Response Magazine's DRTV Best Practices Primer Part 3 - A Trilogy of Choices
1 Mar, 2003 By: Rick Petry ResponseWhich DRTV model fits your plan?
Direct response television (DRTV) is capable of accomplishing multiple tasks. While it is most frequently thought of as a net for capturing direct-to-consumer sales, it can also leverage its longer lengths of time to generate awareness, to educate consumers about product benefits and features and to pull buyers through other channels, such as brick-and-mortar retail.
Being clear about a DRTV campaign's primary objective will inform every decision in the process and ensure the campaign is accurately evaluated. Clarity about a campaign's chief goal creates alignment between marketers and their vendors.
While this may seem obvious, frequently these objectives change course during the campaign development process after a path has already been traveled. This can lead to cost overruns and time delays. Develop an understanding of the three primary types of DRTV campaigns and what the limiting factors are that may determine your path. Check to make sure that the end result you desire has a reasonable probability for success prior to making the DRTV leap.
Direct-to-Consumer: The Pure Play
Direct to consumer (D2C) sales eliminate the middleman and allow companies to reap better margins in a competitive world. This idea is what lures many marketers to DRTV. Successful examples include Carleton Sheets, the Q-Ray bracelet and Proactiv Solution. In this model, the product is sold exclusively through television (and, increasingly, through an accompanying Web site). There is no retail distribution, although the DRTV campaign is frequently used to validate the market for a new product prior to its launch through multiple channels. The following attributes will help improve your D2C product's chances for success:
- 1. Solves a common problem
- 2. Possesses broad appeal
- 3. Easy to demonstrate
- 4. Benefits are impressive and emotionally involving
- 5. The unique selling proposition (USP) is truly unique
Products that fall into this category typically have a cost-of-goods-sold (COGS) equivalent of 20-25 percent of the retail price. If a product is selling for $100, its COGS should be $20 to $25. This type of margin is required to cover all ancillary costs associated with a campaign.
A scan of the most successful direct-to-consumer programs indicates categories with low COGS, such as diet and fitness products, beauty aids, and intellectual properties such as self-help and business opportunities, consistently populate the sales and frequency charts.
Success on a direct-to-consumer basis requires asking some key questions, including: Is the product a pure D2C play with no other sales channel? Is the product a true innovation, or at least perceived as one? Are its benefits motivating enough to elicit a response? Is its appeal broad enough to attract consumers? Are the margins correct to make it on a direct basis?
DRTV-Retail Hybrid: Self-Liquidating Advertising?
Under this model, the product is promoted on television, but is available at the same time through other channels, including brick-and-mortar retail, catalog and multiple Web sites. The Euro-Pro Stick Shark and Char-Broil's Grill2Go have used this model effectively. As a D2C product matures and begins to diversify distribution, it will often continue running via DRTV as a means of educating consumers.
For example, you may have wondered how George Foreman Grills continue to sell via infomercials when you see the product in department stores. The reality is that as retail distribution becomes more pervasive, infomercial sales will wane. One tactic used to combat this is to differentiate the TV offer to create a greater perceived value. While this may be problematic with some retailers, it is no different than the different SKUs a marketer may create for a Home Depot or a Costco to give each store a unique product bundle.
At the same time, there are many products possessing broad distribution that have struggled to establish a consumer base. They will also turn to this model in an attempt to ignite sales. As media has become more fragmented amid an anemic economy, brand advertisers have become less enamored with traditional 30-second ads and their ability to drive sales goals.
On top of that, the Nielsen ratings system that has been used to measure American viewing habits for decades has come under increasing scrutiny from both broadcasters and advertisers who question its accuracy. This makes DRTV an attractive alternative. Direct sales hedge risk, enable the marketer to at least recoup some of its media cost and deliver retail consumers primed to buy.
The consumer electronics category is a case in point. New technologies, such as personal video recorders, games and computer systems, all struggle to achieve a base of consumers, which is fundamental to long-term survival. But a 30-second spot does not allow enough time to articulate the consumer benefits of these technologies. Furthermore, the retail environment leaves a confused public to figure out the best product among a sea of boxes that sit on shelves.
In this case, the manufacturer does not have the margins to sell solely on a D2C basis because their products are either a low-margin platform designed to sell software (think game systems) or the technology quickly morphs into a commodity (think DVD players). Therefore, the purpose of this type of DRTV is to recoup part of the advertising cost via some direct sales, but the real impact is realized at retail where consumers arrive on the floor ready to buy.
Hence, a marketer that recoups 50 cents on the media dollar in direct sales can turn a $5 million campaign into a $10 million one. Fears that the retail channel will be threatened by the direct sales channel can be allayed by the fact that for every product sold direct, the retailer will typically see multiples of three to ten-fold. The combined sales generated via direct and retail can be tied directly back to the campaign by employing tracking mechanisms, such as coupons or other incentives.
In addition, technologies that require a subscription (such as TiVo) can enable a marketer to track leads and sales through all channels back to individual households, thus enabling a marketer to determine the exact impact of their DRTV effort - a veritable Holy Grail of advertising if ever there was one.
Marketers considering this model must decide if their market size is sufficient enough to benefit from the broadness of DRTV, if they have sufficient distribution of the product at retail and if the product's innovation is compelling enough to attract some direct sales.
Lead Generation: Doing the Two-Step
The objective of a lead-generation campaign is to get consumers to raise their hands. Giving consumers an incentive to call a toll-free number or log on to a Web site to receive additional information that can assist them in making a purchase decision most often does this. Bowflex, Geico Insurance and Mercedes-Benz have all had success with this model.
Step one is identifying these consumers and getting that information into their hands. This may be a brochure, videotape special offer or consultation. Step two is closing the sale. For pure D2C plays requiring this second step, the marketer will often use outbound telemarketing to follow up on the prospect and actually close the sale.
Outbound telemarketing is proactive and does not rely on the consumer to conclude they want the product. In other instances, the campaign will rely on a consumer to manifest further interest at retail or on the Web, resulting in a sale.
One of the challenges of the latter tactic is tying such sales back to the DRTV effort. Creating a mechanism that encourages purchasers to identify themselves to the selling company can aid a marketer in relating the leads generated from DRTV.
Lead-generation campaigns are most effective for considered purchases or services that possess the following characteristics:
- 1. More complex in nature
- 2. More expensive
- 3. Require a decision from multiple household members
- 4. Depend on more information exchange between prospect and marketer
- 5. Requires first-hand experience by the consumer to make a final decision
Lead generation also allows marketers to learn more about consumers. Since you are giving them something, it gives you the opportunity to create a basis for fair exchange.
The benchmark by which this model is evaluated is called cost-per-inquiry (CPI), which is the number of respondents divided into the media cost. Over time, a marketer should understand what percentage of inquiries actually converts into a sale and be able to evaluate overall return on investment for such a program.
