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Direct Response Marketing

Editorial Advisors Forum: Surviving the Great Recession

12 Jan, 2010 By: Thomas Haire Response


Members of Response’s Editorial Advisory Board clash over how the industry has dealt with the economic tumult of the past 16 months.

The U.S. — and much of the world’s — economy spent 2009 in one of the most dire economic situations since the 1930s. Beginning with the banking crisis in late 2008 and continuing through today’s troubled unemployment numbers, the Great Recession has also affected the entire advertising business, including providing the direct response industry with the greatest test of its “recession-proof” image ever.

“This recession is markedly different from other economic downturns in many ways — its severity, its length and its compounded impact on consumers and businesses,” says Ken Murray, chief marketing officer at financial services leader J.G. Wentworth. “In the DR world, most of us have been hampered by weakened consumer buying power. This has been especially felt by mid-market product distributors, as well as financial services companies that rely on the capital markets for funding. But rather than cry in our soup, many of us are actively figuring out new creative ways of inspiring consumers to fix the front end, as well as financing the back end. As always, necessity is the mother of invention. Innovation will be the key to success in 2010."

Still, many DR marketers were able to buck the downward spiral and have success. “Slow economic times can be good times for DRTV marketers,” says Richard Stacey, owner of Northern Response Intl. Ltd., a Toronto-based DR company. “Media rates often come down with less competition for airtime. At the same time, HUT (households utilizing television) levels increase with more people staying home. Many companies in the DR industry had a banner year. Hard times can help to separate the weak players from the strong and, in the long run, leave a healthier and stronger industry.”

Bob Yallen, leader of Inter/Media Advertising, a full-service agency in Encino, Calif., agrees. “Direct response, from a media sales perspective, has done very well during the past year, especially DRTV,” he says. “Demand for inventory is up versus year-ago levels. More advertisers have turned to DRTV to provide more accountability to their advertising investment. The Great Recession may not yet be over, but direct response in general — and DRTV in particular — have had a solid 2009 and should do even better in 2010.”

At the same time, overseas marketers are facing troubled times as well — but seeking more opportunities to jump on the DR bandwagon, especially in places like the United Kingdom, where Digby Orsmond runs London-based ARM Direct Ltd. “We’d like to see more American infomercial advertisers over here, as long-form airtime rates are lower than they’ve ever been, and this trend is likely to continue well into 2010,” he says. “Of the 458 TV stations in the U.K. and Ireland, there are now 215 that broadcast three-hour teleshopping windows every day.”

How has the recession helped and troubled the direct response industry? What products have done well in tough times and what products will be leaders as the economy bounces back? For answers to those questions and more, Response has once again turned to its Editorial Advisory Board (EAB) for this, the first quarterly edition of the 2010 Editorial Advisors Forum.

With leading indicators showing the Great Recession receding in many areas, do you believe that the same is true for the direct response space?
Doug Garnett, Atomic Direct: The recession’s impact seems to be different for short- and long-form. With the recession diminishing, we expect an increase in new long-form shows combined with some possible threat to short-form market results. For the most part, short-form has done well during the recession. So, I’m not certain there’s a lot of new growth possible. What short-form providers will see is growth in their retail impact as consumers return in stronger numbers to the retail store. Short-form faces one danger: as general ad spending increases, inventory may become harder to get and media prices will increase more than returning consumer spending will offset. By contrast, long-form has been good to those who were wise enough to stay on-air or to introduce new shows during the recession. But overall, the long-form business has suffered. We’ve seen fewer new shows introduced during the past year. And some shows have been forced to reduce their spending (fortunately, not our clients). As a result, networks didn’t open up the time periods one would typically expect during a general advertising slow-down — because there simply hasn’t been the demand as new show creation slowed down.

Tim Hawthorne, Hawthorne DirectTim Hawthorne, Hawthorne Direct: Yes, we’re seeing the beginnings of some increase in response rates. The strongest indicator, though, is the rising cost of media, with avails tightening and the space becoming more competitive.

