The day is not far off when a consumer will be able to pick up a
bottle of champagne, a ready-prepared dish of sole Veronique, a set of
frilly undies and the latest software educational package on a visit to
a single high-street store.
Market research firm Datamonitor now estimates that 26% of the
population has access to a home computer - proof that the PC has moved
rapidly from nerdy obsession to mass-market status.
Nothing, however, could underline this transformation more than the news
that Microsoft is hoping to tie up deals to distribute its software and
other products through the likes of Marks & Spencer, the leading
supermarkets and even petrol forecourts (Marketing, July 16).
The software giant, which will soon be launching additional games and
software packages, has been talking to leading retailers for the past 18
And the fact that the store groups are listening - retailers who are
thought of primarily as food or clothing distributors - says as much
about the changing consumer and the pressures on the high street as it
does about the computer industry.
’Life is getting tighter for retailers in most sectors,’ says leading
retail analyst and researcher Jef Harris, managing director of Harris
International Marketing. Opportunities to expand by buying up regional
chains have largely gone, the population is fairly stable and there is
talk of a cyclical downturn in the economy.
’The retailers are left with the choice of expanding overseas, invading
other sectors, or opening up entirely new sectors, such as software,’ he
says. ’M&S sells financial services and furniture and Tesco sells Calvin
Klein jeans, so it’s no great surprise they should be thinking of
’There is also evidence that the nation is using fewer shops, and fewer
shop types. Consumers seem to be shopping around less, and relying more
on stores they trust.
’About 18 months ago, the average person used about six shop types a
week. Today, the figure is about 4.8. That is a substantial change over
a short period. To simplify it massively, the trend is toward every
retailer becoming a variety store.’
This means that retailers need to diversify into new product areas to
maintain their growth, and consumers are happy to go along with
This echoes Microsoft’s own surveys.
’We research our customers every three to six months,’ says Dale
Borland, director of the company’s consumer business unit. ’We
continually find that there are customers who want to shop for our
products in these types of outlets, as well as in specialist PC
’Customers see it as a benefit to be able to purchase their groceries,
their software and their soft furnishings all together.’
However, Microsoft does not sell a vast selection of software
This is mainly because the products for which Microsoft is best known -
such as the Windows operating system, Microsoft Office, the Word
word-processing package and the Excel spreadsheet - are generally
supplied as a bundle with new PCs.
Some sources suggest that the appeal to Microsoft of selling more
products through high-street retailers is that it will bring the
software giant better margins, particularly as the profits it makes from
supplying software in bulk to computer manufacturers are wafer-thin.
For example, specialist retailer PC World is currently offering a
Packard Bell PC with colour printer and scanner for pounds 1099,
including ’over pounds 1000 of free software’, much of it from
Microsoft. What proportion of the total price does the software really
Microsoft will not be drawn on this, other than to say that the dynamics
of the two markets are entirely different, and that other software
producers, as well as printer and scanner manufacturers, follow a
similar dual strategy.
Games of numbers
The comparison isn’t exact, but parallels can be drawn with fmcg
marketing, where there are clear economies to be made in trading with,
and delivering to, a small number of major buyers, compared with the
cost of distributing to thousands of independents. And, despite its
commitment to supplying in bulk to the PC makers, Microsoft isn’t doing
too badly. Profits in 1997 rose 30% to dollars 4.5bn (pounds 2.8bn).
But it seems clear that if M&S and the supermarkets start to list
Microsoft products they will also turn to rival suppliers, such as
Dorling Kindersley and the games manufacturers.
This is a fragmented market, although Microsoft claims that between
April and June it was the number-one software publisher in the UK in
both numbers of titles and volume sales. It is ranked fourth in the
games sector (which also includes console games), but top in learning,
creativity and home-office applications.
However, Borland says the company will have ’a whole new bunch’ of
offerings for the run-up to Christmas. ’It is our strategy to develop in
the areas of games and adult and child learning, and in improving the
quality of existing ways of doing things. The demand is there, and
customers tell us that these are the areas where they will continue to
THE RETAILERS DIVERSIFY
Leading retail chains continue to broaden the range of products and
services they offer:
- Marks & Spencer - began in clothing, now sells food and wine,
furnishings and financial services.
- Tesco - the UK’s biggest supermarket also sells cut-price branded
fashion from Calvin Klein to Levi jeans (although that may be
jeopardised by last week’s European Court ruling), and is currently
experimenting with selling computers. Like some other supermarkets, it
also offers banking.
- Asda - a pioneer of large stores, the supermarket chain has always
offered a wider range than most of its competitors. Since the ending of
the Net Book Agreement, it has been particularly aggressive on book
prices and believes that supermarkets could become the biggest outlet
for books within five years.
- Boots - currently promoting a range of insurance products on TV.