Rosetta Stone 2009 Annual Report Download - page 16

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Table of Contents
at our kiosks or retailers, and those who have seen our solutions demonstrated at our kiosks may purchase solutions through our retailers, websites or call
centers.
Direct to Consumer. Our direct-to-consumer channel, which we define as sales generated through either our websites or call centers, accounted for
approximately 57% of our consumer revenue for the year ended December 31, 2009. We utilize several forms of advertising to drive our direct-to-consumer
sales, including print, online, television and radio. We advertise in a variety of national publications, such as Time, The Economist, The New Yorker and
National Geographic. Our online media strategy encompasses banner and paid search advertising, as well as affiliate relationships. We work with various
online agencies to buy both impression-based and performance-based traffic. All our advertisements include a "call to action," which encourages potential
customers to visit our websites or contact a call center to order a product or a CD-ROM demo. Our advertisements include promotional codes that encourage
customers to indicate which television or radio spot or publication they are responding to in order for us to track performance of each discrete media buy. By
using different codes for different advertising media and campaigns, we can track the link between our media buying and the demand it generates. This gives
us insight into the effectiveness of each form of advertising we purchase, which enables us to more closely tie our advertising spending to the results achieved.
We receive our orders in the direct-to-consumer channel through our websites and call centers. Our marketing to this channel also supports the kiosk and retail
channels.
Rosetta Stone Kiosks. As of December 31, 2009, we operated 242 retail kiosks, including 3 full service retail outlets, in airports, malls and other
strategic high-traffic locations in 39 states and the District of Columbia. This does not include the ZoomShop unmanned automated kiosks in which we offer
our products. As of December 31, 2009, we also operated 9 kiosks in the United Kingdom, 12 in Japan and 20 in South Korea. Some of our international
kiosks are inside the stores of other retailers. These company-operated kiosks accounted for approximately 20% of our consumer revenue for the year ended
December 31, 2009. With bright and colorful displays, efficient use of retail space and limited capital investment, we believe that our company-operated
kiosks are an effective outlet for selling our solutions and reinforcing our brand image. We believe that our kiosks enhance our ability to build strong
consumer relationships and promote additional customer interest through the provision of personal demonstrations by our sales associates.
Most of our kiosk site licenses range between three to six months with renewal options. Our policy is to close under-performing kiosks expeditiously.
We also offer our products in a limited number of unmanned ZoomShop automated kiosks. Although these devices do not offer the one-on-one
experience that the kiosks provide, there are interactive demonstrations on their touch screens with audio that helps illustrate our teaching techniques. These
devices allow us to quickly establish a presence in retail locations for a very low capital commitment.
Retailers. Sales to retailers accounted for approximately 23% of our consumer revenue for the year ended December 31, 2009. Our retailers enable us
to provide additional points of contact to educate consumers about our solutions, expand our presence beyond our own kiosks and websites, and further
strengthen and enhance our brand image. Our retail relationships include Amazon.com, Apple, Barnes & Noble, Books-A-Million, Borders, Office Depot and
London Drugs. Sales in the retail channel are highly correlated with our media expenditures in the direct-to-consumer channel.
Institutional
Institutional sales accounted for approximately 21% of our revenue for the year ended December 31, 2009. Our institutional distribution model is focused
on targeted sales activity primarily through a direct sales force in four markets: schools, colleges and universities; the U.S. armed forces
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