September 2010 – Columns: Your Association, Your Bottom Line

A Wealth of Leadership

September is a landmark month in the calendar of the direct response marketer. We gather as an industry at the ERA D2C Convention (incidentally, this marks the 20th anniversary of the event) where we forge and renew friendships as well as business relationships, all while educating ourselves and sharing knowledge with the goal of further honing our craft. And we reflect upon the year that was, celebrating some of the industry’s finest and most innovative work at the ERA Moxie Awards Gala.

September marks a milestone for the ERA, too, as we welcome new volunteer leaders to the board of directors and name a new chairman of the board.

In fact, this year we welcome eight new members to the ERA board of directors. These new members will join our incumbent members to create a board that is comprised of gifted and talented leaders, and one which is balanced and nicely reflective of the industry which it represents–it’s perfectly constituted to provide leadership in what’s certain to be a pivotal 2010-2011.

We welcome two more women to the board: Omni Direct’s Denira Borrero and Cecilia Turner of International Commerce Agency. Both bring extensive DR experience–domestic and international–and join existing members Stacy Durand of Revenue Frontier/Media Design Group and Murad’s Carey Grange to give us four female senior executives on the board.

Adding to the group’s international contingent and providing an Asian perspective is Harry Hill of Oak Lawn Marketing Group. (In addition, John Mills–of John Mills Limited–will represent Europe as the new chairman of the board of ERA Europe.)
DRTV marketers are certainly foundational members of our association, and BJ Fazeli of BJ Global Direct and veteran industry and ERA leader Elliott Segal from Guthy-Renker represent this crucial sector of the industry.

HSN’s Greg Henchel will ensure that we continue to have a board presence from the home-shopping space. Dave Wallace of Syndero brings a wealth of experience from the e-commerce world. Matt Fisher is SVP and GM of direct response at LiveOps, a very techno-centric company with leadership that has its roots in e-commerce, as well.

The board’s new chairman will be Jeff Tuller, president of Savvier. Jeff, a true industry leader, has been a valued member of the association for many years, continually taking on positions of increasing responsibility. A member of the Strategic Planning Committee, Jeff is well positioned to lead the association in the first year of the three-year implementation of the strategic plan. As new vice chairman, SF Video’s Steve Feinberg will ascend to leadership for the 2011-2012 term.

I would be remiss if I didn’t acknowledge outgoing chairman Lee Swanson and thank him for his outstanding service throughout the year. Lee has led ERA through a transformative period. He served as vice chair during the re-launch of the ERA D2C Convention and ERA’s mid-winter event, The Great Ideas Summit. As chairman, Lee was an enormously positive influence and helped drive the approval of the strategic planning process and saw it through to its successful conclusion with the ultimate board approval of the strategic plan.

And as we head into the critical first year of the plan’s implementation, I couldn’t be more impressed with the assembled ERA volunteer leadership. I know that as members, you share my enthusiasm and look forward to working with them in the coming year.

July 2010 – Channel Crossing: Payment Processing

Getting E-tailers Approved for a Merchant Account

Your payment solution is as important as determining your product’s price point and advertising format. I am using the term “payment” because it’s no longer just your Visa and MasterCard processing that is important, although they remain the heavyweights. Dependent upon your product and customer base, ACH, Discover, American Express and potentially Pay Pal and Bill Me Later are payment alternatives you may consider. Additionally, it is critical to fully understand the options and restrictions on your payment accounts so you do not spend time during your most responsive period discussing how much you are able to process and whether your funds might be held. While certainly there are additional nuances that determine an e-tailer’s ability to obtain a payment account, the primary areas for concern for merchant processors are: i) Product, ii) Compliance and iii) Credit.

Knowing the Risks
The product determines the price range, contingent (or forward) liability and relative risk to the payment processor. All else being equal, a smaller ticket translates into less payment risk. This makes sense as each of us are more concerned about a $499 item on our bank statement than we are a $49 item and consequently, we are more apt to charge back the higher ticketed item. Moreover, we will expect more from the higher ticketed item. If I purchased a $499 juicer, I am expecting far more from that product than I am from a lesser-priced utility knife. I am more inclined to return or charge back the higher ticketed juicer if I didn’t receive my full-perceived value while I am willing to let the knife slide on a couple of expectations because I do not have nearly as much invested in it.

Similarly, products that have a contingent liability or delayed delivery risk because of extended warranties or extended return periods pose a greater risk to you and your merchant processor. If, for example, I am selling a laptop computer with a three-year warranty or a weight-loss formula that has a six-month return policy, I am exposing myself and my merchant processor to a greater risk because the chargeback rules allow for a chargeback time frame of 120+ days beyond the date the product could have been returned (or put under warranty). As a result, the longer the warranty or return policy, the greater the liability. From a payment processor’s stand point, the most risky products are travel certificates that may be utilized for up to XX months in the future or a coaching or multi-level initiation fee that allows the consumer to be a wholesaler and receive coaching, benefits or income opportunities in perpetuity.

