Untapped Niche, Demos Drive Bose Sellthrough

Framingham, Mass.— Price isn't everything in the home-theater-in-a-box (HTiB) business after all.

The price-sensitive market generates most of its unit and dollar volume in systems at modest price points, which ranged from an average $351 to $426 for the 12 months ending in May, according to the NPD Group of Port Washington, N.Y. So it should come as quite a surprise that the top-selling home theater system for the 12 months ending June 2003 carried an everyday price of $999. That's what NPD found in tracking sales of home theater audio systems through major retail channels.

Despite an everyday price of $999, Bose's 3-2-1 system was the top-selling home theater system in dollars for the 12-month period, NPD found. And that doesn't include direct-to-consumer sales by Bose through its direct-marketing, online and company-owned stores. Bose operates more than 100 of its own stores. Some are showcase stores in prominent retail locations, and others are factory-outlet stores that sell B stock and direct-marketed items such as the 3-2-1.

NPD's numbers also exclude warehouse clubs and Wal-Mart, where 3-2-1 isn't sold.

When the system shipped in September 2001, competitors questioned its viability at $999, given the popularity of less expensive, albeit five-speaker, HTiB solutions that were also targeted to mass-market consumers. Bose, however, saw an opportunity with its first-to-market virtual-surround technology to expand HTiB sales to mass-market consumers who didn't have the space, or the room configuration, to accommodate five satellite speakers in a traditional home-theater system.

The system, built around a DVD-equipped control module, uses proprietary signal processing and speaker design to deliver a 5.1-channel soundfield through two satellite speakers and a companion bass module. "The system delivers most of the performance benefits of a five-speaker surround-sound system," said John Roselli, category business manager for Bose's home entertainment division. "We've been able to provide a convincing surround-sound experience from just two visible speakers. This eliminates some of the wiring, the expense, and the complicated set-up some consumers have found objectionable in owning a five-speaker surround-sound system."

Competing two-speaker virtual-surround technologies have been available in consumer electronics products since 1997, but their effects have been limited to a narrow sweet spot. The 3-2-1 system, on the other hand, expands the sweet spot to let multiple listeners simultaneously enjoy surround sound from almost anywhere they would normally watch TV in a living room. The effects don't fall apart abruptly at a certain distance as they do with other virtual surround technologies, Bose said.

Bose uses the technology to appeal to the two-thirds of households that it says haven't purchased a surround-sound system because of limited space, the complexity of set-up and calibration, or limited value for the dollar.

Bose also saw the potential to encourage consumers to add a home-theater system to a second room in the house, such as a bedroom, or to a second home.

"We've found most consumers use it as their primary home theater system, but we've also learned that consumers are using the 3-2-1 in secondary listening environments," said Roselli.

The system's two-speaker design, Roselli said, made it easy for retailers to demo the product, thus stimulating sell-through. "There is no substitute for consumers to listen and judge for themselves," he said. "Retail stores that are able to provide a realistic listening experience can best help a consumer determine whether or not a system meets their needs. We tried to make it as easy as possible for our retailers to demonstrate the benefits of the 3-2-1 system."

The system is sold through authorized retailers (including online dealers), Bose's toll-free number and Web site, Bose's Showcase stores and the company's factory stores.