Rosetta Stone Speaks the Language of “Retail Leverage”

By Vincent Young
Hats off to the marketing and sales teams at Rosetta Stone Software (RST). Earlier this week, Office Depot formally announced plans to become the exclusive office product superstore to offer Rosetta Stone’s  award-winning Rosetta Stone computer-based language learning system. This move expands Rosetta Stone’s number of major retailer store-doors by nearly 1,200. Office Depot plans to prominently merchandise Rosetta Stone on a special dedicated endcap with many different Rosetta Stone skus (language-learning products in Spanish, French, Italian, Chinese, Japanese, Russian, German, Arabic and English).

How is it that a relatively small $250 million Rosetta Stone brand is able to gain distribution, assortment, branding, and merchandising leverage against a $15 billion retail giant who controls the access to the consumer? By following many of the challenger brand go-to-market strategies espoused by the writers of this blog! Last week, I highlighted Five Ways to “Unleash ‘Pent-up Demand’ at Major Retailers.” The recent success that Rosetta Stone has had with Office Depot offers tangible examples of how to implement such strategies and is a marketing model that many challenger brands could learn a great deal from. How did Rosetta Stone gain retail leverage:

1. Direct-response selling – The Rosetta Stone brand and installed base were built initially via a direct sales model (broadcast, print, on-line, telesales, and direct-to-government).  For those who understand the fully-burdened costs associated with moving goods through most major retailers, an efficient direct response model can actually produce a lower cost-per-order despite the scale efficiencies that large retailers sometimes provide.

2. Launch exclusively with specialty/boutique retailers – According to reports, Rosetta Stone’s 145 retail kiosks (located in airports and malls) accounted for 22% of consumer revenues and sales to boutique retailers accounted for another 21% of consumer revenues. The bulk of boutique retailer sales were to Apple (AAPL), Barnes & Noble (BKS), and Borders (BGP).

3. Launch exclusively with one major retailer – Of the retailers who sell significant volumes of reference or productivity software, Office Depot represents the first “major retail” partner for Rosetta Stone. Other major retailers such as Staples, Office Max, Best Buy, and even Walmart are sure to desire a piece of the Rosetta Stone action that Office Depot will own for some period of time. If (and when) Rosetta Stone decides to expand to other major retailers, it will do so with much greater leverage as the other retailers will seek to neutralize Office Depot’s unique/exclusive offering.

Rosetta Stone is already the market leader in the $5.5 billion U.S. language-learning industry. I don’t see that changing anytime soon as Rosetta Stone continues to grow its franchise into retail through smart, challenger-savvy go-to-market approaches.