The last product risk factor is the relative satisfaction rate. If my product fails to live up to my advertising because either the product is inferior or is damaged during shipment or arrives beyond expected time frames, I am more likely to see returns. Greater returns indicate greater risk for the payment processor. Consequently, to the extent that your product meets your advertisements and fulfillment time frames and/or the benefits are easily measurable, then you lessen the risk for your payment processor. Products, on the other hand, requiring action in concert with your product (such as moderate exercise) lead to more dissatisfied customers and higher return rates.

General Guidelines

Compliance risk is a hot button among payment processors today. The FTC is applying pressure on the Card Networks, which are, in turn, applying pressure on payment processors who exact a price from the e-tailer. Unfortunately, e-tailers can not take it out on the end consumer and many e-tailers and payment processors have paid significant fines because of non-compliance with rules that were only half enforced until the first of the year. Since then, however, nearly all payment processors have been enforcing them. The good news is there are some general guidelines e-tailers can follow to ensure compliance.

Additionally, it is easier to obtain a payment account if your site is complete (or near completion). While you can use a mock-up of your website for review and approval, it is easier for the payment processor to review the actual site. The general rules that apply to all sites include:

• Listing the denomination of the currency in which the charge will appear;
• Clearly indicating the merchant’s DBA name and how the charge will appear on the consumer’s statement and in compliance with the Card Network’s descriptor rules;
• Clearly stating the return policy, (even if returns are not allowed);
• No Cross sales to other businesses where the credit card number is provided to the other business; and
• At all times, maintaining compliance with the Payment Card Industry (PCI) Data Security Standards (DSS).

Moreover, the Card Networks are taking a particular interest in continuity accounts. Any e-tailer advertising in this segment should also:

• Place the terms and conditions adjacent to the submit or ‘buy’ button;
• Place the terms and conditions in 12-point easy to read font;
• Clearly state that the consumer is enrolling into a continuity, if applicable;
• Require the consumer to check the terms and conditions boxes before proceeding;
• Maintain that any trial period be for at least 10 business days;
• Ensure billing cycles are clear and at least 30 days apart for the core product;
• Refrain from the term ‘free’ if the consumer has any product payments;
• Ensure all claims are truthful and substantiated by clinical research, if warranted; and
• Refrain from placing celebrities on the site unless their legal consent for endorsement has been obtained.

While the above are not all inclusive, it is a general guideline that will expedite the review and approval of your site.

The credit risk is the most straightforward. Payment processors seek to ensure that the business is financially able to absorb any chargebacks and returns. The amount of expected returns and chargebacks can be determined from statements for an existing merchant and are estimated for new merchants. Ideally, a payment processor obtains and reviews two years income statements, balance statements and statement of cash flows. Tax returns are ideal as they assist the payment processor in validating the financial statements and in demonstrating the amount of taxes paid. Because many eTailers do not have two years’ history, a forecast can be helpful, especially for start up businesses.

Regardless of whether your business is new or existing, you will likely need to sign a personal guarantee. The personal guarantee is a secondary source of repayment for the payment processor should the e-tailer not be able to pay their credits or returns. To properly evaluate the credit worthiness of the personal guarantor, a personal credit report is reviewed.

Should either the financial statements of the business or the personal guarantor’s credit be insufficient for approval, the payment processor may ask for either i) a second guarantor, ii) a rolling reserve or iii) a letter of credit for the benefit of the payment processor. Alternatively, sometimes the payment processor will approve the account, but at a lower processing limit than requested. While none of these solutions may be ideal, they may facilitate your payment processing account and allow you to proceed with your program.

My hope is now that you have a general understanding of how payment providers evaluate e-tailers, you can best position yourself for approval. If you are pitching a product that is inherently more difficult to get approved, then get your payment processing established well before your launch date and ensure your marketing is in compliance. Recognize your personal credit report may impact your approval. By working with a professional that has access to multiple payment processors you can maximize your ability to match your account with the payment processor that is optimal for you. Finally, e-tailing is a unique business. Be sure to work with a payment provider that specializes in your business type to save you time and allow you to achieve the most efficient cost for processing. Your payment account is critical to your business. Understand what payment processors expect from you and you will have one less obstacle in your business.

Ken Musante is president of Direct Response Payments in Eureka, Calif. Contact Musante at (877) 476-0570 or at kenm@eurekapayments.com.

July 2010 – Channel Crossing: DRTV

Every Campaign Should Do a 4-to-1 Ratio

Talk about the good old days in our industry, and eventually someone mentions how campaigns used to deliver 4-to-1 ratios (four times the amount of revenue than the cost of media) or better, that every campaign back then was a hit and how much easier it was to have a success in direct response. Well, things have changed. Today, we talk about the fragmentation of media, the consumers’ numbness to the clutter of direct response offers, the need to go to retail quickly, the increasing cost of media, the increasing cost of goods, telemarketing costs, shipping costs and the list goes on.

