Response Magazine's Ninth Annual State of the Industry Report1 Sep, 2004 By: Response Contributor Response
Members of the magazine's Editorial Board weigh in on self-regulation, the effects of the Web, and the continuing battle for good media time.
Hawthorne: Pharmaceuticals have impacted the short-form DRTV business forever, making space in short supply and driving up prices. The traditional short-form product industry is on the ropes. But other than a few great campaigns by Tropicana, Pfizer and Vroom this past year, it's a continuing urban legend that traditional marketers are doing more and more long form. For the past decade, I believe brand advertisers have comprised 2 to 3 percent of the long-form media marketplace, and there's no indication it's changing anytime soon.
Cusack: Media prices are continuing to rise. This rise in rates will limit the type of product marketers are able to generate a profitable ROI from in TV sales. Lead generation and trial offers will continue to propagate the DRTV space.
9. What effect is the Internet — most specifically search engine optimization — having on this business?
Weisbarth: Every aspect of the Internet has affected this business. Search optimization has shifted over the past years to become a very profitable business and is extremely important to the success of Web business. Importantly, it's a new line to budget for any new project.
Stacey: No doubt the Internet has been a growth area both in terms of increased sales and operational efficiency. The use of paid search engines, pop-under ads, affiliate programs, in-house E-mail lists and other tools have also contributed to the growth of our own Internet sales division.
Orsmond: The Internet is proving a major help for all our DRTV clients in the travel sector. For example, our DRTV spots have been highly successful in driving TV viewers directly to their PCs rather than picking up the phone and asking for a brochure (in one case, our DRTV spots have helped a travel client increase its online business by 264 percent just by including a lively logging on sequence in their DRTV spot). This saves our travel clients thousands of dollars in brochure print and dispatch costs as well as reducing their call center costs. As far as our DRTV product clients are concerned, the telephone is still king with the Internet playing a much smaller part in their total sales equation. The URL on the ad is important, but getting the TV viewer to make that call and order is still seen as the primary sales objective.
Petry: The percentage of sales derived from the Internet continues to creep up depending upon the product and whom it appeals to. As for search engine optimization, marketers are now competing with retailers of their products for placement on search engines, so securing the right online real estate is important.
10. Is DR ready for the explosion of digital video recording (DVR) technology and what it could possibly mean to the advertising industry? How can this industry best adjust to this technological boom?
Perlstein: Consumers are flooded with more and more commercial messages all of the time, and clutter will continue to drive consumers to find ways to avoid and tune out our messages. Hopefully, ITV will gain some momentum and give consumers the ability to truly "impulse" buy. One technology may hurt while another will help.
Stacey: I try not to think too much about DVR technology or other developments until they actually get here. I've learned that you can't push on a piece of string — it's better sometimes to let these things gently pull you as they roll out and you can better assess what you're dealing with. However, having said that, I think the product placement business could be positioned for some interesting growth as advertisers increasingly try to place their products within the body of regular programming.
Medico: That is difficult as direct response generally lags a bit in terms of new media. The challenge for DR will be the same for the general advertising community and that it has to come up with products, service and creative that get people to want to view the message.
Hawthorne: No, the DRTV industry is not prepared for DVR and VOD, both potentially devastating to our industry. Our industry can best adjust for these technological tsunamis by participating in any Enhanced TV marketing tests. The 4A's are active in this area. ERA needs to activate its Technology Task Force and begin developing a vision of how DRTV will be incorporated in VOD of the future.
11. Given the current state of the DR industry, what would you change to ensure its continued health and growth?
Weisbarth: Better products, better products and better products.
Orsmond: In Britain, I'd like to be able to open up sectors such as weight loss and lifestyle more with self-regulation by the TV channels. However, that is probably some years away as the BACC is very much part of the media landscape over here, and I can see the larger European government meddling even more in each country's broadcast affairs. Launching any product or service across Europe continues to be a major challenge and the launch of uro has not changed the cultural differences that we have to contend with. My advice to any DR company thinking of marketing their products over here is to find out who is the most successful DRTV company in each country and build a mix of partnerships, starting in the United Kingdom first.
Petry: I would press broadcasters to take more responsibility for substantiating claims before they accept direct advertising.
Altman: If I was king and I could change two things, there would be no offshore customer service, and no advertising without product to ship. Back orders are the second biggest cause of death for DR products.
12. Who are the most influential people or companies in this industry right now? What are they doing to have this impact?