 

 

Fern Lee, Factor Nutrition LabsFern Lee, Factor Nutrition Labs: All of the leading indicators have told us that advertising as a whole is down. That being said, DR is the only part of the equation that is up. The rationale includes spots like Cash4Gold, Highest Price for Gold and Cash Your Gold Now all in the top 20 of the IMS (Infomercial Monitoring Service) report, which all were in response to the “Great Recession” — helping the consumer make ends meet.

Ken Murray, J.G. WentworthKen Murray, J.G. Wentworth: Yes, for the most part. As the consumer gains more confidence and buying power is restored, DR will benefit. But at the same time, the recession-worn consumer is emerging as a different, more careful evaluator of products and services. I wouldn’t expect response rates to return to previous levels, so we as marketers will need to be smarter regarding media buys, offers and creative to ensure that conversion rates improve.

Digby Orsmond, ARM Direct LtdDigby Orsmond, ARM Direct Ltd.: The United Kingdom’s economy is still mired in deep recession and financial indexes prove the economy here is performing worse than France, Germany or Italy. This is not helped by a weak government that is likely to be voted out at the next general election in May. While most direct response advertisers are hanging on, it is only the debt and accident compensation sectors that are doing substantially better.

Ronald Pruett, Mercury MediaRonald Pruett, Mercury Media: I do, although in specific areas. The current recession has demonstrated to me that long-form DR often acts in a counter-cyclical manner, while short-form DR has followed the prevailing economic situation downward. Consumers are staying home, watching television and ordering on the phone or online simply because it’s more convenient and cheaper than going out. Much of the short-form spend is driven by the fact that DR is increasingly led by corporate advertisers who have been tightening the belt in 2009. The outlook for 2010 is improving.

Greg Sarnow, Direct Response Academy:Greg Sarnow, Direct Response Academy: The direct response space is both suffering because of unemployment and hopeful because a majority (not a vast majority) of media outlets have had to lower media costs to keep marketers profitable. As we look at first-quarter 2010, a quarter which is traditionally strong in direct response, marketers will continue to be surprised at the inconsistent media performance. The strongest shows will do very well but many solid “singles” will not perform as well. Long-form and short-form will be challenged, but short-form more so because general ad budgets will increase as we crawl out of the Great Recession. That will lower the supply of available short-form media, resulting in higher media prices plus lower response rates. Products and services that focus on consumer savings and extending product life, rather than new purchases, have always performed well in uncertain economic periods. Expect the same for the next nine-to-12 months.

Richard Stacey, Northern Response Intl. Ltd.: To some extent, the impact of the recession depends on the specific nature of your business and the type of products you sell. Some DRTV companies have had a record year while others have been struggling. If you’re selling high-priced goods or have lengthy multi-pay programs, it may be more challenging than selling a $19.95 item with a full retail rollout strategy. Signs that the recession is receding may also mean increased advertising rates (if more companies start advertising again) and less people watching TV (if they have more money to go out again). Both of these could impact DRTV less positively.

Where was the biggest negative effect felt by the direct response market during the economic downturn? Why do you think this was the case?
Bob Yallen, Inter/Media Advertising: One key direct effect that DRTV marketers experienced was lower ROI based upon diminishing consumer response rates.

Garnett: I think we saw a dramatic reduction in brand entry into the DR market. In part, as their budgets were cut, many brand advertisers were wooed by the siren song of social media and the Web. There has been an amazing collusion of information sources, agencies and technologists making outrageous and often false claims about effectiveness of these media.

Hawthorne: Clients seeing response rates and advertising media budgets drop. In some product categories and for higher price points, response downturns were particularly significant as consumers protected their pocketbooks.

Murray: I think everyone was pinched. As a financial services advertiser, we harnessed our spend in media purchase as well as production in 2009. There has been a significant trickle-down effect as advertisers have right-sized their budgets to fit the realities of difficult times. Fortunately, we are seeing a comeback in all areas.

Orsmond: All sectors of the direct response market have been hit by the severe downturn in U.K. consumer spending, and this has been made worse by the property bubble bursting. The recession (in Britain) is the worst since 1931, and confidence is at an all-time low with disposable income being further affected by the current U.K. government talking about increasing taxes for the lower to middle income groups. Media agencies and production companies have all been hit as clients reduce their advertising spend and many are surviving only by downsizing or carving off unprofitable business. It was believed that Britain would pull out of the recession by the end of 2009, but independent research now suggests any green shoots are likely to be seen only by the end of 2011.