Crunching the Numbers
In the current direct response environment, generating impressive ratios on initial product sales has, in fact, become tougher to do, but what we do have today that we didn’t have in the good old days is the technology to help us achieve efficiencies that we have never seen before. Depending on your margins, most direct response items in the $29-$39 retail price range require roughly a 1.4 to 1.7 ratio of dollars generated over media cost to breakeven, and generating the calls/visits and orders to achieve those ratios has become increasingly difficult.

Enter technological efficiencies. Let’s say, for instance, that a campaign that breaks even at a 1.4 ratio generates a 1.2 ratio after months of testing. Does that mean it’s a failed campaign, not worth rolling out? Should we be on to the next gadget? Absolutely not! Today’s technology allows us to manage data in ways that can create incredibly successful campaigns from what would have previously been considered a failure. Take the 1.2-ratio campaign and assume it’s a set of kitchen knives. Now imagine the consumer data captured from this campaign being monetized over a period of time—say the next 12 months, by providing those newly acquired customers with offers for some of the marketer’s other items like pasta pots, blenders, countertop ovens or whatever makes sense for the demographic profile of your newly acquired consumer data. It’s called re-marketing and it maximizes the Lifetime Value of customers over a period of time with no media cost. That’s correct, no media cost.

To clarify, let’s take the media campaign for the kitchen knives item and look at a specific airing that generated a .9 ratio (media cost $1,000, revenue generated $900). When you have a system that can pinpoint the actual individuals who purchased that product from that airing and you can track how many additional items and how much additional revenue those individuals generated by responding to re-marketing offers over the 12 months following that initial purchase, you can see that the airing that generated a .9 ratio initially may have been one of the most profitable airings of the campaign when you calculate in the Lifetime Value of the acquired customers. That one airing may have resulted in a 4-to-1 ratio over that period of time.

Re-marketing and data management are increasingly more critical today for our industry. Utilizing front-end media data, backend transaction data and re-marketing technology that allows you to communicate with your newly acquired customers and generate the maximum Lifetime Value from your campaigns will be the key to achieving ratios and profit margins our industry has never seen before…not even in the good old days.

Scott Paternoster is president of Chief Media in New York, N.Y. Contact Paternoster at 212-300-8970 or at spaternoster@chiefmedia.com.

June 2010 – Cover Story: The Infomercial King

Telebrands Founder and CEO A.J. Khubani has marketed some of the most successful DR gadgets in the industry. Find out how this marketing catalyst put the As Seen On TV logo on the map and why the company has big-box retailers demanding more DR products.

BY VITISIA PAYNICH

A.J. Khubani is on a mission. He’s searching for the gadgets that will make those everyday problems go away for the average consumer. Whether it’s a device for relieving callus-riddled heels, organizing your shoes or adjusting tight-fitting pants, Khubani knows there’s a product out there waiting to be marketed. However, the founder and CEO of Telebrands, the direct-to-consumer marketing giant based in Fairfield, N.J., isn’t sitting idle in his office. He’s hitting major U.S. cities, meeting with inventors and giving Simon Cowell a run for his money. How? By hosting a competition ála “American Idol.”

The popular PedEgg can be found at most major retailers.

When he’s not on the road, Khubani makes the rounds as a DR expert on national morning talk shows and cable news programs. In fact, the man behind such hit products as PedEgg and StickUp Bulbs has become a familiar face on shows like “The View” and “Good Morning America,” demonstrating the latest DR products. It’s no wonder that ABC dubbed him “The Infomercial King.”

Electronic Retailer sat down with Khubani to talk about finding that next hit product, the early obstacles of garnering retail distribution and what he believes is the key profit center for direct marketers.

Electronic Retailer: You’ve been traveling across the U.S. hosting “Inventor’s Days” in search of that next “hit” product. How many products actually make the cut?

A.J. Khubani: We see so many products but at the end of the day, very few actually turn into something that we’re really interested in and even fewer turn out to be winning products. Generally, we look for products that fit our motto: Products that offer simple solutions for everyday problems.

ER: Do you believe today’s inventors and entrepreneurs are more innovative? Or is it becoming more challenging finding unique items that solve that common, everyday problem?

Khubani: The interesting thing is that while one might assume that we’ll just keep running across the same stuff over and over again, we always see new things–inventions we would never have imagined someone could have ever thought of. And there have been some really interesting things. That’s why we continue to do it. We think Inventor’s Days are really an untapped resource for coming up with products for our industry.

For years, inventors have been coming to Telebrands and it’s very time-consuming. If we set up half-hour or one-hour meetings with every single inventor, it just takes an enormous amount of time to find that one golden product that we’re looking for. So the fact that we came up with Inventor’s Days was actually inspired by “American Idol.” I saw that and said, “Well, that would be a great way to meet with inventors.” If we could tell inventors they have five minutes to present their product, it would be very efficient for us to look at a lot of stuff in a very short amount of time and that’s what it’s turned out to be. We filter out the people before they even come to these Inventor’s Days.

