Post by LWPD on Nov 24, 2013 16:46:32 GMT -5
There are a lot of dollars and cents in the seemingly nonsensical world of infomercials. An insightful breakdown of the business model follows below.
Courtesy of priceonomics
The Economics of Infomercials
By Jon Nathanson
Nothing good is on TV between 1 a.m. and 6 a.m., and for good reason. Nobody’s trying.
It’s the time period known euphemistically in the media business as the “Post Late Fringe,” and less euphemistically as the “Graveyard Slot.” It’s when networks and local TV affiliates sign off. They give up. They stop pretending that anyone important is watching and sell off their airtime – not just 30-second commercial spots, but entire 30-minute programming blocks – to sponsors. Those sponsors fill the left-for-dead airwaves with direct-response television (DRTV), better known as infomercials.
The Graveyard Slot is an inverse inflection point in the profit curves of two very different businesses. For local TV stations, the juice isn’t worth the squeeze. Producing content to air on these hours would cost more than it would return. Selling the timeslot for pennies on the dollar isn’t ideal, but it’s a better alternative to airing color bars or going dark.
But for certain companies – the kinds of companies who make Snuggies and ShamWows – the Graveyard is primetime. It’s dirt-cheap media space. It’s highly efficient for testing products and messaging against targeted consumer segments. It’s the perfect perch for Perfect Polly, the plastic parakeet with a swiveling head and a chirp like a 1980s car alarm. It’s the choicest real estate for the SnapNPump, a vacuum sealer for sandwich bags. And it’s pretty much the only timeslot socially acceptable for the UroClub, a nine iron golf club that doubles as a portable urinal.
These products certainly put the “fringe” in Post Late Fringe. It boggles the mind that anyone would want to buy them. But they’re serious business. Collectively, the U.S. market for infomercial products stood at $170 billion in 2009 and could exceed $250 billion by 2015. In fact, with the worth of the entire U.S. network and cable industry estimated at $97 billion as of 2013, DRTV is much bigger than TV itself.
If nobody’s watching TV during the Fringe/Graveyard shift, who’s buying $200-250 billion worth of product? To put that into perspective: $250 billion will represent at least an entire percentage point of the U.S. GDP in 2015. Infomercials may be uniquely American, but how can they account for such a giant slice of America?
Consider some of the biggest brands in the DRTV business. ProActiv, a celebrity-shilled skin care line made famous on the infomercial circuit, generates a little over $1.7 billion a year in revenue. The PedEgg, a heel-scraping callus remover, has earned over $450 million since its first infomercial shred the airwaves in 2007. These products, like many others in the DRTV space, are not one-hit wonders, spawned in a garage by a couple of wackos with a pipedream. Rather, they are bets in the portfolios of much larger, highly capitalized intellectual property holding companies.
Telebrands, maker of the PedEgg, is one such company. With revenues exceeding $500 million a year, it’s one of the major players in the DRTV products business. It’s the firm that brought you the Slice-O-Matic, the Pocket Hose, the Hurricane Spin Mop, and at least several hundred more pieces of single-purposed shlock. It’s also a chief participant in the “As Seen On TV” program.
The “As Seen on TV” logo, which appears on the packaging of DRTV-spawned products on the shelves of major retailers like Walmart, Walgreens, Target, and others.
“As Seen On TV” is a sort of informal trade affiliation and open-source brand mark representing major DRTV brands in the retail business. As we’ll see, it’s the endgame behind most of today’s DRTV campaigns. The infomercials themselves are just appetizers; getting stocked at Walmart is the main course. That’s where the real money is made. (Retail sales account for approximately 90% of Telebrands’ revenues.)
And companies like Telebrands aren’t the only players in the space anymore. Much of the recent growth in the DRTV business isn’t coming from some explosive takeoff in Snuggie sales. It’s the result of some of America’s largest corporations, like Procter & Gamble ($83 billion) and Johnson & Johnson ($65 billion), jumping into the fray.
Infomercials, it turns out, make a great deal of sense as a product marketing channel – provided the marketer can maintain super-high margins, spread risk across a number of bets, keep a clear end-goal in mind (typically, wholesaling to retailers), and can master the intricacies of late-night / early-morning media planning. For every impressionable Graveyard viewer who buys a Showtime Rotisserie Grill at home, hundreds more buy them at Home Depot.
Testing products at 3 a.m. in a handful of small TV markets probably isn’t in the traditional marketing playbook. But for an increasing number of big consumer products companies, DRTV is moving out of the Fringe and into the sunlight.
Let’s take a look at the process and point of an infomercial campaign: production, media, narrative strategy, and sales. The closer we peer through the fog of this business, the more we’ll see two patterns: first, that big companies are driving today’s infomercial boom; and second, that despite all the urging to “buy now,” the payoff happens on store shelves, not living room couches.
The Basics: A Brief History of Extraordinary Claims
Direct-response television (DRTV) is any commercial which presents viewers with the opportunity to buy directly from the ad, usually via a phone number or URL. People frequently use “infomercial” interchangeably with “DRTV.” The word “infomercial,” however, often refers specifically to late-night and early-morning spots that follow a pitch-oriented presentation style. “Paid programming,” a related term, refers to any TV spot mostly or entirely paid for by an advertiser. Essentially: paid programming is a category of which DRTV is a subcategory, and the infomercial is one species of DRTV.
As a concept, paid programming is as old as television itself. In the early days of the medium, many shows were significantly or wholly funded by advertisers. The soap opera, for example, earned its nickname because soap manufacturers like Procter & Gamble financed the earliest examples of the genre.
William G. “Papa” Barnard, founder of Vitamix, demonstrates his blender in a 1949-50 infomercial.
But government regulations in the mid-20th century limited the degree to which advertisers could integrate ads into entertainment and educational programming. Consequently, most advertisers transitioned to 30-second commercials airing in blocks in and around TV shows on daytime (9 a.m. to 5 p.m.) and primetime (8 p.m. to 11 p.m.) schedules. These formats have existed, relatively unchanged, ever since.
But some advertisers weren’t satisfied with the confines of a 30-second spot. In particular, companies launching novelties – products that demanded context, explanation, or demonstration – sought to bring back paid programming in one form or another. Enter the infomercial: part information, part commercial. Designed to mimic the look and feel of a news program or public service announcement, the infomercial presented a new product as though it were a revolutionary breakthrough. Infomercials took the sensationalism and manic energy of 30-second commercials, then turned everything up a few dozen notches.
