RedFrog Expands Turf With Sponsored Mailings
RedFrog, based in Oklahoma City and founded in December, asks investors to cover about half the cost of marketing "dial-around" long-distance service to telephone service regions. With dial-around, customers input a seven-digit number, such as Telecom*USA's 10-10-220, before dialing a telephone number in order to bypass their primary long-distance provider and possibly benefit from a cheaper rate.
Investors sponsor a territory, defined by the local exchange carrier's geographic service divisions, for $4,800. The money funds a co-op mail insert, through Val-Pak or another provider, to 30,000 consumers, plus a radio broadcast and billboard campaign preceding the mailing.
The mailer offers domestic long distance for an upfront fee of 35 cents per call plus 4.9 cents per minute for the first 120 minutes and 3.9 cents after that. International rates are also touted. The mailer also includes a sticker that consumers can place on their phones as a reminder of RedFrog's dial-around code, 101-21-21.
Sponsors split the profit 70-30 with RedFrog until they recoup their initial investment. Thereafter profit is split evenly, though sponsors must help fund a new mailing to the territory each year or risk losing it to another sponsor.
Response is tracked by monitoring how many people use RedFrog's dial-around code. RedFrog follows the mailing with telemarketing calls to customers offering to make RedFrog their primary long-distance provider for the same rate offered in the mailing, generating a close rate of about 27 percent.
Long-distance carriers typically spend about 15 percent of their gross billings on marketing, and RedFrog currently spends 15 percent to 18 percent, he said.
"I'm hitting the numbers I need to hit," said RedFrog founder Kurt Spindle, who has owned several telecommunications firms, founding companies and selling them to larger providers.
His last venture took him to Vietnam, where he learned that the market for international long distance was ripe. Then the dot-com downfall came, and Spindle found that his old system of creating and selling businesses no longer was feasible. He created RedFrog to generate revenue for the long haul.
"I'm not planning on selling this," he said. "There's nobody to sell it to."
His experience overseas led him to establish carrier networks in Vietnam and Cuba, and he plans to expand his network to Egypt soon. Because he owns the networks, he can offer long distance to these countries at affordable rates, and he mentions these rates in mailers to areas that have a high population hailing from these nations.
RedFrog now serves customers in Florida, where there are large ethnic Cuban populations; California, with its Vietnamese-American population; and Texas, where its customers are mostly domestic. It also serves Oklahoma and hopes its expansion to Egypt will increase its business there, given the high population of consumers of Arab descent who attend the petroleum engineering school at the University of Oklahoma.
RedFrog has about 15 investors who have sponsored mailings to 22 regions.
One such investor was Andrew Jacoby, a private investor and marketing consultant from Philadelphia. Jacoby, who admitted his stocks fared poorly in 2001, was looking for a new, more reliable way to invest his money.
Jacoby learned about RedFrog and was intrigued by the idea of investing in a marketing campaign rather than a company. Of 2,500 territories, Jacoby sponsored a campaign to the North Houston area. Its households matched RedFrog's target demographic of consumers living in single-family homes with incomes of $30,000 to $50,000.
"I like the fact that, basically, I plug in my money and the mail piece does the selling for me," he said. "It's private investors investing in marketing."
Jacoby's roughly 30,000 mail pieces hit consumers in mid-August. The mailers generated a response rate of 1.6 percent, slightly lower than his goal of 1.7 percent. But Jacoby said he is satisfied and is receiving profit of $800 to $900 monthly. He expects to make back the money he invested with six months of the initial mailing and will re-invest in another territory.
"That's great," Jacoby said. "We have a lot of investors on the wrong side of the ledger."