Direct Response Product Economics

A key driver of DRTV success is the economics of the product.   In other words, how much does the product cost to make, and how valuable is it in the marketplace.  It is essential for direct response marketers to understand the costs and selling price of the product before beginning an infomercial campaign.  Key questions include:  Does the profit margin of each product sold support the cost of media and the cost of producing the commercial?  These two things together are known as the the Cost Per Lead (or CPL).  How much will it cost to store and ship the product (fulfillment cost)? And finally when a lead is received, how much will it cost to train call center professionals, and pay them for their time to respond to your customers (response cost)?  

Number of Respondents

The number of people that respond to a direct response campaign is tied directly to the media plan, and can be expressed as a ratio of the number of people who respond over total number of people that saw your commercial (Responses/Unique Impressions).  Factors that improve responsiveness include media targeting accuracy, as well as the quality of the commercial.  That said, it is essential to cast a wide net, so that enough of the target market will see the commercial.  The balance between the amount of money spent on media and the number of respondents is a key efficiency metric that can be tested on an incremental basis before fully launching your campaign. For more on this topic, see “Testing and Optimizing Your DRTV Campaign” below.  

Campaign Conversion Rate

The campaign conversion rate refers to the ratio of respondents who purchase your product over the total amount of respondents (Number of Purchases/Number of Responses).  This metric is essential to determining whether or not the combination of your commercial and the chosen media strategy is yielding qualified leads.  A low conversion rate can increase the cost per lead (CPL) dramatically, by increasing call center expenditures, without the supporting revenue from sales.  A high conversion rate indicates that the message in your DRTV commercial is effective, and that message has been presented through media to the appropriate audience for your offer.  Direct response marketers often test the impact of creative components, while holding media constant, and vice-versa to understand the impact that each component has on the conversion rate.

Cost of Marketing

The cost of marketing in a DRTV campaign refers to the sum of expenditures for creative and commercial production and media costs.  This category of expenses can also refer to the cost of completing a sale with a prospective customer, and finally, distributing the product to the customer.   In order to have a profitable infomercial campaign, the cost of marketing to each customer who purchases a product, or the Cost Per Acquisition (CPA) must be below the profit margin for the products sold to that customer over time (Lifetime Value of a Customer).  At the outset of each campaign, it is important to estimate the profit per unit sold, and the total number of units to be sold (Conversions) during the campaign.   Thus, the profit, multiplied by the total units sold, will yield the Gross Campaign Profit, from which the cost of marketing must be subtracted.   This final calculation will give you a critical starting point for understanding the potential profit or loss (or range of outcomes) that you can expect.  Once your initial calculations are complete, you can test individual components of your DRTV marketing plan (Impressions, Conversions, Marketing Costs) individually, thereby reducing the expected variation with real market data.  

Testing and Optimizing Your DRTV Campaign

The science of testing your DRTV campaign can appear daunting at first.  The key to testing your campaign is to change only one variable at a time, leaving the others constant.  For example, a direct response marketer will vary multiple  direct response commercials (each with different messaging, creative writing and calls to action), while ensuring that each commercial is run on an identical media plan.  This allows you as the client to see the results of changing only the commercial, and what messages yield the best response and conversion rates.  A series of tests will provide data on which commercials result in the best financial outcome, and in the case when multiple markets are targeted, different commercials may perform better in different audiences.  From there, you can now optimize your media strategy, using the same principals.  The good news is that testing is relatively inexpensive in relationship to running a full campaign.  GreyTV recommends that extensive testing is conducted before launching a direct response marketing initiative.  

Want to know more? Read last week’s article on making Infomercial Advertising work for your business.

The Product or Service Offered

At the heart of each direct response success is the product or service that is being presented to the market.  The DRTV marketer must do preliminary research, using market data, focus groups, trade shows, and in-home product trials to determine what needs remain unmet in the market, and if that need is shared across a large enough market.  From that point, more research is needed to confirm that the product or service effectively meets that need, and if the price exceeds the value a customer will receive from the product.  Product testing and design is an ongoing process throughout the DRTV marketing cycle, but requires the most up-front work, prior to beginning a direct response campaign.  