The Vita-Mix Corporation (then known as the “Natural Foods Institute”) aired the world’s first infomercial in 1949. The spot (an abbreviated version of which is viewable here) featured founder and former boardwalk salesman William G. Barnard as a self-proclaimed “author, lecturer and food specialist.” Barnard spared no hyperbole in pitching “one of the most wonderful machines that was ever invented,” his company’s new blender. Sales took off and a new commercial medium was born.
But buying half-hour blocks of television in daytime and primetime was a cost-prohibitive exercise for startups like Vita-Mix. Over time, many of them would strike bargains with local TV stations to purchase Graveyard time in the wee hours of the morning. The airtime would otherwise go to waste, and it sold for a song. Stations were happy to get anything for the time, and advertisers were happy to purchase time at fire-sale prices.
In the ensuing decades, most infomercials came from the Vita-Mixes of the world: fledgling companies, often founded by former door-to-door salesmen and garage inventors, trying their hand at pitching viewers through TV. Their success rates were modest. DRTV media agency Hawthorne Direct estimates that a product introduced through early infomercials stood about a 50% chance of success. The medium was a coin toss, but it was a very inexpensive one.
These “one-step” infomercials – so called because they were single-purpose campaigns, with no secondary sales points or retail components – made up about 75% of the DRTV landscape through the late 1980s and early 1990s. At that point, outsourcing and internationalization made bringing new products to market cheaper than ever, which flooded the Graveyard with new entrants. Success rates on one-step infomercial campaigns plummeted to 10% or less. Response rates – the number of viewers who actually bought something while watching an infomercial – dropped into the 1% range, where they mostly remain to this day.
As a result, the DRTV landscape experienced a seismic shift away from mom ‘n pop advertisers and toward big companies. Firms like Telebrands, which had consolidated their power after a string of early hits in the medium, began to dominate the space. Big consumer-product brands, like P&G and even Apple, followed soon thereafter.
These big firms, with their spreadsheets and highly trained marketers, took a more sophisticated approach to DRTV than their fly-by-night predecessors. They wanted to do everything possible to mitigate the 90% failure rate of the medium. Three tactics proved especially promising: 1) moving away from “direct” sales and toward integrated campaigns that drove purchases in retail stores; 2) using DRTV as an inexpensive testing vehicle, rather than an all-or-nothing launch pad; and 3) maximizing margins by relentlessly optimizing costs and sales prices.
The paradigms they set in place are the new normal of the infomercial game. Despite appearances, it’s not really about selling you anything. It’s about selling you to retailers – running cheap tests in local markets, building local retail relationships, then moving up the chain to national deals. This is where the big bucks get made, and it’s the reason why the once humble medium is poised to become a $250 billion industry.
Essentially, DRTV viewers today are the beta audience for Walmart shoppers tomorrow. If you see a wacky product advertised on TV at 3 a.m., chances are you’re part of a test cohort in a tightly controlled enterprise sales campaign. No matter how crazy it appears, that campaign is all about minimizing downside and maximizing upside.
Buying Low and Selling High
We know that infomercial marketers want to make things cheaply and sell them expensively. That’s true of any business. But the infomercial industry has to take that mantra to the extreme.
Let’s start with the expensive, i.e., the product margins. A 400% markup (80% margin) isn’t unusual in this business. It’s actually something of an industry-standard minimum. Per Multichannel Merchant, a research firm and industry trade paper for the DRTV business:
“A DRTV marketer’s guidepost has historically been a 5 to 1 ratio of price to cost of goods, in order to afford media and other costs. How rigidly you apply this rule depends….For example, if you have retail store distribution and DRTV will drive store traffic in addition to direct sales, you may be willing to take a loss or merely breakeven on the DRTV direct sales. Retail distribution is often part of a DRTV marketer’s strategy from day one.”
Think a four-pack of ShamWows at $20 ($5 apiece) is the once-in-a-lifetime steal the pitchman says it is? Think again. You’re paying a 1,500% markup for some scraps of cast-off industrial rayon and polypropylene. (And even more if you buy them at retail.) Some brief digging on Chinese e-commerce portal Alibaba reveals that the wholesale cost of a comparable product is about 1 to 30 cents apiece. But put some funky branding on them, give them a cool pitch, and those shammies soak up cash as easily as spills.
Sourcing cheap products from overseas isn’t the only margin-preserving exercise in a DRTV campaign. This philosophy extends to the production and media-buying of the infomercials themselves.
Infomercials Are a Bargain
Entrepreneur estimates that producing a half-hour infomercial can cost anywhere from $25,000 to $250,000, depending on the production values and the host or talent involved in the shoot. For the sake of comparison: The average cost of producing a 30 second national TV commercial is about $350,000.
That means a national spot costs about $11,000-12,000 per second in production costs (not including the media buy, which costs millions more). By contrast, a $25,000 infomercial at 30 minutes in length runs $13.89 per second. The higher end of the spectrum is still quite a bargain at $138.89 per second.
A significant factor behind the inexpensiveness of producing a half-hour infomercial is its formulaic approach. Primetime ads tend to compete with each other on the basis of novelty. Lots of time and resources are spent hiring expensive ad agencies, brainstorming creative constructs, and breaking the mold on production values and eye-catching graphics. Infomercials, by contrast, don’t try to reinvent the wheel. Instead, they try to optimize an existing, time-tested narrative structure. (One that we’ll discuss shortly.) Production expenses can be managed much more tightly, and agency brainstorming minimized, when the basic formula is well known in advance.
The use of well-known spokespeople like the late Billy Mays, or celebrities like George Foreman, runs the cost of production into the higher end ($250,000 or so for the half hour). But the investment can pay off: A 1999 study found that the use of celebrities in DRTV spots could result in a 20% lift in response rates. And celebrity partnership deals can be struck inexpensively if the brand uses a deferred payment structure. Companies often pay celebrities in equity and/or royalties on unit sales, avoiding up-front costs at the possible expense of long term margins.
George Foreman estimates that he made $200 million from the sale of the grills bearing his name, which he neither invented, nor initially wanted anything to do with. The “Lean, Mean, Fat-Reducing Grilling Machine” was the brainchild of Salton, Inc., an appliance maker who didn’t expect its grill to be much of a hit. It offered Foreman a hefty royalty on sales, and when his charming personality helped the grill take off, Salton bought out the perpetual rights to his name through a combination of cash and equity.
