Prodigy’s Computerized Shopping Service Seeks Viable Customer Base : Technology: Despite the marketing muscle supplied by Sears and IBM, the PC-based operation may be ahead of its time.
Maybe your favorite jeans finally have passed the point of no return. Trouble is, the thought of going to an overcrowded shopping mall gives you the willies, your mail-order catalogues have vanished and the television shopping channel isn’t hawking pants today.
What’s a busy consumer to do? Try shopping by computer from the convenience of your own home.
At least that’s what Prodigy Services Co. is suggesting. The firm--a partnership between retailing giant Sears, Roebuck & Co. and computer heavyweight International Business Machines Corp.--is making an unprecedented bid to hook a broad cross-section of America on computerized shopping.
It’s an uphill struggle. Prodigy must deal with, among other things, a lack of consumer awareness, technical shortcomings in its system, the prospect of competing technologies and the increasing financial pressures on its owners.
Some analysts, citing costly failures by other companies that experimented with electronic publishing, liken computerized shopping to the “paperless society” theory: a nice-sounding futuristic concept, but nothing that is likely to make a big splash any time soon.
“They’re trying to create a marketplace that’s probably 10 years away from becoming a reality,” said Neil Harris, manager of product marketing for the Genie electronic information service.
But Prodigy is out to prove the skeptics wrong. It is trying to cajole its way into many of the upwards of 20 million American homes estimated to have computers by using a three-pronged approach: a relatively easy-to-use format, a flat subscription fee of $10 a month and a blitz of television advertising.
The company has sold more than 60,000 of its $50 subscription start-up kits in the past two months alone, amid its first big Christmas ad campaign.
Unlike older competitors that cater mainly to computer buffs and devote most of their capacity to other electronic information services, the Prodigy service was set up mainly as “a merchandising medium” from the start, said Gary Arlen, a consultant in Bethesda, Md. It is aimed at harried but affluent two-income families who don’t want to squander their precious time waiting in lines or parking lots.
The long-term market for Prodigy consists of people “who don’t really want to use a computer,” said Scott Corzine, Prodigy’s director of merchandise marketing. “They want a utility that lets them run their lives more easily.”
Besides computerized shopping with 70 retailers, Prodigy provides such features as news briefs, Consumer Reports summaries, educational games, banking, stock trading, flight reservations and electronic mail, which allows subscribers across the country to send messages to each other.
(Electronic mail is one of the most popular services, but it can be a headache for Prodigy. The company recently scrapped an electronic mail “bulletin board” on health that became a forum for a heated debate between homosexuals and religious fundamentalists. Prodigy said it eliminated the board because it was lightly used and denied charges that the company was trying to avoid controversy.)
Linda Mott, a housewife in the Midway City area of Orange County, is in many ways typical of the customers that Prodigy is pursuing. Until Mott and her family signed up for Prodigy in June, she used their home computer mainly to write occasional letters.
Now, Mott uses the PC to shop at J. C. Penney and at R.E.I., a sporting goods store. One time when she didn’t know where to find a water bottle that would fit on her bike, she messaged R.E.I. on the electronic mail system for help. The next day, R.E.I. replied that it had found a bottle for her. The result: Mott now is a computerized shopping enthusiast.
“As the freeways get more crowded and as malls get more crowded, it (computerized shopping) will attract more and more people,” she predicted.
There are some promising early signs for Prodigy as a business venture. Available to the public since October, 1988, the Prodigy system already reaches an estimated 170,000 homes in 21 markets across the country. That makes it the nation’s fastest-growing “on-line” service for the home and the second or third largest.
Retailers report that their sales of clothing, fragrances and other goods to Prodigy users, though tiny, are better than they expected for this holiday shopping season.
Analysts praise Prodigy’s business strategy, and some say Prodigy could be the first big success among electronic publishers that transmit both graphics and text data. Besides reaching out to a broad audience, the Prodigy service is the only one that displays product advertisements--they appear on the bottom one-fifth of the subscriber’s computer screen. The company’s plan is to make most of its money from fees paid by advertisers and retailers, and to avoid the standard practice of charging customers for each minute that they are signed on.
Researchers who see promise in computerized shopping predict that it will follow the pattern of automated teller machines--over time, the technology will improve, and more and more people will come to accept it as a time-saving convenience.
Although conventional retail stores and catalogues will still have a role, these researchers say computerized shopping will cut into their turf noticeably within 10 years.
“It’s just going to be more economical and easier for the consumer,” said Edward J. Spiegel, a direct marketing expert who once headed the venerable Spiegel catalogue operation.
Spiegel, a great grandson of the founder of Spiegel Inc., said electronic retailers could pass along the savings that they pocket from not having to rent big stores or publish fat catalogues.
Still, even if computerized shopping has potential, Prodigy is hardly a cinch to be a big winner in the race to break open the market. With first Sears and now IBM launching cost-cutting campaigns, some industry observers have speculated that one or both companies might eventually grow weary of the expensive project. It is estimated to have cost as much as $800 million already, although officials at Prodigy headquarters in White Plains, N.Y., say the actual figure is far lower.