Pruett: The entire value chain of our industry has been exposed during the down turn — from script writing to media buying — as many advertisers see our industry as fragmented and undifferentiated. It’s hard for advertisers to discern between commoditized offerings. As an industry, we’ll need to continue to differentiate in the marketplace, improve our respective margins, and increasingly leverage the one driver that will take this “negative effect” and turn it positive — technology.

Sarnow: In spite of media rates falling faster than any other time in the past five years, results still did poorly in November. Add on that general ad buyers increased their fourth-quarter budgets, and this puts very heavy pressure on DR results. When consumers are holding onto their purse strings, all marketing sectors suffer. This is currently the case with DRTV purchases. Cost-per-call is higher and average revenue-per-order has dropped in the past six months.

Stacey: We were busier in all areas. However, there were some slow periods felt by many smaller players or specialized service providers — especially new entrants to the DRTV industry that may not have the infrastructure or financial base to survive any downturn.

Many experts have told us that the traditional $19.99 TV product has suffered much less during the economic meltdown than higher-priced products. If so, why? If not, why were certain high-tag products still able to succeed?

Garnett: This is more the result of changes to budgets driven by advertisers’ perception of the market than by actual consumer spending in the recession. During the recession, companies have been much less willing to invest the bigger money into the half hours it takes to drive higher-priced products. Sadly for those companies, the companies that invested the money have done well — even at higher price points. Our infomercial for Kreg Tool (a $100 product) tested as the worst recession news hit in September 2008 and has remained strong ever since. In some cases for higher-priced products, many consumers perceive these higher priced products as “luxury” (e.g. some high-end fitness gear). Thus, they saw the typical reduced sales that every luxury item sees during a recession.

Hawthorne: $19.99 has been the magic price for short-form products for two decades now. With inflation, 20 bucks has bargain-basement appeal, keeping these product sales healthy. Higher price-point product sales will rebound as consumer confidence claws back.

Murray: It makes sense that both categories would survive in a downturn given pricing sensitivities and audience segmentation. Everyone felt the pain of the recession, but most everyone remained employed (90 percent had work if they wanted it). Much of the “high end” continued to have buying power, as they weren’t dependent on credit- and home equity-fueled money. “Low-end” product placement continues to have broad appeal and is something that is reachable for the masses.

Orsmond: In our experience, the higher priced products are selling better on the Internet, however TV viewers are still attracted to what they perceive as a bargain. The $19.99 TV product offered during a well made DRTV spot has always sold well in the U.K., and this was definitely our experience during the last recession here in the mid-1990s.

Pruett: It’s been easier and cheaper to stay at home and purchase TV products, both on the phone and online. Mobile telephony will continue to increase too, and the mass-marketed products will always have their place in the shopping cart. I believe these products are counter-cyclical. In my mind, the resurgence of higher-priced products being purchased is a societal backlash against the poor economy and sense that consumers have a lack of control over their lives today. They want to feel good, improve their lives in measurable ways that they can control, and move toward environmentally friendly purchases. This movement will continue for a while.

Sarnow: Even $19.99 price points have suffered. Because media budgets were lower the entire fourth quarter, retail sales of $19.99 DRTV products have not been nearly as strong as last year. Irresistible offers and inexpensive products that fulfill a need are still strong but profit margins are lower, sales are lower and downstream revenue — whether retail or continuity driven — was the fourth-quarter reality! Categorizing products into non-discretionary income purchases and discretionary income purchases is one of a few key characteristics of price-point statistics.

Stacey: Good marketers can survive in any economic environment. The survivors of high-tag products have offered good quality products that people wanted, sold them in an effective and compelling way through multiple channels (TV and online), provided value for money with a convenient well-managed payment plan, and added upsells to boost average order size.

Yallen: From a short-form perspective, hard price point offers have been in steady decline in effective ROI for the past 10 years. This is mostly due to the relatively higher CPMs obtained for short-form media as compared to a decade ago. Higher CPMs, the challenge of obtaining longer commercial lengths (60- and 120-second units), more DR competition and lower response rates has inspired many savvy marketers to shift to a lead-generation model, which is less price sensitive, and thrives on shorter commercial executions.