As we’ve seen, tightly managed costs and a careful focus on return on investment are the keys to success in DRTV. In the case of the George Foreman Grill, inventors Michael Boehm and Robert Johnson could have saved millions over the lifespan of their product by paying Foreman a large upfront fee instead of a continuing cut of sales. But there might not have been a product lifespan had Foreman not been involved. Boehm and Johnson landed a deal with Salton to mass-manufacture the grills only after securing the boxer’s name and endorsement.
Even with the deal in place, a large, front-loaded cost (such as a significant flat fee for Foreman) would have placed major financial risk on both the inventors and Salton. If 90% of DRTV products seem doomed to fail, mitigating up-front risk is critical.
The George Foreman Grill happened to run at a successful and profitable response rate before securing lucrative distribution deals at major retailers. But that is not the intent of most of today’s infomercials. In fact, many of them aren’t necessarily designed to sell products at all; they’re designed to test the saleability of those products in a mass-market environment like Walmart. Producing compelling spots is a means to an end. And what holds true of production in terms of controlling costs holds even truer of media buying.
Fast, Cheap, and Local: Infomercial Media Strategy Explained
We’ve calculated that producing an infomercial, on a pound for pound basis, is astronomically cheaper than producing a much shorter national TV commercial. The same holds true for buying the airtime. On an absolute basis (i.e., when compared to all other marketing channels available), and on a relative basis (i.e., when compared to other forms of TV advertising), infomercials are a cost-effective way to run local media campaigns.
Graveyard spots are incredibly cheap, especially when compared to prevailing rates for daytime and primetime. According to the broadcast TV trade group TBV, the average cost of a 30 second spot on network daytime is $9,200 with a blended CPM (cost per thousand viewers who see the ad) of $6.69. The average cost of a primetime spot is $110,200 with a CPM of $25.06. These are national network buys, and purchasing individual spots (as opposed to larger flights in bulk) is almost unheard of.
Infomercial spots, on the other hand, are usually bought through local TV stations in half-hour blocks. One-off buys, or buys in small handfuls, are not uncommon. There are approximately 212 local markets offering these blocks, giving the buyer the ability to target specific regions and defray the risk of a national network buy.
For $50,000 or so – half the cost of 30 seconds of primetime – a marketer can buy ten 30-minute infomercial slots. For the sake of comparison: a six-to-eight-week test run of infomercials on local TV can cost $150,000 to $250,000; the same period in network primetime can run $15 to $30 million.
There is a tradeoff. Advertising during the Fringe hours of the early morning reaches far fewer eyeballs. This means that on a CPM basis, infomercials aren’t that much cheaper than network daytime or primetime. In fact, they are comparable at $10 to $20.
But the point of an infomercial campaign isn’t to maximize reach or CPM efficiency. It’s to test products and pitches. More accurately, it’s to test a lot of products simultaneously, or the same product in a lot of different ways. The fragmentation of the local TV markets allows for split testing: buying a spot in Phoenix, for instance, means that same spot won’t air in Des Moines. (The same is not true of national commercial buys.)
That convenient separation means a savvy marketer can A/B test the same campaign in different markets in real time. Because buys can be made in a much more ad hoc fashion than on network TV, the marketer can swap in and out different messages at almost any time in a campaign. In this sense, infomercials are TV’s closest equivalent to Google AdWords campaigns, which allow marketers to cheaply run variations of ads next to specific search results.
Adding up the production and media numbers, we see that an infomercial buyer can produce and air a small test campaign for about $100,000. Any sales generated by the infomercials in the testing phase are almost incidental. If the response rates are decent (and remember, the bar is set pretty low: about 1% on average), the campaign can recoup a small fraction of its investment while still running a modest loss.
At this point, the marketer buys more test spots, perhaps in different markets. If he doesn’t have a deal in place with a local retailer on a trial basis, he moves quickly to secure one, usually in his highest-performing test market. From there, he’ll double down on that market to drive demand.
As Hawthorne points out:
“Ninety-nine percent of infomercial viewers will not buy directly in response to television….But these millions of non-purchasing infomercial watchers are primed to purchase the product at retail or through catalogs, their preferred buying channels.”
This strategy is known as the “retail-driving” infomercial: a campaign designed either to sell to retailers, or to promote awareness of, and drive traffic to, a product already stocked in stores. The economics of the strategy make it speculative at best for first-time product manufacturers and marketers without retail presence. On the other hand, big companies – be they DRTV stalwarts like Telebrands, or big-box staples like P&G – can leverage existing retail relationships and shelf space. It can also use inbound web traffic, easily measurable via unique URLs from the infomercial, to calculate rough interest in the product even without direct sales.
Increasingly, these big companies are making bigger spends in the DRTV space. Hawthorne notes that “Corporations such as Braun, Mattel, and Magnavox, which traditionally marketed strictly through retail, are using infomercials to drive their retail sales.” We note that J&J spent $22 million on infomercials in 2009 to test-launch and lead-generate its Neutrogena SkinID line. SC Johnson, another giant, spent $21.7 million on infomercials to support its Ziploc and Oust products. P&G has made infomercials a cornerstone of its Olay-brand moisturizer campaigns.
As for the little guys? DRTV is now a pretty hostile medium for them, due to the high failure rate of releasing new products to market through late-night ads. A crazy concept like Perfect Polly could easily flop on introduction. But even if it does, it’s just one of about 50 products that Telebrands introduces each year. Telebrands absorbs countless misses to land a solid hit.
On the other hand, a theoretical startup focused solely on Perfect Polly would be putting all its plastic eggs in one basket. That would be a reckless move, no matter how efficiently the spot was produced and the media buy was allocated.
So what about digital media? Even Graveyard TV spots seem nominally expensive, and perhaps inefficient, when compared with Google AdWords or Facebook campaigns. After all, in DRTV, the cost per eyeball is higher, the cost-per-action is tough to measure, and relying on retail adds a fairly long step to the sales cycle. But the choice isn’t mutually exclusive. As discussed, today’s infomercials aren’t the “one-step,” closed-cycle campaigns of yesteryear. They’re about driving awareness and recall for products already stocked at retail, or about testing the waters to see if a product is sellable to major retailers. Technically, the same could be done on Facebook. But it’s difficult to demonstrate a product visually and dynamically in a static ad. DRTV offers a sort of compromise: it’s a much more efficient testing vehicle than primetime TV, it’s a more dazzling and information-rich medium than a display ad, and it’s able to catch people off guard in a way that context-dependent search ads can’t.
The Art of the Pitch
Billy Mays, arguably the most recognizable infomercial pitchman of the last decade, perfected his art selling OxiClean at trade shows and conventions.
