Annual Canadian Market Guide: Oh, Canada: Looking North for DR’s Future Challenges16 Aug, 2010 By: Kirsten Saladow Response
Response spoke to three key players in Canada’s tricky direct response landscape to determine the greatest challenges when bringing business north.
When you ask Rob Woodrooffe, chairman of Toronto-based Interwood Direct, what one of the biggest direct response struggles when working with the Canadian consumer is, his response is that the Canadian consumer is skeptical and savvy.
“Canadians are much more cautious than Americans. Most of us have difficulty making soft offers,” Woodrooffe says. “When a consumer hears that it will cost more than $14.99 for the product, consumers feel cheated. Soft offers are unpopular here and we have had to move to a different approach.”
In addition to being skeptical and savvy, Canadian consumers have high standards. Most retailers have money-back guarantees on products, and Canadians are more likely to return products due to dissatisfaction than Americans.
How to Build Your Business in Canada
U.S. companies trying to understand the Canadian consumer and build a successful Canadian direct response business have two options, according to David Baldassi, new business development manager at Toronto-based Northern Response International Ltd. — opening up a Canadian office or outsourcing to a distributor.
Baldassi believes that the wisest choice for American companies is outsourcing to a distributor in Canada. “You can open a Canadian office, spend years understanding the subtle differences between the Canadian and U.S. consumer, figure out how to appeal to 10 different ethnic groups, and deal with a bevy of 10 different provincial and federal taxes. Or, you can outsource to a distributor, focus on your core domestic business, eliminate Canadian overheads, and let a company that is fully integrated in the marketplace through all channels of distribution move tonnage for you while your product is still selling strongly and before the knock-offs from China fill in the marketplace,” Baldassi says. “Using a distributor allows you to hit the deck running and is a better option for maximizing sales — and certainly a better alternative to going blind reading the tax code and trying to buy up what little media availability is left on the scrap heap after local distributors have locked up their top picks.”
Woodrooffe agrees that using a Canadian distributor is the easiest and typically most successful choice for American companies looking to break into the Canadian market. However, he does note that by using a distributor, U.S. marketers will receive wholesale value for their products rather than retail value if they were to open their own Canadian offices.
What Are the Roadblocks Within the Canadian Market?
Despite which option you choose, DRTV in Canada has additional challenges.
“There has certainly been a decline in response to the infomercials and commercials in Canada,” Woodrooffe says. “Media rates aren’t dropping. The DRTV business is more difficult than ever.”
The multiple factors behind the difficult DRTV market are easy to explain, according to Woodrooffe. He says it comes down to the downturn of the economy, a potentially weaker product line-up and consumers spending more and more time on the other screens in their life — such as their computers and mobile phones.
But Baldassi believes that the Canadian direct response market is still thriving — if you have a strong product line-up, adding that Northern Response’s product line-up has been the reason that its business is booming in Canada, despite any challenges.
“Northern is very fortunate to have some great partners, such as Guthy-Renker, Beachbody, Square One Entertainment, Body By Jake, Perfect Fitness, Oreck Canada and many others. When you’re being presented opportunities to sell products [from these marketers], you have to consider yourself lucky.”
Baldassi’s conclusion makes sense when considering that the Canadian Radio-television Telecommunications Commission (CRTC) recently released shockingly high numbers for direct-to-home (DTH) satellite distribution and multipoint distribution system (MDS) companies in Canada in 2009.
Despite the global economic downturn, total revenues in the Canadian Broadcasting industry grew by $1.1 billion to reach $11.4 billion in 2009.
Profits in the cable industry, before interest and taxes, climbed 16.1 percent to $2.3 billion. The number of Canadian households that obtained basic television service from a cable company grew by 2.2 percent to 8.1 million subscribers. In just four years, cable television revenues and profits have climbed 86 percent and 100 percent, respectively.
During the past two years, total revenues for DTH satellite distribution and MDS companies increased by 7 percent to $2.2 billion. The number of DTH and MDS subscribers to basic service was 2.3 percent higher, rising to 2.8 million. In the past four years, DTH and MDS revenues and profits have climbed 52 percent and 82 percent, respectively.
How Popular is the Internet in Canada?
Despite the clear revenue growth in the Canadian broadcasting industry, Woodrooffe makes a good point when bringing up the most popular screen in consumers’ lives: the computer.
“The Internet is the new way to shop,” Woodrooffe says. “The TV screen is the old way to shop.”