Quality of Your DRTV Commercial

A DRTV commercial must be designed in such a way that it causes the target market to purchase the product or service being presented.  Key drivers include buying motivation, strong call to action, commercial credibility, audience relatability, and brand equity.  Buying motivation refers to the strength of a DRTV offer, how easy it is for a prospective customer to respond, and a strong call to action, which compels the target audience to act immediately.  A direct response commercial’s credibility refers to what the consumer sees on the screen.  Does the commercial look old and out of date, or is it worthy of being played on an HDTV?  Is the talent performance flat and unrelatable, or do the people in the commercial bring the product or service to life, and resemble how the target market views the world?  Relatability is a measure of the acceptance of the DRTV commercial’s message by the target audience.  Does the direct response ad present an immediate problem, or is the need unclear and indirect?  Does the commercial present a solution that is tied directly to a problem, or is the message lost in the other elements of the presentation?  Perhaps most importantly, does the DRTV commercial appeal to the buyer’s emotional decision making processes, causing them to have a visceral reaction that compels them to respond, or does the campaign simply appeal to rational, fact-based decision making?

A Word About DRTV Branding

Typically, direct-response marketers express the desire to expand their product into retail and international markets.  To do so, it’s essential that the product or service is properly branded from the start, and that DRTV commercials include key branding elements that will allow for a greater perceived value, and thus price premium in the very competitive retail and international distribution channels.   GreyTV recommends that branding, such as tag lines,  jingles, and trademarks be included in all direct response commercials, especially when marketing will be taking place in radio, print, and online along side TV.   Successful examples of DRTV branding that led to expanded retail distribution include the George Foreman Grill and the Snuggie blanket.  

Media Buying for DRTV

Media buying is the practice of purchasing media space for a commercial message.  The cost of the media depends on a number of variables including the form of media (TV, Radio, Print, Online, etc.), as well as time, and the channel that is chosen.  These choices about media format, combined with demographic and psychographic data about the target market, such as the age, gender, location, attitudes, beliefs and activities, will ultimately determine the media budget and the effectiveness of the direct response campaign.  There are numerous media agencies that provide these services, however it is important to understand that media agencies take different approaches to media buying, and often specialize in a specific media form such as television or Internet media buying.  Every direct response product or service requires a unique set of expertise, and when choosing a media buying agency, it’s critical to make the connection between their level of DRTV experience, media competencies and the unique attributes of your product or service.

Lead Management and Fulfillment

Lead management and fulfillment refers to the process of collecting leads, closing sales, and fulfilling orders that result from a direct response campaign.  Direct marketers must choose whether they will direct leads to a website, a call center, or simply send more information to prospective customers by email or post mail.  Often, depending on the product, various combinations of lead management can be tested, to find the optimal mix.  A product’s complexity and profit margin are also an important factors in deciding the best lead management strategy.  For more complex direct response products, it may make sense to use a highly trained call center staff to close leads over the phone, of course this is more expensive, and must be supported by the revenue from the first sale, as well as ongoing purchases.  In the case where a product has a lower margin and/or a more apparent value proposition, a test using both online purchase forms and call center staff with a simple script may match the desired financial results of the product or service more effectively.  

Continuity & Repeat Sales

One of the most important factors in the profitability and long term success of any product or service marketed via DRTV is how many times a prospective customer will buy the product after the first purchase.  This idea, referred to as continuity in the direct response industry, is critical to increasing profitability over time, by either offering a monthly service, or a product that will be reordered either manually or automatically by the customer.  While making just one sale to a large group of consumers can in itself be a worthwhile goal for a direct response campaign, repeat sales increase long term profit margins, and maximize the return on investment (or ROI) spent on creative and media buying.   GreyTV assists clients in building offers that focus on long lasting relationships with customers, which in turn promotes repeat purchases and better performance.  

Testing and Refining Your Campaign

Although it appears as the last topic in this article, testing should be considered an integral part of your DRTV campaign from start to finish.  One of the biggest benefits of direct response marketing is the rich data and market feedback that is available almost daily as a result of running ads, and managing call center activities.  Testing is a complex science, where creative, media placement, and lead management are optimized.  Since there are many variables in the optimization equation, it often makes sense to conduct several tests, where one variable at a time is adjusted to identify its effect on the results.  Combining information from each of these control studies provides direct marketing professionals with detailed insights on the key drivers of success, and identifies key areas of the overall campaign that can be improved.

• Updating the look and feel of an older direct response commercial.
• Matching an old direct response commercial’s branding with new packaging and branding. 
• Making changes to script and visual presentation during and after media tests, to improve results. 
• Adding additional testimonials and product/service elements, to expand reach to a wider audience.
• Using existing commercials to sell new products, and expand service offerings to new and existing customers. 
• Improving graphics to strengthen call to action, add a website, or a new telephone number.