Even though they’re not aiming for high response rates, infomercials face an uphill battle getting anyone to buy. After all, they’re airing at odd hours to an audience that’s presumably stumbling across the spots half-asleep (or in various states of inebriation) and with no immediate intent to search for or buy products.
This is why even the most seemingly bizarre infomercials follow a time-tested and optimized formula. It’s a sort of narrative trope that plays out across all DRTV spots.
The pitch occurs in five acts, sometimes in sequence, and other times in a sort of repetitive and self-reinforcing cycle. Ken Stark of ad firm Springboard Marketing charts the five-act structure of the typical infomercial through the following framework:
1. Create Awareness
2. Create Need
3. Create Urgency
4. Evaluate Choices
5. Resolve Final Risk
Step One: Create Awareness
Chances are high that consumers have little preexisting knowledge of the product or category in question. This is especially true of products like the aforementioned UroClub, the portable urinal for golfers, which seem to have no prior analogues in the marketplace (or at least none that a typical consumer will have come across).
You don't want to know what's going on under the green towel. Image: ABC News. Copyright: Matco Enterprises.
Consequently, the first few minutes of an infomercial are all about creating a “frame” for the viewer: showing the product, showing it in use, and establishing a relatable context for that use. Framing can involve placing models or actors in situations familiar to the viewer or placing the item alongside more familiar appliances. The Vita-Mix infomercial from 1949 placed the blender alongside a set of commonplace kitchen utensils.
Frequent mentions of the product’s name and branding are common in the Awareness phase. Even if most viewers don’t buy the product directly from the ad, they’ll recognize it on store shelves on their next shopping trip.
Step Two: Create Need
Having established a baseline familiarity with his product, the pitchman works quickly to establish a need. This can be an extremely specific use case (the need to pee on a golf course) or a general need that existing solutions can’t solve (the need to chop garlic or cook pasta without making a mess).
The Need-Creation phase often involves rhetorical questions. It’s full of statements beginning with “Have you ever…?” or “Are you tired of…?” Whether you’ve ever unzipped your fly and unleashed 98 degrees of steaming fury on the manicured lawn at Pebble Beach is irrelevant. The infomercial has established that this is a (theoretically) plausible situation; now it’s suggesting that you, the viewer, have experienced it. Maybe even frequently. Maybe even daily. That’s where the urgency comes in.
Step Three: Create Urgency
This is the “hurry-up” phase of the narrative. Usually it’s peppered with “limited-time-only” deals. Sure, you could buy the UroClub for $50 – but if you call within the next 10 minutes, you can get it for $15! Nevermind the fact that these spots are pre-taped, and that the “10 minutes” are often 10 weeks.
Implied scarcity (“Supplies are limited!” or “Act now, while supplies last!”) is another variation on the same theme. Sometimes it’s used in conjunction with the limited-time offer. Supplies, like prices, are rarely limited. And you’re probably not going to be placed on a five-month waiting list for a UroClub if you don’t call now.
Step Four: Evaluate Choices
Some viewers are sold in phase three, but some need a little more convincing. That’s where choice-evaluation comes into play. Here the pitchman reinforces the context, the need, and the urgency by comparing the product to existing (and presumably inferior) solutions the viewer is likely to be using already.
An infomercial for OxiClean detergent might compare the cost of a month’s supply of OxiClean to a month’s supply of Tide. The Snuggie compares its benefits to the ostensible shortcomings of wool blankets.
Choice-evaluation framing appeals to the brain’s rational side, even while subverting it. If the viewer’s impulses don’t have a hair trigger, then perhaps a little comparative logic will persuade him. Absent any context, the decision to buy a ShamWow is binary: either the viewer will buy the item or not. But when framed as a choice between three options (ShamWow, paper towel, washcloth), the viewer will want to pick one.
Step Five: Resolve Final Risk
In this stage, the infomercial attempts to ease any lingering doubts the viewer may have about making a purchase. Money-back guarantees, promises of satisfaction, unconditional warranties, and even bonus goods are thrown into the mix here. All of them are meant to persuade the viewer that he is entering into a risk-free transaction.
Today, Rural Ohio. Tomorrow, the World.
We’ve established that DRTV requires rigid management of media buys, product pitches, and production costs. We’ve discussed the need for high margins, the risks involved in launching new products, and the ultimate goal of securing (and driving traffic to) the shelves of retailers. And we’ve noted how a lot of the most successful products in the game are not one-offs; they’re the creations of large corporations testing out hundreds of products at any given time.
But how will the business reach $250 billion by 2015?
We believe two major trends are driving the growth of the infomercial business. The first is a move up the value chain, from semi-lucrative consumer markets to highly lucrative enterprise sales. The second is the continued influx of major, household brands into DRTV.
The success of Vitamix blenders gives us a good look into the first shift. Vitamix started out as a small-time consumer products shop in the 1930s, hawking its wares on street corners at the 1933 World’s Fair and eventually launching its first infomercial in 1949. Sales of the high-priced, high-margin blenders (commonly starting at $400 apiece) have been healthy enough to keep the firm in business through four generations of family leadership. But Vitamix struck serious paydirt when it leveraged decades of consumer brand recognition to move upmarket. Revenues grew by 52% between 2012 and 2013, thanks in large part to deals with Starbucks and Jamba Juice. As CNBC notes:
“To meet this growing demand, Vitamix recently opened a new 175,000-square-foot operations facility and is in the midst of a separate $10-million, 51,000-square-foot expansion of its world headquarters.”
As for the second trend: we’ve covered how P&G, J&J, and other major corporations are getting into the space. But here’s a by-no-means-comprehensive list of some other companies you might recognize: Walmart, Mercedes-Benz, Coca-Cola, General Mills, American Airlines, Black & Decker, Bose, Home Depot, Paramount Pictures, Time Warner and FedEx.
At first glance, these companies don’t seem to need DRTV. The very idea of small-scale campaigns seems antithetical to driving the macroscopic results they need to move the needle on quarterly earnings. But their marketing departments appreciate the real-time flexibility and analytics that DRTV campaigns can offer them. Before committing $30 million to a national TV commercial flight, for instance, Coke might test out its messaging and its product selection in local markets through DRTV – relentlessly tweaking and optimizing in a way it can’t through its large-scale buys on NBC, ABC, CBS, Fox, or major cable networks.
When viewed in this light, infomercials don’t seem nearly as nutty as they appear. Contrary to popular belief, they’re not attempts to get crazy products off the ground. They’re testing vehicles, and they’re part of large, multifaceted campaigns.