CBS, which was a partner when the project was launched five years ago, pulled out in 1986 after it became a takeover target. Prodigy officials, however, maintain that the two remaining partners are solidly committed.
“The curtain has gone up, and it’s staying up,” said Theodore C. Papes Jr., Prodigy’s president. He said the company is on track to turn a profit by the early 1990s.
Within several years, new competitors with different--and perhaps better--technologies could give Prodigy headaches if Prodigy isn’t nimble enough to make improvements. Telephones with display screens and keyboards, for instance, might prove to be more inviting for computer-wary consumers than a PC-based system. In an experimental program beginning early next year in Cerritos, GTE Corp. will provide an electronic shopping system that lets consumers call up video pictures of merchandise on their television screens.
Prodigy has huge immediate obstacles to vault, too. The No. 1 issue: Most consumers barely know what computerized or electronic shopping is.
Generally speaking, it involves placing orders and getting information about products or services via a personal computer that ultimately is connected, over the telephone lines, to a retailer’s computer system. A few retailers such as Florsheim Shoe Co. have installed video kiosks in some stores that provide similar services.
Prodigy needs to “educate consumers,” Arlen said. “No one has laid out cash for electronic information before.”
Added Papes: “The main thing we have to be competitive with is the way people do things today. The way they shop, the way they bank, the way they get information.”
Skeptics add that the customers that retailers most want to reach--trendy, free-spending shoppers--generally aren’t the type of people who spend a lot of time on computers.
There also is a Catch 22: Many retailers aren’t interested in selling merchandise through Prodigy until more subscribers sign up, and subscribers will be reluctant to sign on until a wide array of retailers are on the system.
Beyond that, computerized shopping faces a tough rival that already serves pressed-for-time consumers: catalogue retailers that offer 24-hour-a-day, toll-free telephone service. At this point, catalogues often are a simpler and cheaper alternative. To tap into Prodigy, you need a personal computer and a telecommunications device that together usually cost at least $700.
Moreover, Prodigy’s graphics are no match for a catalogue photo. In fact, Prodigy subscribers frequently use the system to order catalogues that offer better pictures and more information than they can get on-line.
Prodigy also is criticized by computer buffs for being slow, particularly with electronic mail.
“If you’re technically inclined and computers are your living, you might be dissatisfied. As a hobby, it’s great,” said Mott, a computer novice who is married to a computer expert.
Bargain hunters might be disappointed, too. Unlike its biggest competitors in the consumer on-line business--Compuserve and Genie--Prodigy doesn’t offer the discount buying services of Comp-u-store.
Prodigy officials say they insist that their retailers provide top-quality service and fair, if not rock-bottom, prices. Their thinking seems to be that electronic shoppers are more interested in convenience than in saving a few dollars.
In that respect, at least, Prodigy may have made the right choice. “We’re selling all of our merchandise at regular prices” on Prodigy, said Linda Peshkin, a divisional vice president for the Broadway department store chain. “There doesn’t seem to be a price barrier.”
She said she is “very pleased” with Broadway’s sales results through Prodigy, but that the volume still is low enough that all of the orders can be handled by one worker on a part-time basis. Broadway’s hottest sellers have been gifts, home furnishings and fragrances, including a lot of men’s fragrances.
Peshkin speculated that for many men, buying fragrances for themselves “may be something they’re not ready to do in person at the store.”
As for Prodigy’s future, Peshkin predicted that “they’re going to have to hang in there for a long time, but I think they’re going to make it,” largely because of the backing of Sears and IBM.
At Prodigy, where managers promote their venture at times with near missionary zeal, the talk is even more upbeat.
“This is going to revolutionize the way people live,” said Steve Larsen, a Prodigy sales manager in Sherman Oaks. “This isn’t just a clever product.”
PRODIGY: THE SPECS
The Prodigy On-Line Service
Prodigy is a package of electronic information services available to computer users in 21 markets across the nation. Most Southern California residents, from Santa Barbara to San Diego, can sign on to Prodigy with a local call.
Features: Among other things, computerized shopping from 70 retailers, news and sports briefs, Consumer Reports summaries, educational games, banking, stock trading, flight reservations and electronic mail. It is experimenting with computerized grocery shopping in San Francisco, New York, Atlanta, Washington and Detroit. Compared to other on-line systems, it is relatively easy to operate: a user can perform almost any function by pressing one of two buttons. Unlike most other on-line publishers, Prodigy provides color graphics along with text.
Drawbacks: Computer experts say that it is slow compared to other on-line services, particularly with electronic mail. Also, it lacks an encyclopedia and provides no historic data on publicly traded stocks. Some users dislike the ads carried across the bottom fifth of the computer screen. Comparison shopping is difficult on the computerized shopping service.
Required Equipment: An Apple Macintosh or IBM PC or compatible machine with at least 512 kilobytes of memory. Also, a graphics adapter and a modem telecommunications device that transmits either 1,200 or 2,400 bits per second.
Price: The start-up kit carries a suggested retail price of $50, but many dealers sell it for $40. The flat monthly subscription fee is $10.
Publisher: Prodigy Services Co., 445 Hamilton Ave., White Plains, N.Y. Phone: 1-800-822-6922, extension 205.