GreyTV can help you weigh the costs and benefits between starting from scratch with a new DRTV campaign, or taking your existing commercials and modifying them for a follow-on campaign. Using our proprietary DRTV Methodology, we can clarify in a quantitative and measurable way, how effective a revamped commercial would be compared to a new commercial.

Case Study:

Recently, a national gold investment company whose primary sales channel is Direct Response for TV approached GreyTV for a consultation about making changes to their current DRTV campaign. The client was undergoing a significant branding change, and needed to take a different approach to messaging, along with modifying their call center numbers and lead generation website. In the previous year, GreyTV had produced seven DRTV spots for the client, and the commercials yielded strong lead generation and outperformed sales goals.

GreyTV recommended that the client change the graphics, and branding on their existing commercials, and change the voice over for two spots, to modify testimonials. As a result, GreyTV was able to save the client over $80,000 by making the necessary changes, strategically re-editing the spots, and mapping out what segments of the commercials needed to be reshot, and re-scripted. The GreyTV DRTV methodology was employed to ensure the repaired spots met the same performance criteria, ensuring that the new commercials would yield the same, or better results.

Direct-Response television, the format that GreyTV specializes in, is typically broken down into three sub-categories: lead generation, and direct sales, either product or service. In recent years, lead generation has become increasingly popular with direct-response television marketers, who have complex, yet highly profitable products. The benefit of lead generation for these clients is that they can present a targeted offer in a powerful and simplified way, to generate a qualified lead, which can be closed later by a sales person, or through providing more detailed information through mail or the Internet. Though this DRTV sales process involves two steps, selling the big picture first and then providing more details to prospects who have shown interest can increase sales rates, and reduce direct-response costs dramatically. Examples of products and services that fit well with this process are: Auto Insurance, Financial Products, Educational Services, Healthcare Insurance, Vacation Packages and Medical Procedures. In the case of lead generation, call centers play an important role, as call center operators must be trained with detailed product information, as opposed to simply taking an order. Traditional direct-response, where an offer that leads to an immediate sale is presented, works best for products, that present a simple and logical benefit and which can be ordered with payment and delivery information.

GreyTV uses many practices and techniques to achieve results and improve response, such as the use of urgency, clear and compelling copy, graphics, and design, which aim to reinforce the message. With the recent growth of Direct Response through the internet, the viral potential of well written, or entertaining infomercials, uploaded to YouTube for example, has proven to be animportant contributor to a campaign’s success.

2011 LA Auto Show Display Interaction from GreyTV Video Production & Advertising on Vimeo.

The DRTV Grading Methodology appraises commercials on a transparent set of success drivers, which contribute to a commercial’s grade (A through F) on a weighted scale.   The drivers are buying motivation, commercial credibility, audience relatability, and brand equity.  Each driver includes observable milestones that must be met in order to maximize the market’s perception of an immediate need, which elicits an emotional response, and through a strong call to action, a sale.  

This system has now been integrated into the GreyTV client discovery process, and all elements of the production process, including pre-production, copywriting, talent selection and direction.   By facilitating communication and production operations in a consistent and objective way, the DRTV Grading Methodology will identify opportunities for direct response competitive advantage, and ultimately optimize the financial success of each client’s DRTV campaign. Visit GreyTV’s Direct-Response Advertising section to learn more or to view our Service Guide.

Creative Elements & Methodology

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CLIENT: A National Commodities Broker
MEDIA: Four Regional TV Commercial Spots, Direct Response (:60/:30)
PLACEMENT: Local Cable (Florida, California) National TV (GoogleTV & Direct TV)

Consumers are increasingly concerned with their savings and retirement plans. Recent market events have made those same consumers skeptical of financial firms offering solutions. GreyTV produced a relatable, and genuine spot for a national commodities retailer, appealing to a core group of 45-65 year old retirement savers with traditional values. The campaign increased inbound leads by 300% during the campaign, and qualified leads by 370%.

CLIENT: A National Medicare Supplementary Care Provider
MEDIA: On Regional TV Commercial Spot, Direct Response (:30)
PLACEMENT: Local Cable (Northeastern US, California, Washington DC, Chicago, S. FLorida)

GreyTV successfully put a friendly face on this upstart supplemental insurance firm, set up to provide information and insurance for seniors and their families in the US Medicare program. This client excelled by incorporating emotional decision making that appealed to children and caregivers of seniors, who are more likely to use the Internet. Key campaign elements included direct response call numbers, and URL variation to monitor results.