Despite what those energetic pitchman, awkward shills, and C-list celebrities may tell you, infomercial marketers don’t need you to “Act now!” They know you’ll act later.
Courtesy of priceonomics
The Economics of Infomercials
By Jon Nathanson
Nothing good is on TV between 1 a.m. and 6 a.m., and for good reason. Nobody’s trying.
It’s the time period known euphemistically in the media business as the “Post Late Fringe,” and less euphemistically as the “Graveyard Slot.” It’s when networks and local TV affiliates sign off. They give up. They stop pretending that anyone important is watching and sell off their airtime – not just 30-second commercial spots, but entire 30-minute programming blocks – to sponsors. Those sponsors fill the left-for-dead airwaves with direct-response television (DRTV), better known as infomercials.
The Graveyard Slot is an inverse inflection point in the profit curves of two very different businesses. For local TV stations, the juice isn’t worth the squeeze. Producing content to air on these hours would cost more than it would return. Selling the timeslot for pennies on the dollar isn’t ideal, but it’s a better alternative to airing color bars or going dark.
But for certain companies – the kinds of companies who make Snuggies and ShamWows – the Graveyard is primetime. It’s dirt-cheap media space. It’s highly efficient for testing products and messaging against targeted consumer segments. It’s the perfect perch for Perfect Polly, the plastic parakeet with a swiveling head and a chirp like a 1980s car alarm. It’s the choicest real estate for the SnapNPump, a vacuum sealer for sandwich bags. And it’s pretty much the only timeslot socially acceptable for the UroClub, a nine iron golf club that doubles as a portable urinal.
These products certainly put the “fringe” in Post Late Fringe. It boggles the mind that anyone would want to buy them. But they’re serious business. Collectively, the U.S. market for infomercial products stood at $170 billion in 2009 and could exceed $250 billion by 2015. In fact, with the worth of the entire U.S. network and cable industry estimated at $97 billion as of 2013, DRTV is much bigger than TV itself.
If nobody’s watching TV during the Fringe/Graveyard shift, who’s buying $200-250 billion worth of product? To put that into perspective: $250 billion will represent at least an entire percentage point of the U.S. GDP in 2015. Infomercials may be uniquely American, but how can they account for such a giant slice of America?
Consider some of the biggest brands in the DRTV business. ProActiv, a celebrity-shilled skin care line made famous on the infomercial circuit, generates a little over $1.7 billion a year in revenue. The PedEgg, a heel-scraping callus remover, has earned over $450 million since its first infomercial shred the airwaves in 2007. These products, like many others in the DRTV space, are not one-hit wonders, spawned in a garage by a couple of wackos with a pipedream. Rather, they are bets in the portfolios of much larger, highly capitalized intellectual property holding companies.
Telebrands, maker of the PedEgg, is one such company. With revenues exceeding $500 million a year, it’s one of the major players in the DRTV products business. It’s the firm that brought you the Slice-O-Matic, the Pocket Hose, the Hurricane Spin Mop, and at least several hundred more pieces of single-purposed shlock. It’s also a chief participant in the “As Seen On TV” program.
The “As Seen on TV” logo, which appears on the packaging of DRTV-spawned products on the shelves of major retailers like Walmart, Walgreens, Target, and others.
“As Seen On TV” is a sort of informal trade affiliation and open-source brand mark representing major DRTV brands in the retail business. As we’ll see, it’s the endgame behind most of today’s DRTV campaigns. The infomercials themselves are just appetizers; getting stocked at Walmart is the main course. That’s where the real money is made. (Retail sales account for approximately 90% of Telebrands’ revenues.)
And companies like Telebrands aren’t the only players in the space anymore. Much of the recent growth in the DRTV business isn’t coming from some explosive takeoff in Snuggie sales. It’s the result of some of America’s largest corporations, like Procter & Gamble ($83 billion) and Johnson & Johnson ($65 billion), jumping into the fray.
Infomercials, it turns out, make a great deal of sense as a product marketing channel – provided the marketer can maintain super-high margins, spread risk across a number of bets, keep a clear end-goal in mind (typically, wholesaling to retailers), and can master the intricacies of late-night / early-morning media planning. For every impressionable Graveyard viewer who buys a Showtime Rotisserie Grill at home, hundreds more buy them at Home Depot.
Testing products at 3 a.m. in a handful of small TV markets probably isn’t in the traditional marketing playbook. But for an increasing number of big consumer products companies, DRTV is moving out of the Fringe and into the sunlight.
Let’s take a look at the process and point of an infomercial campaign: production, media, narrative strategy, and sales. The closer we peer through the fog of this business, the more we’ll see two patterns: first, that big companies are driving today’s infomercial boom; and second, that despite all the urging to “buy now,” the payoff happens on store shelves, not living room couches.
The Basics: A Brief History of Extraordinary Claims
Direct-response television (DRTV) is any commercial which presents viewers with the opportunity to buy directly from the ad, usually via a phone number or URL. People frequently use “infomercial” interchangeably with “DRTV.” The word “infomercial,” however, often refers specifically to late-night and early-morning spots that follow a pitch-oriented presentation style. “Paid programming,” a related term, refers to any TV spot mostly or entirely paid for by an advertiser. Essentially: paid programming is a category of which DRTV is a subcategory, and the infomercial is one species of DRTV.
As a concept, paid programming is as old as television itself. In the early days of the medium, many shows were significantly or wholly funded by advertisers. The soap opera, for example, earned its nickname because soap manufacturers like Procter & Gamble financed the earliest examples of the genre.
William G. “Papa” Barnard, founder of Vitamix, demonstrates his blender in a 1949-50 infomercial.
But government regulations in the mid-20th century limited the degree to which advertisers could integrate ads into entertainment and educational programming. Consequently, most advertisers transitioned to 30-second commercials airing in blocks in and around TV shows on daytime (9 a.m. to 5 p.m.) and primetime (8 p.m. to 11 p.m.) schedules. These formats have existed, relatively unchanged, ever since.
But some advertisers weren’t satisfied with the confines of a 30-second spot. In particular, companies launching novelties – products that demanded context, explanation, or demonstration – sought to bring back paid programming in one form or another. Enter the infomercial: part information, part commercial. Designed to mimic the look and feel of a news program or public service announcement, the infomercial presented a new product as though it were a revolutionary breakthrough. Infomercials took the sensationalism and manic energy of 30-second commercials, then turned everything up a few dozen notches.