People submit their ideas on the Internet, we look through everything and only the things that we think are interesting are the ones we meet with. So, there may be 200 or 300 people who apply for Inventor’s Day. Out of those 200-300 people who apply, we only select maybe 30 or 40 people to come see us. And out of those 30-40 people who come see us, we select maybe two or three products that we’re interested in licensing, proceed to do a test and shoot a commercial for those products.

ER: We’ve often heard the common tale of the inventor who banks everything on his one invention, hoping it will lead to success and wealth. What are your thoughts about that?

Khubani: Time and time again, you run across inventors who have just put everything they have into a single idea and for some reason or another, they will just completely fall in love with their idea and not listen to anyone’s advice. They just believe in it, put everything they have into it and end up going a little bit too far.

It’s like going to a casino and betting all the money that they have on a single bet. It doesn’t make sense, but they do. I’ve seen people take second mortgages out on their home, go into financial ruin and get a divorce over the product. There are all kinds of hardship stories. I always advise inventors that that’s just simply not the right approach.

Look at the most famous inventor of all time, Thomas Edison. He had thousands of patents and inventions in his name and not all of them were commercially successful. In fact, only a handful ever made it.

The majority of products that people come up with–even products that we come up with internally here at Telebrands–by far fail in the marketplace. So, it’s important to just keep coming up with new ideas and invest as little as possible in each idea until you figure out which ones are going to be commercially viable and then go ahead and invest the money.

ER: Since its inception, Telebrands has been a pioneer in the direct-to-consumer marketplace. What significant changes have you seen take place during the 27 years that you’ve spent in this industry?

Khubani: The significant changes are, for one, the way we take orders. When I first started the business, we took 100 percent of orders by U.S. mail. And then we experimented with phones, 800 numbers and then we started to experiment with the Internet. Today, a majority of our orders come over the Internet. We still get a lot of orders over the phone, but no longer with line operators. The other thing is the profit center. The key profit center for us in short-form direct response is retail distribution. In fact, all of our profit comes from retail. Direct response marketing/advertising doesn’t result in a net profit directly. It’s actually a loss; we lose money in direct response. When I first started the business, we were only in direct response so we actually relied on it to make a profit.

ER: In 1988 when few DRTV marketers were exploring the retail market, you saw the revenue potential. How would you compare those early days of literally knocking on retailers’ doors trying to get distribution to today’s retail environment?

Khubani: Back then; the retailers just didn’t understand it and we had a lot of pushback from every major retailer I walked into. They said, “We don’t want to carry anything that’s been sold by a television marketer.” There were no As Seen On TV departments or buyers, so there was difficulty getting retail accounts. The first retail product we ever sold were the AmberVision sunglasses, which we started presenting to retailers in 1988. It wasn’t until 1989 that I got my first order from Herman’s Sporting Goods. They were a Northeastern chain that is no longer in business. But that company gave me my first order for 200 pairs of glasses. The pushback that I got from the buyers was: “You’re a one-item vendor. You’re selling sunglasses that can’t be sold as a functional item. We’re not going to buy one pair of sunglasses from you when we have a vendor that’s supplying us with 50-100 different styles.”

And then trying to convince them that this was a big item, we spent millions of dollars on TV. However, they didn’t seem to care at all. But after I got that one order from Herman’s Sporting Goods, the product sold out in a day. They came back and ordered 20,000 pairs and that was such a huge success. I was able to take that information and go around to all the big retailers. The major thing that happened as a result was we were able to assign one buyer to handle all of our As Seen On TV products; whereas before, we would sell sunglasses, then car wax, a household cleaner and then a fitness product. And every time we went to a retail account, they would send us to a different buyer. We would then have to re-educate the buyer, make them understand the business, the way the product should be merchandised and the amount of inventory that they needed to take in. It was a big hassle. So we came up with this idea to just have the accounts assigned one buyer. One by one, we convinced these retailers over a period of years, to put in one buyer–an As Seen On TV buyer and make that its own separate category, which they eventually did.

And you’ll find almost every major retailer, such as Walgreen’s, CVS, Walmart and Target, has an As Seen On TV buyer. We made that happen. Back then with AmberVision sunglasses, it took us three years to get full retail distribution in every major retailer in the country and that happens today in a month. We can get a product into every major retailer in a month from the time we decide to do it because they are accustomed to the As Seen On TV category. We’ve built up a long-term relationship with these buyers so they trust us. We’ll say, “We’re introducing a new product.” And their first question is: “How many should we buy?”

ER: So, Telebrands really paved the way for other direct marketers to transition into retail?

Khubani: I feel very strongly that we really opened doors at most of the major retailers in this country to the DR category. We spent a lot of time doing it. We did it at a time when the majority of marketers were not even thinking about taking their products to retail. We even designed that red As Seen On TV logo that everybody uses.

ER: While many industries, such as retail, have taken a hit from the economic downturn, direct marketers continue to thrive in sales. Do you believe this wave will continue even after the economy bounces back?

PediPaws allows pet owners to easily trim their dog’s or cat’s nails.

