Rosetta Stone 2012 Annual Report Download - page 12

Table of Contents
•introduce appealing new products and performance features on a timely basis;
•provide appealing solutions that engage our customers;
•anticipate and meet consumer demand for additional languages, learning levels and new platforms for delivery;
•effectively position and market our products and services;
•identify and secure cost-effective means of marketing our products to reach the appropriate consumers;
•identify cost-effective sales distribution channels, kiosk locations and other sales outlets where interested consumers will buy our
products;
•anticipate and respond to consumer price sensitivity and pricing changes of competitive products; and
•identify and successfully implement ways of building brand loyalty and reputation.
We may be unable to develop new solutions or solution enhancements in time to capture market opportunities or achieve sustainable acceptance in
new or existing markets. In addition, our solutions may become less appealing to consumers due to changes in technologies or reduced life cycles of our
solutions. A decline in consumer demand for our solutions, or any failure on our part to satisfy such changing consumer preferences, could harm our
business and profitability.



The success of our business depends to a significant extent upon discretionary consumer spending, which is subject to a number of factors,
including general economic conditions, consumer confidence, employment levels, business conditions, interest rates, availability of credit, inflation and
taxation. Adverse trends in any of these economic indicators may cause consumer spending to decline further, which could hurt our sales and
profitability. For our retail business, we depend on the continued popularity of physical stores and malls to generate customer traffic for retailers such as
Barnes & Noble, Best Buy, Books-A-Million, Costco, and Staples which sell our products and our retail mall-based kiosks. We also depend on
continued airline travel to generate traffic for our retail kiosks located in airports. Decreases in physical store, mall or airport retail traffic adversely affect
our consumer sales and our profitability and financial condition. In addition, an increase in the taxation of online sales could result in reduced online
purchases or reduced margins on such sales. Furthermore, consumers may defer purchases of our solutions in anticipation of new products or new
versions from us or our competitors.


We rely on retailers and distributors, together with our direct sales force, to sell our products. Our sales to retailers and distributors are highly
concentrated on a small group, including Amazon.com, Barnes & Noble, Best Buy, Books-A-Million, Costco, Groupon, Navarre, and Staples. Sales to
or through our retailers and distributors accounted for approximately 17% of our revenue for the year ended December 31, 2012, compared to 14% for
the year ended December 31, 2011.
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