Rosetta Stone 2015 Annual Report Download - page 13

Table of Contents
our products. The fact that we also sell our products directly could cause retailers or distributors to reduce their efforts to promote our products or stop selling
our products altogether.
Many traditional physical retailers are experiencing diminished foot traffic and sales. For our retail business, even though online sales have increased
in popularity and are growing in importance, we continue to depend on sales that take place in physical stores and shopping malls. Reduced customer foot
traffic in these stores and malls is likely to reduce their sales of our products. In addition, if one or more of these retailers or distributors are unable to meet
their obligations with respect to accounts payable to us, we could be forced to write off accounts receivable with such accounts. Any bankruptcy, liquidation,
insolvency or other failure of any of these retailers or distributors could result in significant financial loss and cause us to lose revenue in future periods.
Price changes and other concessions could reduce our revenue.
We continue to test and offer changes to the pricing of our products. If we reduce our prices in an effort to increase our sales, this could have an adverse
impact on our revenue to the extent that unit sales do not increase in a sufficient amount to compensate for the lower pricing. Reducing our pricing to
individual consumers could also cause us to have to lower pricing to our Enterprise & Education customers. Any increase in the taxation of online sales
could have the effect of a price increase to consumers and could cause us to have to lower our prices or could cause sales to decline. It is uncertain whether we
will need to continue to lower prices to effectively compete and what the other short-term and long-term impacts could be.
We also may provide our retailers and distributors with price protection on existing inventories, which would entitle these retailers and distributors to
credit against amounts owed with respect to unsold packaged product under certain conditions. These price protection reserves could be material in future
periods.
In the U.S. and Canada, we offer consumers who purchase our packaged software and audio practice products directly from us a 30-day, unconditional,
full money-back refund. We also permit some of our retailers and distributors to return packaged products, subject to certain limitations. We establish revenue
reserves for packaged product returns based on historical experience, estimated channel inventory levels, the timing of new product introductions and other
factors. If packaged product returns exceed our reserve estimates, the excess would offset reported revenue, which could hurt our reported financial results.
Our future growth and profitability will depend in large part upon the effectiveness and efficiency of our marketing.
Our future growth and profitability will depend in large part upon the effectiveness and efficiency of our marketing, including our ability to:
• appropriately and efficiently allocate our marketing for multiple products;
• accurately identify, target and reach our audience of potential customers with our marketing messages;
• select the right marketplace, media and specific media vehicle in which to advertise;
• identify the most effective and efficient level of spending in each marketplace, media and specific media vehicle;
• determine the appropriate creative message and media mix for advertising, marketing and promotional expenditures;
• effectively manage marketing costs, including creative and media expenses, in order to maintain acceptable customer acquisition costs;
• differentiate our products as compared to other products;
• create greater awareness of our new products like kids' literacy and brain fitness, and of our brands and learning solutions;
• drive traffic to our e-commerce website, call centers, distribution channels and retail partners; and
• convert customer inquiries into actual orders.
Our planned marketing may not result in increased revenue or generate sufficient levels of product and brand name awareness, and we may not be able
to increase our net sales at the same rate as we increase our advertising expenditures.
Some of our radio, television, print, and online advertising has been through the purchase of "remnant" advertising segments. These segments are
random time slots and publication dates that have remained unsold and are offered at discounts to advertisers who are willing to be flexible with respect to
time slots. There is a limited supply of this type of advertising and the availability of such advertising may decline or the cost of such advertising may
increase. In addition, if we increase our
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