Khubani: No. We’re already seeing that media rates have gone up quite dramatically. We’ve really started to notice it this year. Just as quickly as the rates went down and media availability opened up, it’s now shutting down. Also, more people than ever have entered the business. So, that’s become difficult. But I think there’s an overall advantage that we’ve gained from this recession. Our business really started to boom in the down economy and one thing that it did was make retailers really get behind the category. They started to dedicate more shelf space than ever before. Not only that, but we [attracted] new retailers that we would never have imagined we would ever sell to like Toys ‘R’ Us, Staples, 7 Eleven and Best Buy. Toys ‘R’ Us has now given us a 12-foot section in every store. The retailer jumped on this because its product lines and overall business were slowing down and it was looking for other potential avenues.

These retailers [embraced] the As Seen On TV category because of the opportunity on TV and because they saw the media was growing as were the sales of those products. That additional retail distribution, along with rising sales in our current accounts, gave us so much more sales out of retail, that we’re able to now absorb the higher TV rates. So, that’s where we gained momentum and I think that will continue; however, we just need to recognize that more of our profit will end up going into the TV medium than what was going in before.

ER: Why do you believe direct response has really caught the attention of general advertisers and brand marketers?

Khubani: You’re seeing DRTV used as a tool by more general advertisers. We’ve seen companies like Procter & Gamble and Church & Dwight, who ended up buying the OxiClean brand, using direct response as part of their marketing mix. Even companies like ProFlowers is using a real direct response commercial. So, that format has certainly caught on. Many companies have noticed that it’s successful and have been using it.

ER: You stated in a recent interview that retail sales accounted for about 90 percent of Telebrands’ business. How much of your business is derived from online?

Khubani: All of our direct response combined is about 10 percent online and retail is 90 percent. We’re really running our DR ads to drive business at retail.

ER: Where do you see Telebrands in the next five to seven years?

Khubani: I believe our sales will continue to grow. We’ve figured out something that really works for us. We’re coming up with inexpensive gadgets that solve everyday problems. People will always look for the next new gadget and those new gadgets will always be invented–whether it’s by us or by everyday inventors. It’s just an ongoing business and what’s changing is the way we advertise. Television is getting more diluted, not only with more cable stations but also with other ways in which people get their information–primarily the Internet. So, the advertising method may change but as far as the business of developing and marketing gadgets, I think that will remain the same and we’ll just continue to build the business on that.

June 2010 – Column: Shop Talk

Great Account Management Begins with Accountability

Anyone who has ever nurtured an invention or a start-up business knows that it requires incredible focus, tenacity and passion. Once that concern is a going one, others may look at it and comment, “Why didn’t I think of that?” not realizing the trial and error and belief that have gone into creating something unique. That kind of doggedness is what separates successful direct marketing programs from also-rans, because dialing in success requires formidable determination. That is why it is paramount that new players to direct marketing partner with an experienced, enthusiastic account manager willing to say, “The buck stops here!”

Seeking the Best Candidate
One key is for marketers to align themselves with an organization that has vertically integrated resources that can be managed on a centralized basis with a single, answerable point of contact. There are so many variables that can impact a program’s success that having an expert akin to a general practitioner who can examine and diagnose the areas that need to be improved upon is vital. Such an account manager will collaborate with the team from various aspects–creative, offer and customer service are but a few examples–and make sure that the emphasis is on solving for success versus finger pointing. A solid account manager is like a good crew coach who keeps everyone in the boat rowing together in the right direction.

Thus, you should ask, “Does my account manager possess the following characteristics?”

Experience: Beware of anyone who claims the Midas touch. Direct marketing is a discipline where one learns far more from his or her missteps than from one’s occasional triumphs. Look for someone who possesses the honesty to share the totality of his or her lessons.

Analytical: Because direct marketing is essentially a numbers game, it is imperative that your account manager be able to interpret a spreadsheet. A large part of his or her job will be holding your team accountable; e.g., making sure that the media is delivering the right cost per lead, conversion rate and overall ticket, and that it is clearing at the proper levels, in the right dayparts and at a justifiable cost.

Intellectually curious: A strong account manager will also be naturally right-brained and capable of getting into the mind of the consumer to understand what will drive purchase behavior emotionally. What’s more, account managers need to be on top of the latest trends such as social networking and mobile, to assess how to best leverage them on your behalf.

Proactive: A great account manager doesn’t react to crisis; he or she anticipates it and even acts to avoid it by putting practice into action.

Aligned interests: Probe to understand how your account manager is rewarded– not just financially, but emotionally–to make sure you succeed. These benefits should be aligned with your interests, but in some organizations, where churning media is the aim, for example, that may not be the case.

Put it all together and you’re looking for an unflappable champion. One where the only thing you can hear flapping is this: their cape.

BJ Fazeli is president of BJ Global Direct and Concept 2 Consumer in Irvine, Calif. Contact Fazeli at (949) 825-5822.

