, a concept that
originated in the US in the mid-1980s. It is one of the direct response marketing techniques. Other
major direct response marketing techniques included catalog and direct mail retailing, and
interactive/online home shopping.

While in catalog/direct mail retailing, product details are communicated to the customer through a
catalog or mailer (letters, brochures, pamphlets), in interactive/online shopping, product details and
pictures are sent directly to the customers through an electronic medium such as the Internet. Since
the 1990s, two types of infomercials have been used. Some featured people from various walks of
life, using the product and benefiting from it.

These were scheduled between TV programs. At the end of the infomercial, the teleshopping
networks provided their telephone numbers (usually toll-free), prompting viewers to call for further
enquiries or place orders. Other infomercials were 'in-studio' productions with a live audience. The
companies attempted to convince viewers that it was a regular show and not a mere commercial
aimed at luring them to buy their products.

Some teleshopping networks designed 30-60 minute programs, wherein they introduced their
product range and carried out in-depth product demonstrations. In countries like the US and
Australia, teleshopping networks had dedicated 24-hour home-shopping channels that offered
extensive information regarding their product range such as product details and price. Though the
concept received a lukewarm response in its early years, in the mid-1990s, it started gaining
popularity.

By 2000, the teleshopping market in the US was valued at around $2 billion. Presently, there are two
major teleshopping networks in the US - the Home Shopping Network and QVC, which have their
own, exclusive 24-hour teleshopping channels. These channels offer products aimed at specific
customer groups at different time slots to enable viewers to plan their viewing time accordingly. In
2000, the teleshopping market in the US was valued at around $ 2 billion. However, teleshopping
was not as successful in other parts of the world as it was in the US.

This was due to several problems, which included low penetration of television, lack of innovative
offerings, poor promotion and advertisement techniques, and lack of awareness among the
customers. But with the growing popularity of satellite and cable television in the late 1990s,
changes in lifestyle and a general improvement in the standard of living, teleshopping picked up
momentum. By 2001, the total teleshopping network business in the world amounted to over $ 5
billion

THE INDIAN SCENARIO

During the early 1990s, Indian laws prohibited customers to import products, without acquiring prior
permission from the regulating authorities. These laws also restricted the repatriation of money (out

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of India), without the prior permission of the country's central bank, the Reserve Bank of India (RBI).
This was a major reason for the evolution of teleshopping in India, unlike the US, where teleshopping
evolved due to the changing societal norms. During the mid-1990s, Telebrands India, a 100%
subsidiary of Telebrands Corp., pioneered the concept of teleshopping in India and soon grew into a
leading teleshopping network in the country.

In mid-1995, TSN (another major US-based teleshopping network) and Asian Sky Shop (ASK), owned
by the media giant - Zee2, also entered the market. The other major players in the Indian
teleshopping market were TVC, TSNM and Star Warnaco. All these networks adopted the following
modus operandi:

•Buying time slots on popular channels that had high penetration and enjoyed good viewership
among the target customers. These time slots ranged from two minutes to 1 hour and comprised
infomercials/product presentations, explaining the product's utility.

•Providing a special product code for every product and displaying it along with its price.

•Setting up call centers in various cities, on the basis of the scale of operations and the extent of
penetration expected.

•Providing viewers with telephone numbers of these call centers and asking them to call their
nearest call centre for further enquiries or to order the product.

However, the Indian teleshopping network grew at a very slow pace, on account of factors such as
the lack of education and awareness among people, low standard of living, low rate of women
employment, and low penetration of TVs/telephones. Moreover, unlike the Western countries,
shopping for an average Indian had traditionally been an occasion for 'social outing' and enjoyment.
The 'feel-and-touch' factor for buying almost anything had always been given great importance.

Thus, teleshopping networks initially had a tough time, to make the concept acceptable. The
companies developed several strategies with regard to product offerings, promotional practices,
pricing and distribution, to overcome the above hurdles and make a success of their teleshopping
initiatives.

During the late 1990s, the traditional Indian societal setup of joint families gave way to nuclear
families. In the metros and even some smaller cities, the number of families where, both the
husband and wife were pursuing careers had increased substantially and there was little time
available for shopping outdoors.

Teleshopping companies believed that this segment offered tremendous marketing potential and
would easily take to convenient shopping from their homes. In addition, the networks decided to
target the premium-end TV viewers, with high purchasing power. The growing sophistication among
these customers enhanced their readiness to try new, innovative products, even at a premium.

While deciding on the product-mix, teleshopping networks focused more on offering innovative and
value for money products, which were not available in the market otherwise. These were primarily,
impulse buying products, aimed at attracting viewers and inducing them to take an buying decision
promptly. Thus, a select range of imported products were offered that mainly included electronic

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goods, fitness devices, home appliances and toys. The networks sourced their products with help of
their agents (both in India and abroad) who identified and certified the quality of these products.

