One of the quiet success stories over the past few years in the direct response television industry has been the marketing of technology-related products. Although traditional direct response product categories like kitchen and household products, diet, fitness and business opportunity still tend to dominate the direct response media landscape, marketers selling computers, software, Web-access service and devices and consumer electronics also are now a fixture on the charts.
Philips Magnavox was the first major electronics marketer to use infomercials and short-form direct response television starting in the mid-90’s with a variety of campaigns marketing everything from the now-defunct Cdi to introducing Digital Video Disc via infomercials. They continue to heavily use the format to market products like Web TV and Tivo. Consumer electronics giants like Sony and Toshiba also have experimented with the format as have AT&T, Hewlett-Packard and America Online. And new consumer electronics manufacturers like i-Opener (an inexpensive Web-surfing device) use infomercials to complement their large traditional advertising campaign. But the newest, biggest and most successful trend has been the direct sales of computer systems via direct response television. Companies like The Video Computer Store, Reliant and Value America are all running successful infomercials with major media budgets, and Compaq, Gateway and Dell have large lead generation campaigns running via short form.
Successful marketers that use direct response television to sell technology-related products typically work from three different kinds of financial models: direct sales, retail impact and/or continuity. Eventually, all financial models lead to the same end objective — accountable advertising budgets and a target cost-per-order, but depending on their retail models, they may be forced to take complicated routes to determine their CPO. Here is a snapshot of the different financial models:
Direct sales — The sales models for marketers like Value America, Reliant and The Computer Store are primarily based on a traditional infomercial CPO media ratios that can be quickly determined within hours of airings of the infomercial. Because these companies can sell computers profitably via traditional direct response television, it is a lesson to the industry. As most experienced direct marketers will tell you, a direct response product should have a profit margin of 60 percent or more. In contrast, computer packages are typically less that 20 percent. Conventional direct response wisdom also says that products priced over $500 will not sell via a one-step sale. In this case, conventional wisdom is wrong.
Computer infomercials break the rules of direct response for several reasons. First of all, there is more widespread consumer demand for computer systems than almost any product ever offered via an infomercial. Secondly, consumers are starved for meaningful data and salesmanship for this complicated product, and infomercials fill this gap. Finally, thanks to demand and the high price point, computer infomercials can achieve very high media ratios – 10:1 and higher – in an industry where a 3:1 media ratio is considered a big success. So despite the dismal profit margins, computer infomercials can still run very successfully while demand is high and the high media ratios can be maintained.
Retail impact — Consumer electronics retailers have a host of problems that infomercials help alleviate. There is great parity at retail these days on most electronic products. Consumers are less concerned about the brand of their new DVD player or television than they are about the price so manufacturers are forced to work with low profit margins and battle by price point. To compound problems, retail salespeople are typically not well-educated about products and not particularly faithful to any brand unless they are receiving a manufacturer’s spiff. This leads to consumer confusion and a difficult retail environment, especially in this age of complicated new products being introduced almost daily.
A few smart manufacturers are solving this problem with infomercials. The length of an infomercial allows adequate time to explain products, and consumers that don’t buy from television go to the retail channel educated and with a particular brand in mind to purchase.
However, this type of marketing involves a more complicated media analysis to determine success. While consumer electronics manufacturers suffer from the same dismal profit margins as computer marketers, they can’t count on the same great media ratios. A good media ratio for most products is between a 1:1 and a 2:1.
Continuity — The third (and least used) financial model is for continuity products. This financial model is based on the lifetime valuation estimate of consumers that subscribe to a monthly fee service. Philips Magnavox certainly figures the yearly revenue of every Web TV subscriber they sell as an added benefit to selling the Web TV hardware. With the coming of various broadband and complicated Web services available to monthly subscribers, it will become more common to use direct response television to reach them.
Thanks to it’s length, information-rich format, sales environment and trackable media platform, direct response television is ideal for a wide variety of complicated technology products, and I suspect, we will see it more widely used in the future.