The Vita-Mix Corporation (then known as the “Natural Foods Institute”) aired the world’s first infomercial in 1949. The spot (an abbreviated version of which is viewable here) featured founder and former boardwalk salesman William G. Barnard as a self-proclaimed “author, lecturer and food specialist.” Barnard spared no hyperbole in pitching “one of the most wonderful machines that was ever invented,” his company’s new blender. Sales took off and a new commercial medium was born.
But buying half-hour blocks of television in daytime and primetime was a cost-prohibitive exercise for startups like Vita-Mix. Over time, many of them would strike bargains with local TV stations to purchase Graveyard time in the wee hours of the morning. The airtime would otherwise go to waste, and it sold for a song. Stations were happy to get anything for the time, and advertisers were happy to purchase time at fire-sale prices.
In the ensuing decades, most infomercials came from the Vita-Mixes of the world: fledgling companies, often founded by former door-to-door salesmen and garage inventors, trying their hand at pitching viewers through TV. Their success rates were modest. DRTV media agency Hawthorne Direct estimates that a product introduced through early infomercials stood about a 50% chance of success. The medium was a coin toss, but it was a very inexpensive one.
These “one-step” infomercials – so called because they were single-purpose campaigns, with no secondary sales points or retail components – made up about 75% of the DRTV landscape through the late 1980s and early 1990s. At that point, outsourcing and internationalization made bringing new products to market cheaper than ever, which flooded the Graveyard with new entrants. Success rates on one-step infomercial campaigns plummeted to 10% or less. Response rates – the number of viewers who actually bought something while watching an infomercial – dropped into the 1% range, where they mostly remain to this day.
As a result, the DRTV landscape experienced a seismic shift away from mom ‘n pop advertisers and toward big companies. Firms like Telebrands, which had consolidated their power after a string of early hits in the medium, began to dominate the space. Big consumer-product brands, like P&G and even Apple, followed soon thereafter.
These big firms, with their spreadsheets and highly trained marketers, took a more sophisticated approach to DRTV than their fly-by-night predecessors. They wanted to do everything possible to mitigate the 90% failure rate of the medium. Three tactics proved especially promising: 1) moving away from “direct” sales and toward integrated campaigns that drove purchases in retail stores; 2) using DRTV as an inexpensive testing vehicle, rather than an all-or-nothing launch pad; and 3) maximizing margins by relentlessly optimizing costs and sales prices.
The paradigms they set in place are the new normal of the infomercial game. Despite appearances, it’s not really about selling you anything. It’s about selling you to retailers – running cheap tests in local markets, building local retail relationships, then moving up the chain to national deals. This is where the big bucks get made, and it’s the reason why the once humble medium is poised to become a $250 billion industry.
Essentially, DRTV viewers today are the beta audience for Walmart shoppers tomorrow. If you see a wacky product advertised on TV at 3 a.m., chances are you’re part of a test cohort in a tightly controlled enterprise sales campaign. No matter how crazy it appears, that campaign is all about minimizing downside and maximizing upside.
Buying Low and Selling High
We know that infomercial marketers want to make things cheaply and sell them expensively. That’s true of any business. But the infomercial industry has to take that mantra to the extreme.
Let’s start with the expensive, i.e., the product margins. A 400% markup (80% margin) isn’t unusual in this business. It’s actually something of an industry-standard minimum. Per Multichannel Merchant, a research firm and industry trade paper for the DRTV business:
“A DRTV marketer’s guidepost has historically been a 5 to 1 ratio of price to cost of goods, in order to afford media and other costs. How rigidly you apply this rule depends….For example, if you have retail store distribution and DRTV will drive store traffic in addition to direct sales, you may be willing to take a loss or merely breakeven on the DRTV direct sales. Retail distribution is often part of a DRTV marketer’s strategy from day one.”
Think a four-pack of ShamWows at $20 ($5 apiece) is the once-in-a-lifetime steal the pitchman says it is? Think again. You’re paying a 1,500% markup for some scraps of cast-off industrial rayon and polypropylene. (And even more if you buy them at retail.) Some brief digging on Chinese e-commerce portal Alibaba reveals that the wholesale cost of a comparable product is about 1 to 30 cents apiece. But put some funky branding on them, give them a cool pitch, and those shammies soak up cash as easily as spills.
Sourcing cheap products from overseas isn’t the only margin-preserving exercise in a DRTV campaign. This philosophy extends to the production and media-buying of the infomercials themselves.
Infomercials Are a Bargain
Entrepreneur estimates that producing a half-hour infomercial can cost anywhere from $25,000 to $250,000, depending on the production values and the host or talent involved in the shoot. For the sake of comparison: The average cost of producing a 30 second national TV commercial is about $350,000.
That means a national spot costs about $11,000-12,000 per second in production costs (not including the media buy, which costs millions more). By contrast, a $25,000 infomercial at 30 minutes in length runs $13.89 per second. The higher end of the spectrum is still quite a bargain at $138.89 per second.
A significant factor behind the inexpensiveness of producing a half-hour infomercial is its formulaic approach. Primetime ads tend to compete with each other on the basis of novelty. Lots of time and resources are spent hiring expensive ad agencies, brainstorming creative constructs, and breaking the mold on production values and eye-catching graphics. Infomercials, by contrast, don’t try to reinvent the wheel. Instead, they try to optimize an existing, time-tested narrative structure. (One that we’ll discuss shortly.) Production expenses can be managed much more tightly, and agency brainstorming minimized, when the basic formula is well known in advance.
The use of well-known spokespeople like the late Billy Mays, or celebrities like George Foreman, runs the cost of production into the higher end ($250,000 or so for the half hour). But the investment can pay off: A 1999 study found that the use of celebrities in DRTV spots could result in a 20% lift in response rates. And celebrity partnership deals can be struck inexpensively if the brand uses a deferred payment structure. Companies often pay celebrities in equity and/or royalties on unit sales, avoiding up-front costs at the possible expense of long term margins.
George Foreman estimates that he made $200 million from the sale of the grills bearing his name, which he neither invented, nor initially wanted anything to do with. The “Lean, Mean, Fat-Reducing Grilling Machine” was the brainchild of Salton, Inc., an appliance maker who didn’t expect its grill to be much of a hit. It offered Foreman a hefty royalty on sales, and when his charming personality helped the grill take off, Salton bought out the perpetual rights to his name through a combination of cash and equity.
As we’ve seen, tightly managed costs and a careful focus on return on investment are the keys to success in DRTV. In the case of the George Foreman Grill, inventors Michael Boehm and Robert Johnson could have saved millions over the lifespan of their product by paying Foreman a large upfront fee instead of a continuing cut of sales. But there might not have been a product lifespan had Foreman not been involved. Boehm and Johnson landed a deal with Salton to mass-manufacture the grills only after securing the boxer’s name and endorsement.
