Overstock.com 2005 Annual Report Download - page 8

merchandise. In addition, we continually update and monitor our Websites to enhance the shopping experience for our
customers.
Our objective is to become the dominant closeout Internet-based solution for holders of brand-name merchandise, allowing them
to dispose of that merchandise discreetly and with high recovery values, and to ultimately become a one-stop Internet-based discount
shopping destination. We are pursuing this objective through the following key strategies:
• Establish strong relationships with manufacturers. With the growth in the scale of our operations, we believe we are becoming
an efficient liquidation channel for manufacturers and distributors. With scale comes the ability to buy in volume, and we
believe manufacturers appreciate our ability to liquidate their products without disturbing their traditional channels. Generally,
manufacturers do not want their product offerings sold as heavily discounted, closeout products in brick-and-mortar retailers,
as is common today. We believe that as manufacturers learn of our capabilities, they will increasingly recognize the
attractiveness of Overstock as an efficient liquidation solution.
• Optimize inventory management through the use of technology. Our merchandise buyers are supported by proprietary software
that provides information on product sales, margins and inventory levels. This technology enables us to make informed
decisions and quickly change prices in an effort to maximize sales volume, gross profits and return on inventory capital.
• Optimize online marketing initiatives through the use of technology. Our marketing team is supported by proprietary software
that enhances the level of service provided to our customers and takes advantage of the unique characteristics of online
distribution. Our software provides us immediate feedback on the effectiveness of various marketing campaigns, allowing us to
optimize our online marketing expenditures.
• Maintain low customer acquisition costs. We believe that by utilizing targeted online campaigns, including direct e-mail
campaigns (the results of which we are able to quantify) as well as our internally developed national television and radio
branding campaign, we will be able to keep our per customer acquisition costs relatively low.
In addition, we use our books, music, videos and games (BMV) department as a tool to acquire customers at a low cost. We
intentionally price this department with low margins in an effort to gain new customers efficiently, providing us the ability to
introduce them to other products offered on our Website.
• Loyalty programs. In March 2004, we launched our frequent buyer's club, Club O. Members of Club O pay an annual fee of
$29.95 and receive a 5% discount on all non-travel and non-BMV products and $1 shipping per order, along with access to a
special customer service hotline. Additionally, in November 2005, we partnered with Chase Card Services to launch an
Overstock.com Co-Branded Rewards Visa credit card program, offering our customers a free Club O membership for one year
and the opportunity to earn rewards certificates to redeem on our shopping and BMV Websites.
Our Businesses
Overstock utilizes the Internet to create a more efficient market for liquidation merchandise. We provide consumers and
businesses with quick and convenient access to high-quality, brand-name merchandise at discount prices. As previously mentioned,
our shopping business includes both a "direct" business and a "fulfillment partner" business. During the year ended December 31,
2005, no single customer accounted for more than 1% of our total revenue. Products from our direct segment and fulfillment partner
segment are available to both consumers and businesses through our Club O frequent buyers club program and our Wholesale bulk
purchase program (formerly known as Club O Gold).
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