June 2010 – Column: Your Association, Your Bottom Line

Advocacy–in Real-Time

Just a few weeks ago, the Electronic Retailing Association (ERA) hosted what is arguably the most important event on its annual calendar: the ERA Government Affairs Fly-In. More than 80 leaders of the direct-to-consumer (D2C) commerce community gathered in Washington, D.C., to learn more about some of the legislative and regulatory issues of critical importance to the industry, and to meet with their respective elected officials to communicate their positions on these issues to the policy makers themselves.

Not only were we there to protect and defend D2C commerce from potentially over-restrictive or otherwise unfair regulation, we were there to advocate for the industry in a much broader sense–to ensure that our elected officials and policy makers understand the importance of the industry to the economy, the number of jobs it provides and the vitality it has shown during difficult economic times.

Attendees reported a uniformly positive response from their meetings, which underscores the importance of having industry leaders come forward and let their voices be heard. While ERA staff and our lobbyist partners can–and do–advocate on our industry’s behalf on a day-to-day basis, there’s no substitute for having policy makers hear our position passionately defended by actual industry participants who are directly impacted by the policies and who have the unique ability to point out perhaps unforeseen implications and consequences.

Still, there are a number of issues looming over our industry, most notably those surrounding data-pass and advance-consent marketing.

In fact–and illustrating the remarkably fluid nature of Congressional activity–Senator Rockefeller (D-WV) introduced the much-awaited bill on data-pass marketing the very day ERA’s contingent was visiting Capitol Hill. In the midst of this dynamic environment, we were able to secure a meeting with the actual drafters of the proposed legislation approximately one hour before its introduction was made public.

Jeff Knowles of Venable LLP, Elliot Segal and Dirk van de Bunt of Guthy-Renker, David Wallace of Syndero, Litle & Co.’s Tim Litle and I met with the three members of Senator Rockefeller’s staff who authored the bill. It was a very constructive dialogue. The staff members were eager to learn more about our industry and we were able to provide valuable input–in real-time–on this fast-moving issue. I am confident that the senator’s staff left with a positive impression.

While the senator’s chief investigator on the issue assured us that the Senate Commerce Committee wants to ensure that good actors–like those in the meeting and ERA’s membership–remain active in the marketplace, we will watch very closely the staff’s reaction to our concerns and proposed amendments to the bill. However, we had a very constructive dialogue and it’s difficult to imagine an event more illustrative of the Fly-In’s importance.

Day by day, ERA is increasing its influence in Washington, due in large part to the efforts of the association’s volunteer leadership, both at events like the Fly-In and in ERA’s government affairs work throughout the year.

I encourage you to join our efforts.

June 2010 – Special Selection: Honoring 25 Years of The Infomercial

Meet the pioneers and thought leaders who have helped the direct marketing industry grow and thrive for the past 25 years.

By GINA MULLINS-COHEN and TOM DELLNER

Welcome to Electronic Retailer’s celebration of the 25th anniversary of the infomercial. Although many point to Ronald Reagan’s signing of The Cable Communications Act on June 28, 1984 (lifting Federal Communications Commission regulations on advertising time) as the genesis of the format, it wasn’t until 1985 that the infomercial truly began to take shape.

Timed serendipitously with the proliferation of cable channels, the infomercial and long-form DRTV exploded onto the television-advertising world, leveraging celebrities such as Jane Fonda, Dionne Warwick and George Forman, and creating new cultural icons such as Tony Robbins, Ron Popeil and Billy Mays. Housewares, health and beauty, fitness, sporting goods, pharmaceuticals, business opportunities, books, self-improvement, technology, music–it’s difficult to come up with a product category that hasn’t been “seen on TV.”

Along the way, brands like Apple, Microsoft and Kodak would use the medium, and related industries such as homeshopping would emerge. But perhaps the greatest affirmation of the industry would occur when then-Senator Barack Obama aired an infomercial to help spur his 2008 presidential campaign. (Although many would argue that an industry that generates $100 billion in revenue needs no affirmation.)

As part of our celebration, throughout the remainder of the year we will publish interviews with some of the industry veterans responsible for the growth of the infomercial. We’ll ask them to reflect upon the earliest days of the format, recall some infomercial highlights and lowlights, outline some of the important lessons learned over the past 25 years and project what the future holds for the industry.

In our first installment, Electronic Retailer sat down with Hal Altman of Motivational Fulfillment and Logistics Services and Meltzer Media Production’s Jeff Meltzer.

Hal Altman
Co-Founder & President
Motivational Fulfillment & Logistics Services (MFLS)

Electronic Retailer: What were you working on 25 years ago, in relation to DRTV?

Hal Altman: Twenty five years ago, DR was an infant, and direct mail, print and statement stuffers were the means to sell merchandise. MFLS fulfilled the first jewelry “continuity” programs for Sears, Montgomery Ward’s and JCPenney. Oil company travel clubs were in full swing and we ran the Arco, Chevron and JCPenney travel clubs.

We set up and administered the first worldwide fund raising concert called “Live Aid,” and became a participant in the production and administration of the first 18 years of “Comic Relief” on HBO. We were the first company to offer multiple items on the same invoice for department stores and book clubs. We ran The Los Angeles Times Book Club and introduced time installment payments for book clubs.