How did the recession help direct response marketing? Did the medium gain an even stronger foothold among traditional branders now looking for even greater measurability in tough times? Or were there other ways DR gained strength during this period?
Garnett: Typically, DR does well in a recession, and it should have gained more of a foothold. But it didn’t do as well as we would typically expect. The social media and online charlatans have been the big winners in the recession. They offered magical results without spending, which was a tremendously powerful drug to people who had just had their budgets cut. Unfortunately, the lead in this effort wasn’t from the DR business, but from traditional agencies. That means that these agencies overplayed the potential of an ROI-based medium but, as we’ve seen time and again, didn’t really leverage that potential because they simply don’t know the math or have the agency discipline for running campaigns in ROI-based media. And the fundamental shift was a poor choice in most cases. These media have a great place in the advertising mix. But in a few years, companies are going to begin regretting that they let themselves become so distracted for so little total impact on their business. At a large scale, the ROI simply isn’t there when you’re trying to drive a major business. And they are a tremendous distraction of company resources away from what matters.

Hawthorne: The significant drop in media rates in 2009 was the recession’s greatest benefit for our industry. It literally allowed many companies to survive the harsh economic climate. The recession, plus CMOs looking for greater accountability in all their advertising, also boosted DRTV’s profile among brands.

Murray: I’m not sure the recession helped DR, per se. Rather, I think these difficult times have forced advertisers to view their marketing mix much differently and place much greater emphasis on measurable results that DR provides. We will continue to see more of this migration (from traditional branded work to “direct branding”), but will also see more cross-channel integration from TV to online sources that can be quantified.

Orsmond: The U.K. recession means that specialist DRTV media agencies are able to negotiate better airtime rates on a wider selection of TV channels, and this has encouraged clients to take advantage and run with more products or services. DRTV marketers with deep pockets have been able to generate greater sales and drive more viewers to their Web sites than ever before. This has proven even better if the same advertiser runs infomercials, as the airtime rates for long-form in the U.K. are probably at their lowest ever.

Pruett: It absolutely helped the industry, and this is largely driven by corporate advertisers now looking for measurable media. This is a trend and will continue to accelerate as the economy continues in the doldrums and an “Internet mindset” permeates the advertising crowd. From Twitter to iTunes, consumers and therefore marketers want it now — and often in real time. This holds true for both the product purchased and the data and analytics around the purchase. For the industry, this will require the expansion of technology and data retrieval and analysis. It’s not by chance that Google is now appearing at industry events.

Sarnow: Accountability has become the Holy Grail to the entire advertising industry during the Great Recession. DRTV and Web media outlets enjoy the accountability because of the transactional component offered in direct response advertising. With every marketer trying to squeeze better results from their advertising budgets, direct response’s reputation has been enhanced. For years, marketers have been telling their ad agencies to try direct response. Now, in a reversal, ad agencies are recommending direct response to their clients.

Stacey: DRTV helped absorb a lot of the excess media time created by the recession. The industry gained respect with media outlets as a dependable source of revenue in tough times; with branded advertisers as a marketing tool that endures in tough times; and with the public as an increasingly popular way to buy products.

Yallen: In many respects, the recession has not helped the traditional DRTV marketer, because the media — in order to satisfy general advertisers with audience guarantees and more competitive rates — have utilized a significant amount of media inventory that was traditionally allocated to the DR channel. Additionally, more brands have started to use a DR model either to buy more efficiently or to adopt a direct channel model. In either event, these advertisers have been a significant contributor to rates, in many instances, going out of control. The marketers that have gained ground are the national brands that have now used a DR model as at least part of their media strategies, and will now — in future media plans — execute at least a portion of it through the efficiency and accountability of DR. Many advertisers switched from soft “image/branding advertising” to a more direct approach using the accountability of direct response combined with the greater media efficiency to stretch advertising budgets.

What verticals in the DR space survived and thrived during the recession?
Garnett: Our tool and hardware clients did well. When new construction spending dropped, consumers shifted that money into home improvements.

