Rosetta Stone 2011 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 77% of our revenue for the year ended December 31, 2011. Our consumer distribution model comprises a
mix of our call centers, websites, network of kiosks, select retail resellers, such as Amazon.com, Barnes & Noble, Best Buy, Books-a-Million, Staples and
Costco, home shopping networks such as GS Home Shopping, Inc. in Korea and consignment distributors such as Navarre. 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 66% of our consumer revenue for the year ended December 31, 2011. 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, 2011, we operated 174 retail kiosks, including 103 full service retail outlets, in airports, malls and other
strategic high-traffic locations in 28 states and the District of Columbia. As of December 31, 2011, we operated 8 kiosks in the United Kingdom, 11 in Japan,
47 in South Korea and 5 in Germany. Many of our international kiosks are inside the stores of other retailers. These company operated kiosks accounted for
approximately 14% of our consumer revenue for the year ended December 31, 2011. During 2012, based on our evaluation of historical and forecasted kiosk
sales performance, we plan to significantly reduce the size of our worldwide kiosk program, in addition to continually reviewing the performance of
remaining kiosk locations.
Retailers. Sales to retailers accounted for approximately 18% of our consumer revenue for the year ended December 31, 2011. 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, Barnes & Noble, Best Buy, Books-a-Million, Staples and Costco.
Sales in the retail channel are highly correlated with our media expenditures in the direct-to-consumer channel. We plan to expand select retail relationships
while reducing our financial exposure to underperforming store-based retail partners.
Home Schools. We promote interest in this market through advertising in publications focused on home schooling, attending local trade shows,
seminars and direct mailings. For the years ended December 31, 2011 and 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
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