Nautilus 2003 Annual Report Download - page 16

Table of Contents
Market Research
Our market research indicated that while we possess distinct competitive advantages, we have not fully capitalized on the many opportunities
available to us in the $11.4 billion exercise, rest and nutrition markets that we compete in. During 2003, we performed in-depth analysis of our
business model and believe that we have significant opportunities to optimize our sales channel mix for our brands. We are a leader in selling
strength products through the direct marketing channel, but our research showed that approximately 80% of our target consumer market buys
fitness products through the retail channel and 60% of the dollars are spent on cardiovascular products.
Focus on Innovation
We plan to leverage our advanced research and development capabilities and our strong brand names to expand our existing product lines and
launch new innovative products. Innovation is an important part of our strategy as we continue to emphasize the expansion and diversification
of our product development capabilities in health and fitness products. We develop new products either from internally generated ideas or by
acquiring or licensing patented technology from outside inventors and then enhancing the technology.
Our research and development competencies have been enhanced through the acquisition of Schwinn Fitness and StairMaster. With the
purchase of these companies, we gained a state-of-the-art test facility and prototype shop, along with added designers and engineers. Our
additional research and development resources have allowed us to become fully integrated in the product development process, allowing us to
take a new product concept from the beginning of feasibility studies straight through to production and continuing product review. This
integration allows us a greater degree of control over the new product process, which should allow us to generate a higher quality product,
increase our speed to market, and control our costs.
Research and development expense was $5.7 million, $4.5 million, and $2.2 million for 2003, 2002, and 2001, respectively.
Leverage Sales Channels
We are repositioning our products to better meet customer demand and shopping patterns. This means offering more of the products consumers
want (e.g. cardiovascular fitness equipment) in the places consumers want to buy our products (e.g. retail outlets). We are moving more of our
products to the retail channel and are differentiating our products to specifically fit the needs of the consumer shopping in each sales channel.
For example, we will sell different models of Bowflex in specialty retail as compared to the direct sales channel. This strategy will allow us and
our partners to have differentiated products under the same brand, enabling each channel to provide the products its consumers demand. In
addition, we plan to reposition our Nautilus Sleep Systems line of premium air support sleep mattresses with an enhanced product and more
effective marketing through our direct business segment.
Streamline Company Operations
Another foundational element of our strategy is our effort to reorganize from a channel focus to a customer focus. We intend to manage and
operate as one company and not several separate channel-based businesses. Included in this focus change is a drive to leverage our expertise,
experience and diversity of thought from across our organization to realize synergies, efficiencies and cost savings. In 2004 we will seek to
adopt best practices across our locations and experience the benefits of one research and development team, one sales
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