In some instances, the manufacturers of the products approached the networks directly for
marketing and distribution of their products. The India-based networks such as ASK also offered
products made in India apart from their imported range. In early 2000, many local players also
entered the teleshopping market and began offering products on local cable channels. However, the
imported products were more successful as compared to the Indian products being offered.

Analysts attribute this to the novelty of imported products and the inherent customer orientation
towards foreign goods in India. In the early 2000s, the networks began offering various customized
products such as jewellery with birth-stone, which became very popular. New products were
introduced constantly to attract customer attention and ward off competition. The products offered
were broadly divided into two categories, Utility products (fitness devices, heathcare/autocare
products, household appliances and electrical devices) and Value-expressive products (jewellery,
apparels and, home decor).

The range of product offerings increased through 2001 and encompassed many more products that
included electronic goods, toys, clothes, books and music. Utility products accounted for a majority
of teleshopping sales in India, while value-expressive products registered low sales. Explaining the
rationale behind this, analysts said that Indian customers were used to go to their trusted shop-
keepers for buying such high-value products and liked to ascertain the product's worth by physically
handling and inspecting it.

Teleshopping networks adopted two types of persuasion modes to induce viewers to buy their
products, namely Functional Congruity and Self Congruity. While functional congruity aimed at
attracting consumers by emphasizing the utilitarian aspect of the product, self-congruity aimed at
attracting customers by matching the product user image with that of customer's self-image. The
products were advertised through infomercials which were aired in 1-2 minute time capsules
between scheduled programs (both national and regional) or in 30-minute time capsules on various
TV channels.

Most of these infomercials were aired only on weekdays while a few were aired seven days a week
(Refer Table III for air-time of various teleshopping networks). Since initially, only imported products
were being offered and the market was very limited, companies did not find it commercially viable
to prepare detailed infomercials for them. Hence, they offered dubbed versions (English, Hindi and
other regional languages) of the original infomercials (made in different foreign languages).

As the product range expanded to include domestic products as well, the networks developed
(shooted) infomercials in India. Most of these were developed in studios and featured well-known
personalities such as former film and TV stars. However, dubbed versions of infomercials were used
even in the early 2000s, as foreign products still formed a substantial part of product portfolio of all
major teleshopping networks in India.

To ensure success, teleshopping networks paid special attention to their pricing strategies. In the
initial years, most of the products offered by these networks were lifestyle products that came last
in priority of a typical Indian household. Though the price of the products offered by various

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networks in the late 1990s was as low as Rs 5003, most of them were priced at a premium to target
the upper classes.

However, over the years, the number of utility products increased and the price of the products was
also brought down to make them more affordable. In 2002, the price of the articles offered ranged
between Rs 200 to Rs 12,000, with a majority of the products falling in the Rs 1,000-5,000 range. The
teleshopping networks competed with each other in terms of offering the same benefits at lower
prices. This was particularly observed for various weight reduction products. All the networks
marketed different gadgets that claimed to reduce weight derided the offerings of rival teleshopping
networks claiming to be cheaper and much more effective.

Hectic activities took place on the promotional front as well, with networks offering 'early bird'
prizes, price reductions, money return (if not satisfied with the product) offers, free accessories and
double product packs at the same price. For effective distribution of their products, the networks
focused on strengthening their franchisee base across the country. All the major networks in India
had their franchisers across major metros and semi-metros in the country.

Towards the end of the year 2001, the franchisee network of Telebrands India extended to over 90
cities across the country, while ASK's network spanned across 60 cities. The networks provided the
telephone numbers of all their distributors at the end of their infomercials, so that the customers
could call their nearest distributor for further enquiries or to place an order.

On receiving a purchase order from a customer, the product was delivered to him/her through
courier. Payment was generally made on delivery of the product. Unlike the late-1990s, when
products were only delivered against cash payment, in the early-2000s, the networks began
accepting credit cards to encourage customers to respond to their offers.

As a result of all the above initiatives, the awareness about the merits of teleshopping increased.
Customers, who followed global trends in lifestyles and product usage, began to buy teleshopping
products, and the market picked up momentum. In 2001, the market registered an annual growth
rate of over 20% and amounted to Rs 500 million. In 2002, Telebrands led the market with an
estimated turnover of over 250 million, followed by ASK with a turnover of over 200 million.

TELESHOPPING TRAUMAS

Though teleshopping market was showing positive growth trend, its growth rate was much below
the expectations of the players involved. According to a report,4 most of the teleshopping networks
in the country were not making any profits. In fact, TSN had closed its teleshopping activities in 2002
and was concentrating only on online retailing (www.tsnshop.com).

