Rosetta Stone 2010 Annual Report Download - page 15

Table of Contents
Marketing and Distribution Channels
Our multi-channel marketing and distribution model consists of print, online, television and radio direct-response advertising, kiosks, our institutional
sales force and retail resellers. We believe that this marketing and distribution model, through which each channel complements and supports the others,
provides:
greater brand awareness across channels;
cost-effective consumer acquisition and education;
premium brand building; and
improved convenience for consumers.
Consumer
Consumer sales accounted for approximately 79% of our revenue for the year ended December 31, 2010. Our consumer distribution model comprises a
mix of our call centers, websites, network of kiosks and select retail resellers, such as Amazon.com, Apple, Barnes & Noble, Borders, Best Buy, Staples,
Costco and Office Depot. We believe these channels complement each other, as consumers that have seen our direct-to-consumer advertising may purchase 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 58% of our consumer revenue for the year ended December 31, 2010. We utilize several forms of advertising to drive our direct-to-consumer
sales, including print, online, television and radio. Our marketing to this channel also supports the kiosk and retail channels.
Rosetta Stone Kiosks. As of December 31, 2010, we operated 259 retail kiosks, including 4 full service retail outlets, in airports, malls and other
strategic high-traffic locations in 36 states and the District of Columbia. As of December 31, 2010, we operated 14 kiosks in the United Kingdom, 15 in Japan
and 56 in South Korea and one in Germany. Some of our international kiosks are inside the stores of other retailers. These company-operated kiosks
accounted for approximately 17% of our consumer revenue for the year ended December 31, 2010.
Most of our kiosk site licenses range between three to six months with renewal options. Our policy is to close under-performing kiosks expeditiously.
Retailers. Sales to retailers accounted for approximately 23% of our consumer revenue for the year ended December 31, 2010. 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, Borders, Best Buy, Staples, Costco and
Office Depot. Sales in the retail channel are highly correlated with our media expenditures in the direct-to-consumer channel. In February 2011, Borders filed
for Chapter 11 bankruptcy reorganization and announced plans to close approximately 200 stores.
Home Schools. We promote interest in this market through advertising in publications focused on home schooling, attending local trade shows and
seminars and direct mailings. For the year ended December 31, 2010, we reclassified our home school sales vertical from Institutional to Consumer. We
believe the drivers of acquiring a home school customer are more aligned with a typical sale in our consumer sales vertical. Prior year information has been
modified to conform to current year presentation. Home school sales accounted for approximately 2% of our consumer revenue for the year ended
December 31, 2010.
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