Even with the deal in place, a large, front-loaded cost (such as a significant flat fee for Foreman) would have placed major financial risk on both the inventors and Salton. If 90% of DRTV products seem doomed to fail, mitigating up-front risk is critical.
The George Foreman Grill happened to run at a successful and profitable response rate before securing lucrative distribution deals at major retailers. But that is not the intent of most of today’s infomercials. In fact, many of them aren’t necessarily designed to sell products at all; they’re designed to test the saleability of those products in a mass-market environment like Walmart. Producing compelling spots is a means to an end. And what holds true of production in terms of controlling costs holds even truer of media buying.
Fast, Cheap, and Local: Infomercial Media Strategy Explained
We’ve calculated that producing an infomercial, on a pound for pound basis, is astronomically cheaper than producing a much shorter national TV commercial. The same holds true for buying the airtime. On an absolute basis (i.e., when compared to all other marketing channels available), and on a relative basis (i.e., when compared to other forms of TV advertising), infomercials are a cost-effective way to run local media campaigns.
Graveyard spots are incredibly cheap, especially when compared to prevailing rates for daytime and primetime. According to the broadcast TV trade group TBV, the average cost of a 30 second spot on network daytime is $9,200 with a blended CPM (cost per thousand viewers who see the ad) of $6.69. The average cost of a primetime spot is $110,200 with a CPM of $25.06. These are national network buys, and purchasing individual spots (as opposed to larger flights in bulk) is almost unheard of.
Infomercial spots, on the other hand, are usually bought through local TV stations in half-hour blocks. One-off buys, or buys in small handfuls, are not uncommon. There are approximately 212 local markets offering these blocks, giving the buyer the ability to target specific regions and defray the risk of a national network buy.
For $50,000 or so – half the cost of 30 seconds of primetime – a marketer can buy ten 30-minute infomercial slots. For the sake of comparison: a six-to-eight-week test run of infomercials on local TV can cost $150,000 to $250,000; the same period in network primetime can run $15 to $30 million.
There is a tradeoff. Advertising during the Fringe hours of the early morning reaches far fewer eyeballs. This means that on a CPM basis, infomercials aren’t that much cheaper than network daytime or primetime. In fact, they are comparable at $10 to $20.
But the point of an infomercial campaign isn’t to maximize reach or CPM efficiency. It’s to test products and pitches. More accurately, it’s to test a lot of products simultaneously, or the same product in a lot of different ways. The fragmentation of the local TV markets allows for split testing: buying a spot in Phoenix, for instance, means that same spot won’t air in Des Moines. (The same is not true of national commercial buys.)
That convenient separation means a savvy marketer can A/B test the same campaign in different markets in real time. Because buys can be made in a much more ad hoc fashion than on network TV, the marketer can swap in and out different messages at almost any time in a campaign. In this sense, infomercials are TV’s closest equivalent to Google AdWords campaigns, which allow marketers to cheaply run variations of ads next to specific search results.
Adding up the production and media numbers, we see that an infomercial buyer can produce and air a small test campaign for about $100,000. Any sales generated by the infomercials in the testing phase are almost incidental. If the response rates are decent (and remember, the bar is set pretty low: about 1% on average), the campaign can recoup a small fraction of its investment while still running a modest loss.
At this point, the marketer buys more test spots, perhaps in different markets. If he doesn’t have a deal in place with a local retailer on a trial basis, he moves quickly to secure one, usually in his highest-performing test market. From there, he’ll double down on that market to drive demand.
As Hawthorne points out:
“Ninety-nine percent of infomercial viewers will not buy directly in response to television….But these millions of non-purchasing infomercial watchers are primed to purchase the product at retail or through catalogs, their preferred buying channels.”
This strategy is known as the “retail-driving” infomercial: a campaign designed either to sell to retailers, or to promote awareness of, and drive traffic to, a product already stocked in stores. The economics of the strategy make it speculative at best for first-time product manufacturers and marketers without retail presence. On the other hand, big companies – be they DRTV stalwarts like Telebrands, or big-box staples like P&G – can leverage existing retail relationships and shelf space. It can also use inbound web traffic, easily measurable via unique URLs from the infomercial, to calculate rough interest in the product even without direct sales.
Increasingly, these big companies are making bigger spends in the DRTV space. Hawthorne notes that “Corporations such as Braun, Mattel, and Magnavox, which traditionally marketed strictly through retail, are using infomercials to drive their retail sales.” We note that J&J spent $22 million on infomercials in 2009 to test-launch and lead-generate its Neutrogena SkinID line. SC Johnson, another giant, spent $21.7 million on infomercials to support its Ziploc and Oust products. P&G has made infomercials a cornerstone of its Olay-brand moisturizer campaigns.
As for the little guys? DRTV is now a pretty hostile medium for them, due to the high failure rate of releasing new products to market through late-night ads. A crazy concept like Perfect Polly could easily flop on introduction. But even if it does, it’s just one of about 50 products that Telebrands introduces each year. Telebrands absorbs countless misses to land a solid hit.
On the other hand, a theoretical startup focused solely on Perfect Polly would be putting all its plastic eggs in one basket. That would be a reckless move, no matter how efficiently the spot was produced and the media buy was allocated.
So what about digital media? Even Graveyard TV spots seem nominally expensive, and perhaps inefficient, when compared with Google AdWords or Facebook campaigns. After all, in DRTV, the cost per eyeball is higher, the cost-per-action is tough to measure, and relying on retail adds a fairly long step to the sales cycle. But the choice isn’t mutually exclusive. As discussed, today’s infomercials aren’t the “one-step,” closed-cycle campaigns of yesteryear. They’re about driving awareness and recall for products already stocked at retail, or about testing the waters to see if a product is sellable to major retailers. Technically, the same could be done on Facebook. But it’s difficult to demonstrate a product visually and dynamically in a static ad. DRTV offers a sort of compromise: it’s a much more efficient testing vehicle than primetime TV, it’s a more dazzling and information-rich medium than a display ad, and it’s able to catch people off guard in a way that context-dependent search ads can’t.
The Art of the Pitch
Billy Mays, arguably the most recognizable infomercial pitchman of the last decade, perfected his art selling OxiClean at trade shows and conventions.
Even though they’re not aiming for high response rates, infomercials face an uphill battle getting anyone to buy. After all, they’re airing at odd hours to an audience that’s presumably stumbling across the spots half-asleep (or in various states of inebriation) and with no immediate intent to search for or buy products.
