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Outlook: Higher Rates, Election Will Keep DRTV World Guessing

As the rising economic tide lifts all boats, expect the direct response television industry to suffer a bit of motion sickness. Without doubt, the Summer Olympics and a presidential election playing out on TV should make this year difficult for direct marketers because of even greater restraints on airtime rates and inventory.

“I'm alarmed that a stronger economy will drive up ad rates this year or will reduce available [run of station] inventory so critical for DRTV survival,” said Thomas Connerty, vice president of marketing at The Nautilus Group, Vancouver, WA, an exercise-equipment maker under the Nautilus and Bowflex brands.

Equally critical is that an election year means broadcasters are required to give politicians and their initiatives the lowest rate on the station. To balance it out, stations will raise unit rates.

The Olympics in Athens also will boost rates on many stations, especially those affiliated with U.S. official TV sponsor NBC. A corollary of that is fragmented viewership — a nightmare for advertisers of spots under 60 seconds as well as those 30- to 60-minute infomercials, usually aired in the wee hours.

So, marketers will have to sharpen their skills in optimally mixing product assortment, discounts, ad spending and price points to earn better return on investment. The cost of advertising is based on supply and demand. And if demand exceeds inventory, media services executives at advertising agencies may have to call in favors from their sales counterparts at network and cable stations.

“We estimate the recent cable TV upfront to be up anywhere from 8 percent to 12 percent on unit prices from last year,” said Robert B. Yallen, president of ad agency Inter/Media Advertising, Encino, CA. “However, the improving economy may also encourage more consumers to respond as well, so the cost to the advertiser may tend to balance out.”

DRTV buyers are advised patience. Rising rates affect not only them, but also traditional advertisers who may end up pulling in their media dollars.

“The relationships that we've built will allow us to buy the media at reasonable rates and still provide efficient service to our clients,” said Paul Soltoff, CEO of ad agency SendTec, St. Petersburg, FL. “In 2000, we had the Olympics, elections, dot-coms and all sorts of barriers to buying efficient media, but overall DRTV made a strong showing that year. I think we'll see the same thing in 2004.”

A $24.3 Billion Business

According to industry estimates, DRTV accounted for $24.3 billion in U.S. sales last year, slightly more than 10 percent of the entire direct marketing industry. It is growing at an estimated 18 percent yearly. Most of that revenue comes from consumers responding to TV pitches by calling in to buy hair and skin-care products, household appliances, insurance, gym equipment, legal services, self-help books and music. Public television appeals and televangelists also loosen viewer purse strings.

Of course, the industry has its share of dubious marketers, spurious products and deceptive claims. But legal action from the Federal Trade Commission over the years slowly and steadily is forcing charlatans off the air.

“The industry traditionally has done a poor job in positioning the benefits and advantages of DRTV,” Yallen said. “The Electronic Retail Association is the industry's only real organization devoted to DRTV. However, the organization has taken a myopic approach from a brand perspective, primarily focusing on infomercials.”

But DRTV marketers and agencies were more than placated last year. The Direct Marketing Association for the first time created an entire pavilion for them at its annual show in Orlando, FL. However, foot traffic was not brisk, mainly because of the pavilion's out-of-the-way location.

“I believe that finally the DMA has recognized the benefits of DRTV from a brand-building and brand-maintenance perspective,” Yallen said. “I'm hopeful that the DMA will continue to support our industry and its members will start to realize the plethora of benefits that our marketing strategy offers.”

DRTV also will benefit in another unintended way. Legislation introduced last year like the CAN-SPAM Act and the FTC's no-call registry will push marketers to experiment with DRTV to generate leads and sales.

Fortune 500 companies experimenting with integrating DRTV into campaigns in the past few years may intensify efforts. Drug companies, for instance, may spend more on TV to generate requests on toll-free numbers for disease-specific information. Even catalogers are adapting, if L.L. Bean's DRTV campaign over the holidays last year is any indication.

“Brand managers should take a small percentage of their budgets and integrate DRTV into their media model,” Yallen said. “This would make their television buys more accountable by giving them the media intelligence to optimize their buys based on real information.”

But the telemarketing crackdown will affect DRTV campaigns as well, essentially reducing “the lifetime value of a DRTV customer, making it tougher for some marketers to stay on air,” Connerty said.

The other looming threat is the growing popularity of TiVo and look-alike devices that can easily skip through advertising within TV programs. All in all, these trends will force marketers to make their long- or short-form commercials less shrill and more engaging, interesting and interactive.

Electronic Convergence

Another recent development is the convergence of TV, personal computers and the Internet. According to comScore Media Metrix, one out of two Internet users regularly watched TV in 2002, and their TVs and PCs are in the same room. More importantly, half of this group of adults frequently uses the Internet while watching TV.

Marketers still are coming to grips with this trend. In the past, viewers may have tuned out commercials by visiting the bathroom, going to the kitchen to grab something to eat or reading a magazine or newspaper. Now they also tune out during programs by Web browsing.

“For this industry it means that the DRTV commercials need to be as arresting and intrusive as legally possible in order to break through this new pattern of behavior,” SendTec's Soltoff said.

Even order placement is undergoing a revolution. Marketers see more orders from DRTV ads being placed on their Web sites. For many, this means lowered processing costs and fewer call center operatives. Some are even considering replacing their toll-free numbers with just a Web address, especially for mainly Internet-only firms.

“One such reason for the preference to order on the Web is the desire not to be upsold, which means that DRTV advertisers need to create an online upsell technique so as not to lose that valuable upsell revenue,” Soltoff said.

Making matters worse, tracking Web orders from DRTV is as difficult as it is from other offline media. Most DRTV spots have only generic Web addresses — i.e., www.companyname.com. Thus, order activity on that site is not attributable to specific media. With no capability to track and allocate online orders to specific DRTV broadcasts, unprofitable airings may continue and profitable media placements canceled. Agencies are devising tracking systems to attribute online orders to infomercials aired. SendTec has iFactz, a system that uses prefixes — for example, product.companyname.com — instead of suffixes, such as companyname.com/product.

Marketers have a short window to get their act together. Some accounts indicate half of all DRTV sales will occur over the Internet by 2007. This is in line with trends for other channels. More than 50 percent of U.S. consumers now make a direct order online instead via telephone. A plethora of sites now exist modeled on “As Seen on TV,” as well as Web kiosks at malls peddling DRTV merchandise. Even stores are stocking their aisle end-caps with DRTV products. With such emerging channels, allocation of orders will only get harder.

While adapting to changing shopping habits and emerging channels, marketers must not abandon DRTV practices that have worked. SendTec, for instance, finds that $19.95 is the ideal price point. The pitch should offer a second item for free, throwing in other related items at no cost, too. And offer multiple payment plans for higher-priced products. DRTV's inherent charm is that it relies on measured consumer response. Conventional-awareness TV, on the other hand, is based on the more opaque audience delivery estimates.

Perhaps DRTV advocates will need to intensify their charm offensive this year to brand managers at advertiser companies. They also will have to remind media owners of DRTV's role in the proliferating cable networks and local stations.

“TV is first and foremost an entertainment medium,” Inter/Media's Yallen said. “Additional channels and networks provide more choices for the consumer. They also create more inventory that needs to be sold, and DRTV will remain a very integral part of the picture.”

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