A new form of marketing was developed when the Home Shopping Network began offering television viewers the convenience of shopping from their own homes for a variety of products.
The advent of television home shopping services was a watershed event in the history of marketing in the United States. The first such service at the national level was offered by Home Shopping Network (HSN) on July 1, 1985. The popularity of the concept grew impressively in subsequent years.
Bud Paxson, founder and president of HSN, entered the business of home shopping almost by accident. As the owner of an AM radio station in Dunedin, a small town on the west coast of Florida, Paxson was faced with decreasing revenues at a time when popular stations were converting from AM to FM broadcast formats. One of Paxson’s clients settled his advertising bills with some merchandise in lieu of money. Paxson attempted to sell this merchandise in a radio broadcast, offering prices far below regular retail prices. Positive response from listeners helped this type of radio show evolve into a regular daily feature on Paxson’s station. In a typical show, radio announcers described the sale merchandise; interested customers then called the station to conclude sales transactions.
Encouraged by the success of the radio shopping concept, Paxson extended the idea to cable television in July, 1982. Paxson’s cable television channel 52, located in Clearwater, Florida, offered everything from two-dollar household items to expensive cruise vacations to viewers in two neighboring counties. This “teleshopping” service registered substantial growth. By the end of its third year, it was generating 190,000 orders a month from 130,000 members.
The success of this local-level television-based shopping approach encouraged Paxson to launch the national-level HSN, a live cablecast show that operated continuously. The show sold merchandise acquired in bulk from closeouts, bankruptcies, and liquidation sales. The strategy enabled HSN to use a value-based selling theme to attract customers by offering products at discounted prices. Initially, HSN covered 462 multiple-system operators (MSOs) in the cable industry, representing five million homes. The network paid 5 percent of sales generated to the MSOs as compensation for providing access to cable media.
Since the advent of the Home Shopping Network, consumers have begun to order an ever-growing array of products advertised on television.
At the outset, HSN employed ten on-air hosts, each working a shift of two to three hours. The host typically offered only one item for sale at a time and presented a persuasive sales pitch. Because shoppers did not have advance knowledge about when a particular product or type of product might be offered for sale, and because any product’s sale offer was limited to the short interval (usually ten minutes) it was shown on television, home shopping was potentially an addictive experience for consumers in search of bargains. Viewers were encouraged to call a toll-free telephone number immediately to purchase the currently displayed item. First-time shoppers were given an incentive of five dollars to become members of the Home Shopping Club, which would assign each a unique identification number on HSN’s computer. These numbers facilitated quick subsequent sales transactions, circumventing the need for shoppers to convey detailed shipping instructions each time they shopped.
HSN’s venture into cablecast shopping was very successful. In its first eight months of operation, HSN generated $63.9 million in revenues and $6.8 million in profits. These impressive results were well received by stock investors. When the company went public in May, 1986, at $18 a share, its stock rose almost immediately to $42 and stabilized in the following months around $75. Paxson and Roy Speer, chief executive officer of HSN, owned most of the HSN stock.
For a variety of reasons, HSN achieved notable success in an area in which several earlier ventures had obtained less-than-spectacular results. First, unlike HSN, many of the home shopping television shows launched in the 1980’s operated for a relatively short duration. For example, the Home Shopping Show on Modern Satellite Network
Third, HSN’s format was the closest to interactive television-based shopping and facilitated objective information search on products. HSN shoppers could speak to the on-air host directly on the telephone and get ready answers to any specific product-related questions before making their purchase decisions. For example, a caller might ask the host, “What does the back of that belt look like?” and obtain an immediate audiovisual response on the television screen. In contrast, the only other teleshopping mode to offer anything approaching interactive at-home shopping was Cableshop,
Finally, HSN aggressively sought to maintain shopper loyalty and interest with various promotional devices. These included sending anniversary and birthday cards to members of the Home Shopping Club and offering attractive prizes in sweepstakes and trivia contests. HSN also published a magazine for viewers called Bargaineer. In addition, the network sometimes awarded prizes without any prior announcement to make the programs appear exciting and pleasantly unpredictable. Such efforts quickly led to a large base of loyal buyers who made an average of fifteen purchases each in 1985.