We were doing the fulfillment and customer service for a division of Walt Disney Music Company that lasted 16 years, and were involved in the creation of both the Disney Magazine and Disney Channel. It was an exciting time because we were “ground breakers” in the sense that these were all new ideas and programs and it was our challenge to be able to support these new and inventive marketing ideas.

ER: How has the DRTV industry changed over the last 25 years?

Altman: Age has caught up with many of the original DR giants we fulfilled for like Mike Levy. We still do Ronco, but now it has different ownership. The industry is made up of smaller companies and traditional television is now augmented by the web, radio and other electronic media that were never dreamed of 25 years ago. Social networks would have been considered a transmitted disease instead of  the electronic phenomena of today.

We, as a fulfillment company, have also had to become a technology and information company. And in the past two years, we have invested heavily both in dollars and man-hours to stay ahead of both our competition and anticipate the new scope of information we receive, process and report.

Banking laws have changed recently and have put a greater responsibility on fulfillment companies to comply and be PCI compliant.

With new live reporting systems, merchandisers can decide faster–and with more accurate reporting–if their efforts will pay out or shut it down. With multiple methods of shipping product to the consumer, and the vast array of transportation prices, it is more important than ever for a fulfillment company to find the least expensive and yet the best method to reach the consumer.

ER: What, if any, technologies will influence the future growth of the DRTV industry?

Altman: Every day, we sit and ask: “What’s coming next?” and/or “What should we prepared for?” As an example, a few years ago, who would have imagined your cell phone would now become a personal shopping and advertising tool?

With the changing economic times, merchandisers are looking for newer ways to reach potential customers and technology will certainly be the driving force.

Now I can take my electronic book and, while reading my favorite novel, order a lawn mower or shoes. What will they think of next? If we knew the future for the next two years, we could get a head start instead of playing catch up when a new medium is developed.

I would also be buying stock in that company.

EDI has opened up retail distribution to over 400 different retail chains so merchandise can be ordered and shipped effectively.

Retail sales with certain DR items is still the key for merchandisers to become profitable and will need the support of electronic reporting and information transfer to be successful. This area will continue to develop. Retailers want to cut receiving and distribution costs, thus making the distribution centers map electronically to their specific warehouses and distribution centers.

Jeff Meltzer
President
Meltzer Media Productions

Electronic Retailer: What were you working on 25 years ago, in relation to DRTV?

Jeff Meltzer: I was privileged to be asked to join the infomercial world by Tom Fenton; one of ERA’s (then NIMA) founding fathers. We both transitioned from mainstream advertising to the direct response world. He shot, what I believe, was the first weight-loss infomercial, titled “You Can Be Thinner,” which starred Dr. Bruce Hensel (KNBC) and Dr. Judy Kuriansky (clinical psychologist). That was an immediate hit, so we proceeded to produce the first skincare infomercial called “Love Your Skin” with Linda Chae. That also became the first Spanish skincare infomercial, I believe.

ER: How has the DRTV industry changed over the last 25 years?

Meltzer: I think the main change is the way infomercial products are now sold. Back then, you could only sell on TV. There were no websites, no home shopping and retailers thought we were their enemy. Negative-option campaigns were legal then. Plus, the buying audience was fresh. No one had ever seen an infomercial so seeing a show and being able to buy something directly from TV was a new experience. Now, with the massive domestic and international growth of DRTV–in addition to distribution on the web, home shopping, radio, print, insert mail and retail outlets–there’s much more opportunity for mass success. On the other hand, cutting through infomercial TV clutter is more difficult than ever. The product, the problem it solves and the offer have to be better than ever.

ER: What trends influencing today’s market will shape the future of DRTV?

Meltzer: Truthfully, no matter how long infomercials are in existence, five categories will always sell: Diet, Exercise, Beauty, Get Rich Quick and Instant Miracles. If you look at what the bestselling products are today, they fit into these categories. Now there are higher-priced untraditional products and services being sold that expand this list, but for the most part, the more the market changes the more it stays the same. I think that the economic condition of the country is what will determine the selling trends for the future. Lastly, the reality TV format for infomercials seems to be catching on because it shows real people getting real results. This format is taking testimonials to a new level.

June 2010 – Feature: Gaining Shelf Time

Why Brand Marketers Should Use DRTV To Drive Bricks-and-Mortar Retail Sales

By Peter Koeppel

Bissell, Clorox and Kodak may not be names you would necessarily free associate with the PedEgg, Video Professor and Bendaroos, but all of these brands and products actually have something in common. Each of the blue chip brands listed, like their As Seen On TV counterparts, have used direct response television (DRTV) to promote themselves, even though the household brands are broadly distributed at traditional bricks-and-mortar retail. The reasons are fundamental: DRTV gives marketers the luxury of more time to educate and persuade consumers. When combined with the formidable savings on media that DRTV airtime affords, this channel of direct marketing packs a potent one-two punch that can powerfully augment any marketers’ advertising program. However, many traditional brand advertisers may still fear that this tactic might denigrate their brand. Or they may be dissuaded by their traditional advertising agency because it doesn’t understand the mechanics of DRTV success or because it values winning awards over generating revenues. Yet marketers from every category–from packaged goods, to fitness, even automobiles–can attest to the power of DRTV and how, when properly deployed, it can pull sales through at traditional retail storefronts.