Stacey: I continue to believe Guthy-Renker Corp. is at the top of their game in DRTV. They produce effective and attractive programming, offer good quality and useful new products, provide excellent customer service and support, and are fully integrated across multiple distribution channels.
Savage: I mentioned QVC, Guthy-Renker and Fitness Quest last year because of the way other companies are trying to imitate the successful marketing these companies have achieved. This seems to continue to occur. Also, Beachbody has done a terrific job at utilizing DRTV and the Internet to build a significant relationship with its customers and in the process, a hugely successful fitness business. MD Beauty, the marketers of the bareMinerals cosmetics brand have had great success using infomercials, DR spots and QVC to build their brand.
Petry: The companies and individuals who comprise the ERA Board of Directors are among those leading the industry in a couple of very important ways. They are operating the organization like they would their own businesses, with full accountability to their customers — the membership. The best interests of the industry are put before any individual agenda and the financial health of the group is the strongest in its history. This will enable ERA to pursue important initiatives such as government affairs and self-regulation intended to ensure the industry's health into the future.
Altman: A good question, and I would imagine you could get a different answer from anyone you ask, or whatever product is currently hot, or who gets their face on a magazine cover. I'm biased because I see the back end of the business more than the "glamour" end of it, so I believe the most important people are those who make an idea work and can translate promises and sales pitches into actual shipments and sales, along with keeping the customer satisfied.
13. Are production and media costs rising too quickly for the health of the industry?
Weisbarth: I think media costs continue to be the challenge of the industry. Regarding production, if you do your homework, you're going to be OK.
Stacey: Media costs are always a threat to our business. Media will always charge whatever the market will pay. It is for this reason the ERA's strong self-regulatory program is important to ensure all media buyers are playing by the same rules. If I make a false claim that the product will grow hair, I'm obviously going to get a lot more orders than others and therefore can pay more for media that inflates prices.
Moulton: Assuming the rates will only rise, along with practically all your costs, a rifle-shot approach to advertising becomes necessary. We will soon have the ability to give an almost precise profit-and-loss by individual order that will allow the marketer to identify which media buys or outbound programs are working and which should be dropped.
Cusack: What it means is that a different set of players will emerge so the complexion of the industry might change but not the health.
Petry: For the most part they have stabilized, but media fragmentation has driven the value of TV airtime down while the prices have not necessarily reflected that. This has put more pressure on marketers to get more creative and sophisticated to make their direct programs work effectively.
14. Two-thousand four has been a slow year for "major hits" in DR. Any idea as to why there hasn't been a huge winner in 2004 à la the Tae Bos and Proactivs of the past?
Savage: Just because there hasn't been a show like Tae Bo or "Stop the Insanity" that has managed to become a media sensation doesn't mean there aren't major hits in our business right now. The marketers who have built brands over the years do have what I would call major hits.
Medico: For me the answer is simple — offer/product is king, and there have not been an abundance of products that create a resounding impulse to respond among consumers. I believe that there is still an opportunity for the next "Better Pasta Pot." You just have to have the right product or offer at the right price and the right call to action."
Orsmond: Our experience in the U.K. is that consumers are much more discerning than they were several years ago. There was time when we were selling container loads of Penalli pens for TV media using a simple 90-second spot. Those days are long gone. Now it is all about making a return on the initial sales and working a lot harder on the upsells. This has meant trying to incentivize the U.K. call centers (not an easy task as they have little history of this style of working). The United Kingdom still relies heavily on what comes out of the United States and not being able to use DRTV to promote the weight loss, lifestyle and vitamins sectors has been frustrating as we've seen these sectors succeed in the States, especially on the home shopping channels.
Hawthorne: This has been a trend for the past three to five years, fewer hits and the top 40 infomercials dominated by products that have been on air for years. Many of these products are still on air because they've found success with deep and profitable upsell and back-end strategies. Newly testing infomercials do not have the time to maneuver and test multiple backend permutations, which are often the key to success. This trend will continue.
15. How are the Olympics and coming presidential election affecting your business? How will they affect the second half of 2004 numbers for the DR industry?
Perlstein: We have never seen media and clearance issues like we saw in the second quarter this year. This presidential election has changed the landscape as so many dollars have been spent continuously. We've seen some tough sailing this year in short-form clearance.
Medico: We anticipate media time being very tight for September and October due to the elections. I don't believe the Olympics will have a very significant impact on avails, but you never know.
Hawthorne: We expect the Olympics and the elections to impact short form dramatically. Space will be scarce and prices high. We don't expect significant impact on long form.