According to market sources, Telebrands was the only network that was able to sustain itself and
make profits - though it was attributed by many to the strong support it received from its parent
company, Telebrands Inc. The reasons for the slow growth of the teleshopping market in India were
many, the most important being the abundant supply of imitation product.

Local entrepreneurs copied the products advertised on TV and very soon the markets were flooded
with imitated versions of these products. These products were not only cheaper compared to
organized sector products, but also offered consumers the facility to personally touch and appraise

The Teleshopping Business in India Page 5 of 7

them. Mahesh Panna of Telebrands said, "What happens is that we come out with a product and it is
promptly copied by a local player. He obviously sells it at a lesser price. This way the whole market
goes out of our hands."

To address this problem, networks such as Telebrands and ASK opened special retail outlets in all
major metros and semi-metros to enable customers to personally appraise the products offered,
before making a purchase decision. Apart from the new products, the companies also retailed those
products, which had been taken off air (to make place for new products) but still had potential for
sale. However, the local retailers still enjoyed a substantial price advantage over the teleshopping
networks due to local manufacturing, low transportation costs and elimination of
distribution/delivery costs.

Though the teleshopping networks claimed that their pricing strategies were in tune with the target
customer's profile, the reality was very different. The higher prices were proving to be a major
hindrance for the growth of teleshopping networks. Most of the products were priced between Rs
1,000-5,000. Customers were found to be unwilling to pay this amount for lifestyle products that
ranked rather low in their household purchasing priority list.

The differences in the culture and language also posed problems and hampered the prospects of
teleshopping market in India. As teleshopping networks needed to telecast their programs in
different regions, they dubbed most of their infomercials into the regional languages. However, they
failed to have any impact in prospective customers as they did reflect the native culture of the
region. Another major problem for the teleshopping networks was the growing criticism for some of
its products.

There were a host of products that claimed to do 'seemingly impossible' tasks for consumers. For
instance, products promising to reduce weight, remove unwanted hair, improve posture, improve
hearing and cure chronic diseases were eyed with suspicion by a majority of Indians. Also, the 'over-
enthusiastic' and 'chirpy' foreign models that appeared in the dubbed infomercials were criticized on
the grounds of being rather awkward mouthing dialogs in Hindi and other regional languages.

Problems were further compounded due to limited reach of teleshopping products. The networks
focused mainly on metros and B-class cities, neglecting towns and semi-rural areas which also had a
growing base of educated and premium end customers who aspired for convenience and novelty
products. To address this problem, major teleshopping networks announced plans to expand their
distributor base and extend their reach to all corners of India.

Every distributor or franchisee was supplied with a minimum stock level, based on the expected
market of the product in that specific region. The players also entered into marketing agreements
with leading retail outlets in various cities, where their range of products could be displayed.
However, with all the networks preparing to leverage the growth potential in the market, the
competition was expected to intensify. To withstand competition, it became essential for
teleshopping networks to continuously innovate and offer new products. This posed a serious
challenge for them.

The biggest threat for teleshopping, however, seemed to be the emergence of interactive home
shopping, wherein the retailers and consumers used interactive electronic systems such as a digital

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TVs or the Internet (popularly called e-tailing) to buy products online. The concept was still in its
initial stages in the early 2000s. However, industry observers felt that it would not be long before
this concept became popular, given the growing techno saviness of Indian consumers and the
increasing Internet user base in the country. It was being increasingly felt that the networks which
did not embrace this new phenomenon would find it difficult to survive in the coming years.

Despite all the above problems, the teleshopping market was believed to hold a lot of potential in
India. This was primarily on account of the increasing base of convenience-seeking people and the
middle-class population.

As the standard of living of these people improved, they became more receptive towards trying out
innovative products and concepts. Teleshopping networks, therefore, focused on integrating their
operations and increasing their reach for these customer segments. The decision to offer online-
shopping services through special retail websites was made with the same objective.

By mid-2002, most of the major networks such as Telebrands and ASK were deriving their revenues
from three sources - websites (www.asianskyshop.com and www.telebrandsindia.com respectively),
teleshopping and retail outlets, with a major part of the revenues coming from the teleshopping
(franchise centers). The revenues from websites were low due to the lack of online purchase
awareness among the customers and the low rate of credit card penetration in India.

Since global teleshopping networks proved to be a huge success, there seemed to be a strong
possibility of their being successful in India, as well. But for that, teleshopping networks would need
to play their cards right. (Refer Exhibit II for the key success factors for a teleshopping network), it
would not be too far-fetched to think of 24-hour dedicated teleshopping channels in India in the
future.

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