Hawthorne: In long-form, intellectual property (business opportunities and learning) have been strong. Higher-priced fitness, health and beauty have struggled.

Lee: The biggest vertical boost to the DRTV space during the recession was in all of the gold buyback programs. When the consumer is strapped for cash, they are looking for what they can easily sell for the quickest buck to get them back on their feet — old jewelry and coins that are just sitting in a drawer.

Orsmond: In the U.K., most health-and-fitness products are doing well as consumers cancel their gym subscriptions and instead exercise at home. Any “feel-good” product seems to be selling well, and this is probably why QVC and the other live home shopping channels here have survived and thrived, as they have been able to make changes to their programming away from high-priced goods to those that promise to “save you money” — for example DIY (do-it-yourself). Another vertical sector that’s doing well has been educational products for kids, such as Muzzy, which is a BBC-approved language course for young children. This innovative DVD set continues to sell well across several European countries as parents choose to spend their hard-earned money more wisely. Another vertical market that only started here in mid-2009 was the “cash for gold” business from the USA, and their spots are now omnipresent on U.K. TV screens. The growth in media spend by these companies has been rapid, and there are more than 13 equivalent DRTV spots all touting basically the same cash for gold offering. It is predicted by many pundits that this will be a fast burn sector, as not all the new U.K. companies now scrambling to catch up have the big media budgets of American spenders such as Cash4Gold, which is probably now the dominant player over here — impressive when you consider this has been achieved from a standing start in just six months!

Pruett: Specific products focused on personal finance — debt settlement and gold purchases — performed, but so did health-and-beauty and basic consumer products. Still, underlying these vertical improvements were bigger trends as the healthcare numbers were helped by the entire senior set — Medicare recipients for instance — who are looking for home delivery of medical supplies and home products. This isn’t just economy driven. It’s a lifestyle trend that is growing as our population ages. There is more to come in this sector for DRTV.

Sarnow: It is hard to believe that many areas thrived except categories that extended the life of products consumers already owned (tool kits) and services that saved or put money into consumers’ pockets (Cash4Gold, mortgage modifications, etc.)

Stacey: It’s hard to say, but we have found skincare and information to be increasingly challenging to make work. Fitness and housewares seemed to be steady areas.

Yallen: From a short-form perspective, verticals that can be promoted in shorter media executions, and are either recession-proof or thrive in an economic downturn — specifically lead-gen advertisers using 15-, 30- and 60-second units. These categories include tax resolution, debt relief, education, business opportunities, monetary exchange models and mass torts. Media verticals — non-traditional areas, such as unwired media networks — have thrived because advertisers need an alternative way to clear schedules with low CPMs and a national footprint.

Which verticals, among those that struggled, will be the leaders when it comes to recovery, and why?
Garnett: I don’t think that the vertical market will drive the return (although we can hope that we see a reduction in “get-rich-quick” schemes and mortgage fraud). The recovery will favor the people with right products in place along with clear, innovative messages. This is much more important than the category they’re in. DRTV’s impact is driven by the appearance of product innovation. Anyone who has a great product with a great message should do quite well — with the exceptions noted above.

Hawthorne: Fitness, health and beauty will bounce back with surging consumer confidence, as people feel better about investing in themselves vs. saving for a rainy day.

Orsmond: In the U.K., the strict broadcast regulations prevent us from being able to offer any weight-loss, vitamin supplements or quasi-health devices. This means we are still restricted to the mainly traditional DRTV products, such as general health-and-fitness, DIY, kitchen gadgets, music and DVDs. So who will be the new leaders when it comes to the recovery is difficult to predict.

Pruett: Like the stock market, timing is challenging in DR, but it appears specific sectors will rebound in the medium term as the economy improves and sector restructuring takes hold. Examples of these areas are automotive (which is shifting more money to DR), travel and tourism, and restaurants.

Stacey: There is no telling what products people will be interested in at any future point in time until the phone starts ringing for them.

Yallen: The financial sector, and specifically the investment category, is a sector that has done very poorly for obvious reasons, but that is poised to do well at the forefront of a true economic recovery where investors — who have been on the sidelines now — will consider moving from a extremely less risk-averse liquid portfolio to a higher yield, longer range, more risk investment strategy.
 


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