AGENDA: New outlets for Microsoft - As traditional shopping habits are transformed, retailers are diversifying to attract and retain their customers. Ken Gofton reports on the logic behind the planned Microsoft and Marks & Spencer link-up

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.

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

months.



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.



Diversification spreads



’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

selling software.



’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

that.



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

stores.



’Customers see it as a benefit to be able to purchase their groceries,

their software and their soft furnishings all together.’



Improved margins



However, Microsoft does not sell a vast selection of software

packages.



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

represent?



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

invest.’



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.



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