This is why even the most seemingly bizarre infomercials follow a time-tested and optimized formula. It’s a sort of narrative trope that plays out across all DRTV spots.
The pitch occurs in five acts, sometimes in sequence, and other times in a sort of repetitive and self-reinforcing cycle. Ken Stark of ad firm Springboard Marketing charts the five-act structure of the typical infomercial through the following framework:
1. Create Awareness
2. Create Need
3. Create Urgency
4. Evaluate Choices
5. Resolve Final Risk
Step One: Create Awareness
Chances are high that consumers have little preexisting knowledge of the product or category in question. This is especially true of products like the aforementioned UroClub, the portable urinal for golfers, which seem to have no prior analogues in the marketplace (or at least none that a typical consumer will have come across).
You don't want to know what's going on under the green towel. Image: ABC News. Copyright: Matco Enterprises.
Consequently, the first few minutes of an infomercial are all about creating a “frame” for the viewer: showing the product, showing it in use, and establishing a relatable context for that use. Framing can involve placing models or actors in situations familiar to the viewer or placing the item alongside more familiar appliances. The Vita-Mix infomercial from 1949 placed the blender alongside a set of commonplace kitchen utensils.
Frequent mentions of the product’s name and branding are common in the Awareness phase. Even if most viewers don’t buy the product directly from the ad, they’ll recognize it on store shelves on their next shopping trip.
Step Two: Create Need
Having established a baseline familiarity with his product, the pitchman works quickly to establish a need. This can be an extremely specific use case (the need to pee on a golf course) or a general need that existing solutions can’t solve (the need to chop garlic or cook pasta without making a mess).
The Need-Creation phase often involves rhetorical questions. It’s full of statements beginning with “Have you ever…?” or “Are you tired of…?” Whether you’ve ever unzipped your fly and unleashed 98 degrees of steaming fury on the manicured lawn at Pebble Beach is irrelevant. The infomercial has established that this is a (theoretically) plausible situation; now it’s suggesting that you, the viewer, have experienced it. Maybe even frequently. Maybe even daily. That’s where the urgency comes in.
Step Three: Create Urgency
This is the “hurry-up” phase of the narrative. Usually it’s peppered with “limited-time-only” deals. Sure, you could buy the UroClub for $50 – but if you call within the next 10 minutes, you can get it for $15! Nevermind the fact that these spots are pre-taped, and that the “10 minutes” are often 10 weeks.
Implied scarcity (“Supplies are limited!” or “Act now, while supplies last!”) is another variation on the same theme. Sometimes it’s used in conjunction with the limited-time offer. Supplies, like prices, are rarely limited. And you’re probably not going to be placed on a five-month waiting list for a UroClub if you don’t call now.
Step Four: Evaluate Choices
Some viewers are sold in phase three, but some need a little more convincing. That’s where choice-evaluation comes into play. Here the pitchman reinforces the context, the need, and the urgency by comparing the product to existing (and presumably inferior) solutions the viewer is likely to be using already.
An infomercial for OxiClean detergent might compare the cost of a month’s supply of OxiClean to a month’s supply of Tide. The Snuggie compares its benefits to the ostensible shortcomings of wool blankets.
Choice-evaluation framing appeals to the brain’s rational side, even while subverting it. If the viewer’s impulses don’t have a hair trigger, then perhaps a little comparative logic will persuade him. Absent any context, the decision to buy a ShamWow is binary: either the viewer will buy the item or not. But when framed as a choice between three options (ShamWow, paper towel, washcloth), the viewer will want to pick one.
Step Five: Resolve Final Risk
In this stage, the infomercial attempts to ease any lingering doubts the viewer may have about making a purchase. Money-back guarantees, promises of satisfaction, unconditional warranties, and even bonus goods are thrown into the mix here. All of them are meant to persuade the viewer that he is entering into a risk-free transaction.
Today, Rural Ohio. Tomorrow, the World.
We’ve established that DRTV requires rigid management of media buys, product pitches, and production costs. We’ve discussed the need for high margins, the risks involved in launching new products, and the ultimate goal of securing (and driving traffic to) the shelves of retailers. And we’ve noted how a lot of the most successful products in the game are not one-offs; they’re the creations of large corporations testing out hundreds of products at any given time.
But how will the business reach $250 billion by 2015?
We believe two major trends are driving the growth of the infomercial business. The first is a move up the value chain, from semi-lucrative consumer markets to highly lucrative enterprise sales. The second is the continued influx of major, household brands into DRTV.
The success of Vitamix blenders gives us a good look into the first shift. Vitamix started out as a small-time consumer products shop in the 1930s, hawking its wares on street corners at the 1933 World’s Fair and eventually launching its first infomercial in 1949. Sales of the high-priced, high-margin blenders (commonly starting at $400 apiece) have been healthy enough to keep the firm in business through four generations of family leadership. But Vitamix struck serious paydirt when it leveraged decades of consumer brand recognition to move upmarket. Revenues grew by 52% between 2012 and 2013, thanks in large part to deals with Starbucks and Jamba Juice. As CNBC notes:
“To meet this growing demand, Vitamix recently opened a new 175,000-square-foot operations facility and is in the midst of a separate $10-million, 51,000-square-foot expansion of its world headquarters.”
As for the second trend: we’ve covered how P&G, J&J, and other major corporations are getting into the space. But here’s a by-no-means-comprehensive list of some other companies you might recognize: Walmart, Mercedes-Benz, Coca-Cola, General Mills, American Airlines, Black & Decker, Bose, Home Depot, Paramount Pictures, Time Warner and FedEx.
At first glance, these companies don’t seem to need DRTV. The very idea of small-scale campaigns seems antithetical to driving the macroscopic results they need to move the needle on quarterly earnings. But their marketing departments appreciate the real-time flexibility and analytics that DRTV campaigns can offer them. Before committing $30 million to a national TV commercial flight, for instance, Coke might test out its messaging and its product selection in local markets through DRTV – relentlessly tweaking and optimizing in a way it can’t through its large-scale buys on NBC, ABC, CBS, Fox, or major cable networks.
When viewed in this light, infomercials don’t seem nearly as nutty as they appear. Contrary to popular belief, they’re not attempts to get crazy products off the ground. They’re testing vehicles, and they’re part of large, multifaceted campaigns.
Despite what those energetic pitchman, awkward shills, and C-list celebrities may tell you, infomercial marketers don’t need you to “Act now!” They know you’ll act later.