The success of HSN’s entry into the cablecast shopping business rapidly stimulated further growth and competition in this new area. HSN launched an ambitious expansion program by acquiring several small broadcast stations. It also started a second network in March, 1986, called HSN II, which offered more upscale and more innovative items. The home shopping phenomenon also attracted some of the major firms in the cable television industry. For example, TeleCommunications Inc. (TCI, an MSO based in Denver) and Close-Out Merchandise Buyers (COMB, a Minnesota-based firm controlled by financier Irwin Jacobs) together launched the Cable Value Network
Some commentators initially suggested that the growing popularity of cablecast shopping could eventually have negative implications for traditional retailers. They reasoned that cable shopping networks depend on discount prices (made possible by low procurement costs and relatively low overhead) to create the perception of bargain shopping, which in turn generates high sales volume; as price is the main basis of competition between such outlets and traditional retailers that charge full price for similar merchandise, the latter might lose business as cablecast shopping grew. On the other hand, cable shopping networks’ reliance on opportunistic buying at deep discounts (from closeout sales, for example) means that the products sold are not necessarily comparable to those sold by traditional retailers. In the long run, traditional retailers remained relatively unaffected by the emergence of cable shopping networks.
The growth of cable shopping networks had implications for efforts to educate and protect consumers. In a 1988 publication titled Draft Consumer Education Brochure on the Televised Shopping Industry in the United States, the U.S. Office of Consumer Affairs delineated several issues of concern about cablecast shopping programs. The brochure noted that such programs often use a system of comparative pricing that appears deceptive, in that the offered price of a product is frequently compared with a baseline labeled the “retail” or “regular store” price. Given that cablecast programs offer merchandise that may not be available in typical stores including “exclusive” lines, discontinued merchandise, and products from closeout sales realistically comparable retail prices may be unavailable, and the stated baseline “retail” or “regular” prices may be misleading and deceptive. Other cost aspects of home shopping may be less than explicit. Many home shopping programs offer money-back protection to consumers wishing to return the merchandise purchased within a limited period, but it is sometimes unclear who bears the costs of return shipping in such cases.
Televised home shopping extended the already existing opportunities for home shopping available to Americans, such as mail-order sales (also called direct marketing), telemarketing (sales solicitation by telephone), and interactive videotex systems that integrated telephone, television, and computer technologies to enable consumer subscribers to retrieve data on products and services held in a central computer through a dialing device. The rise of opportunities for shopping on the Internet soon joined these others and further expanded the ways in which Americans shop.
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“Cable Shopping Channel Woos Viewers via Direct Response.” Direct Marketing 48 (June, 1985): 76-149. Presents an interview with Keith Halford, vice president of marketing for the Home Shopping Network. Discusses how the home shopping concept evolved from a radio show to local telecasting and later into a national cable network. Offers a detailed description of the day-to-day workings of HSN. -
Dagnoli, Judann. “Home Shopping Gets Push from Cable Systems.” Advertising Age, June 9, 1986, 64. Summarizes the competition scenario almost a year after HSN launched its cablecast home shopping service in the United States. -
Ivey, Mark, and Patrick Houston. “Don’t Touch That Dial You Might Miss a Bargain.” BusinessWeek, June 2, 1986, 35-36. Discusses home shopping from the shopper’s perspective, describing the range of products offered for sale and how such shows can become addictive. -
Klokis, Holly. “Cable TV: A Retail Alternative?” Chain Store Age Executive 62 (August, 1986): 11-14. Analyzes how established retailers perceive and react to the home shopping phenomenon. -
Organization for Economic Cooperation and Development. New Home Shopping Technologies. Washington, D.C.: Author, 1992. Brief work reviews developments and trends in electronic marketing (shopping through telephone, television, and interactive videotex systems) in several countries. Delineates conditions that may benefit consumers by encouraging competition and expanding choice. -
Sterling, Christopher H., and John M. Kittross. Stay Tuned: A History of American Broadcasting. 3d ed. Mahwah, N.J.: Lawrence Erlbaum, 2001. Comprehensive history of radio and television in the United States provides some discussion of the advent of cable television and its specialized networks, including HSN. -
Strauss, Lawrence. Electronic Marketing: Emerging TV and Computer Channels for Interactive Home Shopping. White Plains, N.Y.: Knowledge Industry, 1983. Offers an exhaustive account of cablecast home shopping prior to HSN’s nationwide launch of this concept. Very informative concerning why earlier efforts in home shopping were not very successful. Also discusses various other forms of electronic marketing in the United States. -
“Tele-Buying.” Economist 301 (October 18, 1986): 76. Presents a brief analysis of growth and competition in the home shopping industry. Discusses HSN’s ambitious strategy to expand by buying several television broadcast stations and assesses possible implications from the perspective of cable operators.
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