Nautilus 2015 Annual Report Download - page 6
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Please find page 6 of the 2015 Nautilus annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.SALES AND MARKETING
Direct
In our Direct business, we market and sell our products, principally Bowflex ® cardio and strength products, directly to consumers. While we are, and plan to
continue to be, a large direct marketer of strength products in the United States, our advertising emphasis has shifted toward cardio products, especially the Max
Trainer ® and TreadClimber ® , as cardio products represent the largest component of the fitness equipment market and a majority of our business. Sales of cardio
products represented 93% of our Direct channel revenues in 2015 , compared to 91% in 2014 and 84% in 2013 .
Our marketing efforts are based on an integrated combination of media and direct consumer contact. In addition to television advertising, which ranges in length
from 30 seconds to as long as three minutes, we utilize Internet advertising, product websites, inquiry-response mailings, catalogs and inbound/outbound call
centers. Marketing and media effectiveness is measured continuously based on sales inquiries generated, cost-per-lead, conversion rates, return on investment and
other performance metrics and we strive to optimize the efficiency of our marketing and media expenditures based on this data. Almost all of our Direct customer
orders are received either on our Internet websites or through company-owned and third-party call centers.
In order to facilitate consumer purchases, we partner with several third party credit providers. Credit approval rates are an important variable in the number of
Direct products we sell in a given period. Combined consumer credit approvals by our primary and secondary U.S. third-party financing providers increased to
48% in 2015 from 41% in 2014 and 36% in 2013 , which is primarily due to our marketing and media strategies, as well as growing sales of Max Trainer ® , which
since launch has driven higher credit demographic responders.
Retail
In our Retail business, we market and sell a comprehensive line of consumer fitness equipment under the Nautilus ® , Octane Fitness ® , Schwinn ® , Universal ®
and Bowflex ® brands. Our products are marketed through a network of retail companies, consisting of sporting goods stores, Internet retailers, large-format and
warehouse stores, smaller specialty retailers, independent bike dealers, and multi-user environments.
We offer programs that provide price discounts to our Retail customers for ordering container-sized shipments or placing orders early enough in the season to
allow for more efficient manufacturing by our Asian suppliers. These programs are designed to reduce our shipping and handling costs, with much of the savings
being passed on to our customers. In addition, we often offer other types of sales incentives to our Retail customers, including volume discounts and various forms
of rebates or allowances, which generally are intended to increase product exposure and availability for consumers, reduce transportation costs, and encourage
marketing and promotion of our brands or specific products.
PRODUCT DESIGN AND INNOVATION
Innovation is a vital part of our business, and we continue to expand and diversify our product offerings by leveraging our research and development capabilities.
We constantly search for new technologies and innovations that will help us grow our business, either through higher sales or increased production efficiencies. To
accomplish this objective, we seek out ideas and concepts both within our company and from outside inventors.
We rely on financial and engineering models to assist us in assessing the potential operational and economic impacts of adopting new technologies and
innovations. If we determine that a third-party technology or innovation concept meets certain technical and financial criteria, we may enter into a licensing
arrangement to utilize the technology or, in certain circumstances, purchase the technology for our own use. Our product design and engineering teams also invest
considerable effort to improve product design and quality. As a consumer-driven company, we invest from time-to-time in qualitative and quantitative consumer
research to help us assess new product concepts, optimal features and anticipated consumer adoption.
Our research and development expenses were $9.9 million , $7.2 million and $5.6 million in 2015 , 2014 and 2013 , respectively, as we increased our investment in
new product development resources and capabilities, including the 2015 openings of our innovation center and retail store at our corporate headquarters. We expect
our research and development expenses to increase in 2016 as we continue to supplement our investment in new product development and engineering capabilities.
SEASONALITY
We expect our sales from fitness equipment products to vary seasonally. Sales are typically strongest in the first and fourth quarters, followed by the third quarter,
and are generally weakest in the second quarter. We believe that, during the spring and summer
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