Shutterfly 2009 Annual Report Download - page 10

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The Shutterfly Solution
We have developed a portfolio of products and services along with specialized manufacturing capabilities that allow us to offer consumers
an easy, convenient and fun way to enjoy, share and preserve their memories. We satisfy traditional consumer needs —
by introducing
consumers to new forms of communication and creative expression through our website features and functionality, photo prints, and
personalized photo-
based products and services. We also provide photo printing, storing and sharing. We believe that many people are
intimidated by the process of creating photo-
based products or merchandise or fear that it will take too much work. We believe that we have
removed much of the difficulty and intimidation of the process and have made it easy and enjoyable. In addition to these consumer benefits, we
believe that our business model is supported by the following characteristics:
Viral network effect.
We benefit from a viral network in several ways. When our existing customers upload and share their personal
memories through photos, they are providing compelling user-
generated content that attracts their friends and family to our website, thus
enlarging our network of users and potential customers. This implicit endorsement, coupled with user-
friendly policies, such as not
requiring share recipients to register to view pictures, reinforces our trusted brand and leads to lower customer acquisition costs. In
addition, as our customers create and give thoughtful and unique physical gifts such as greeting cards, calendars and photo books, these
products create numerous opportunities for potential customers to interact with our brand. Many of our customers also use our website to
create community-oriented products such as a photo book celebrating a school play or a yearbook for their children’
s soccer team, and
they often proactively introduce and sell these items to larger groups of potential new customers. As our products and services delight our
customers, they often become enthusiastic evangelists for Shutterfly and introduce our products and services to their friends and family
through word-of-mouth referrals and endorsements.
Attractive target demographics reflected in our loyal customer base.
Our customers have described themselves as being interested in
maintaining personal connections with friends and family, wanting to tell stories, wishing to preserve their memories for themselves and
their children and wanting an offering that is intuitive and easy to use. As a result, we believe that they are looking for an easy and
convenient way to be both thoughtful and creative with their memories. Our customers use our website to share, enhance and preserve
memories from vacations, holidays and family events and to create gifts for events such as birthdays, weddings, anniversaries, Halloween,
Hanukkah, Christmas, Valentine’s Day, Easter, Mother’s Day and Father’
s Day. We believe that our customer loyalty is also aided by
high switching costs. If a customer were to leave Shutterfly, he or she would have to spend significant time uploading and organizing
photos on a new service.
Premium pricing.
We believe that we are able to maintain premium pricing for many of our products because of our market position
and the loyal customer base we have created. We believe that our market position and loyal customer base exist because we have
differentiated ourselves in the marketplace by delivering high-
quality products, outstanding customer service, an intuitive and easy user
experience and continuous innovation across our products and services.
Deep understanding of our customers.
Customer insights are an important source of new product and service innovation for us, and
we continually strive to understand our customers’
needs in order to improve customer satisfaction. We invest significant time and
resources to understand and address the needs of our customers through market research, focus groups, customer surveys, usability
testing, customer response to promotions and customer service interactions. We believe a coordinated focus on understanding the
customer allows us take measures to increase customer loyalty, consumer awareness of Shutterfly, customer satisfaction and repeat
purchases.
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