Ian French, president of Northern Lights Direct Response in Toronto, agrees. “The Internet is the best tool direct response marketers have right now. Everybody is moving toward online. People watch television, shop online and can virtually do anything online. Smart marketers should be capitalizing on Internet growth,” French says.
If you think that DTH and MDS are growing quickly in Canada, Internet growth figures in Canada easily challenge those.
According to the 2009 Canadian Internet Use Survey, sponsored by Industry Canada, 80 percent of Canadians 16 and older, or 21.7 million people, used the Internet for personal reasons, up from 73 percent in 2007 when the survey was last conducted. Rates of Internet use increased in every province during this two-year period.
Ninety-six percent of Internet users 16 or older reported going online from home during 2009, while 42 percent said they used it at work, 21 percent at schools and 15 percent at libraries.
Among those who used the Internet from home, 75 percent went online every day during a typical month, up from 68 percent in 2007. In 2009, 55 percent were online for five hours or more during a typical week, up from 49 percent in 2007.
E-mail was still the most common online activity for home users in 2009. Online transactions were more prominent in 2009, with 50 percent of home users reporting ordering goods or services via the Internet, and 67 percent going online for electronic banking or bill payment.
In 2009, 31 percent of home users reported downloading or watching TV or movies, while 27 percent reported contributing content by writing blogs, posting photographs or joining discussion groups.
Rates for these activities varied with characteristics such as age and sex. For instance, 53 percent of home users younger than 30 went online to download or watch TV or movies, while 45 percent of this age group reported contributing content.
Canadians who had used the Internet for five or more years were less likely to be concerned about online security than those with fewer years of experience online. Of those who reported using the Internet for less than five years, 55 percent were very concerned about online credit card use and 50 percent about banking over the Internet. These proportions dropped to 42 percent and 37 percent, respectively, for those reporting five or more years of Internet use.
“The television is becoming unnecessary, as more and more people are turning to online entertainment,” French says. “Considering you can watch television shows and movies for free on your computer, people are moving away from traditional cable and satellite. Direct response needs to evolve with the times — not by abandoning traditional infomercials and television spots, but by looking to the horizon to see what’s next. And the Internet is what’s next.”
Looking Beyond the Computer, TV
Baldassi believes that looking to other forms of media, beyond the television and the Internet, is also key in Canada.
“Media rates have been creeping up, but other rates such as radio and print have been coming way off,” he says. “Newspapers, for instance, are in serious trouble, and if you negotiate hard, it is not unreasonable to secure great deals at 80 percent off rate card.”
Baldassi further explains that by taking initiative in the direct-to-consumer market, and by building out new channels of reaching the consumer, marketers can take a lot of concern over media rates out of the equation.
“Media will always have its place on the front end of a good direct response campaign, but it is a diminishing resource and there are far more lucrative channels of revenue capture that we are interested in,” Baldassi contends. “Our aim is to be in all distribution channels — some of those we will create, and other times we’ll have to let the market lead us. The key is to stay open to opportunities, have a fast pair of legs and keep evolving.”
“To succeed and thrive in DR in Canada or the U.S., you have to stay open to change,” Baldassi adds. “It’s a fast-flowing, ever-evolving marketplace and if you get locked into tunnel vision, you will miss the boat. We’ve broadened our DRTV division to encompass more than 30 direct-to-consumer channels that include media, print, radio, social networking, E-mail marketing, affiliate and banner ads, just to name a few.”
Canada’s Multicultural Population
While Canada is geographically the second-largest country in the world, it is one of the least densely populated.
“Canada has a population of 33 million, which is roughly the same population as California,” French says.
Despite Canada’s small population for its size, Canada is vastly multicultural. Legally, all products are required to have both a French and English label due to Canada’s large French-speaking population. Six-and-a-half million people cite French as their native tongue in Canada. While the majority of French speakers live in Quebec, more than a million native French speakers live in other provinces of Canada.
“Canada is particularly multicultural in two of its largest metropolitan cities, Vancouver on the West Coast and Toronto in the east. Combined, these cities are home to roughly 25 percent of the Canadian population and house a couple hundred different cultures,” Woodrooffe says.
Generally, people from more than 150 different countries move to Canada every year, and it is important to relate to all of Canada’s population to be successful, according to French.
This means finding a way to relate to the individual cultures that reside within Canada, Woodrooffe adds.
“In the United States, you need to relate to the masses. In Canada, it’s important to take a more individualized approach. If you go to Interwood’s Web site, you will see that we have product labels in French, English and Chinese as a way to make our products marketable to the majority of Canadian consumers,” Woodrooffe says.