Time is Money
With image-based spot advertising now largely relegated to 15 to 30 seconds in length, it isn’t a whole lot of time to make a lasting impression, particularly in a world where the average consumer is exposed to hundreds, if not thousands, of advertising messages per day. In short-form DRTV, the advertiser gets the benefit of 60 to 120 seconds to differentiate the benefits and features of their product. In other words, two to eight times the length of impression-based TV advertising to educate consumers and create a lasting desire for their products. And with a paid program, that window is lengthened to an entire 28:30 minute format.

But there is another huge advantage to direct marketers: the cost of airtime. Unlike general advertisers, who are given an audience guarantee based on Nielsen ratings, DRTV runs in broad dayparts versus specific shows and is subject to immediate preemption with no guaranteed delivery of eyeballs. In return for their flexibility and willingness to release the network of any audience guarantee liability, direct marketers pay approximately 30 to 50 percent less than their general counterparts, but get the benefit of twice the amount of time for their media-buying dollar. In the case of paid programming avails, infomercial advertisers pay a fraction of what they would pay for the equivalent of 57 back-to-back 30-second ads.

While cost per lead (CPL), cost per order (CPO) as well as media efficiency ratios (MER) (see Exhibit A) are the typical benchmarks that direct programs use to measure effectiveness, progressive direct agencies are now able to overlay traditional brand measurement metrics. Hence benchmarks such as gross rating points (GRPs) against a particular audience and the relative cost per point can be derived to give brand advertisers an opportunity to measure their direct ads’ effectiveness using yardsticks they are accustomed to. Long-form DRTV requires a more absolute leap of faith because Nielsen does not typically measure paid programming blocks of airtime. When one examines his or her cost compared to traditional airtime; however, that leap is rendered a rational step.

Buyer on Aisle Seven
When you examine the current retail landscape, dominated by big-box and mass-discount retailers and the club model, it is a terrain where consumers are largely left to their own devices to access their wants and needs and find products that will serve them. That may not necessarily be the fault of the retailer. After all, consumers want cheap prices and the Internet has conditioned them to be their own product sleuths. DRTV is akin to the consultative retail sell of old in that it acts as a shortcut that arms buyers with information, so they are empowered to make an informed purchase decision. As Arthur Wing, president of Little Giant Ladder Systems, comments, “To me, the infomercial is a 28:30 minute canvas that allows me to do a demonstration on my terms. We took a presentation we had perfected in person for 31 years, made it virtual and reached an enormous audience.” Wing’s product needed to educate the consumer–it was a paradigm shift for the ladder category that would have been lost among thousands of SKUs at the likes of Home Depot, without that consumer knowledge, especially since it cost several times what conventional ladders cost. In the process of familiarizing consumers with the Little Giant Ladder via DRTV, Wing’s company created a new product category and grew from annual sales of $20 million to a peak of almost $200 million.

Yet, some mass retailers may have the impression that direct response creates a competitive channel that diverts sales away from their stores, a contention that Scott Boilen, CEO of Allstar Products Group, marketer of the ubiquitous Snuggie, contends is not true. “We’ve seen many items promoted via direct sell between five to 20 times more at traditional retail than what we sell direct to the consumer. Whatever sales we derive on a direct basis merely enable us to pour more money into advertising and reach a broader audience that overwhelmingly chooses to buy at mass retail.” Like the Little Giant Ladder, the Snuggie defined its category much like Kleenex and tissue are synonymous, an incredibly important ancillary benefit in an era where many products are viewed as commodities, easily knocked off, or even forced to compete with private label or direct importation by these very same mass retailers. “The benefits of longer lengths and the ability to launch DRTV campaigns that become pervasive inoculates our products from brand switching,” adds Boilen.

The Same, But Different
When one examines the Rogers innovation adoption curve (see Exhibit B), which classifies the buyers of products into categories along a classic bell curve, it is useful to overlay the concept of DRTV as a mean of going to market. The direct method of educating consumers is best employed during the Innovators, Early Adopters and Early Majority phases of a product’s life cycle. Direct response has the best opportunity for success during these stages because an item’s unique selling proposition is still fresh and exciting to the consumer, and, ideally, not yet distributed at retail. This is why DRTV is perfect for the introduction of new technologies or consumer service models and has been employed by companies from NetFlix to TiVo. During this period, competition is frequently far less acute than it will be later, should the product gain broad acceptance.

But there are other enormous benefits to launching direct prior to going to retail. Successful direct programs can create demand from retailers for a product and give the manufacturer leverage when negotiating placement, promotion and margins. With a handful of dominant retailers calling most of the shots nationally, this is vital. Hence as a product reaches the top of the Rogers curve, some marketers will introduce their product at specialty retailers where they have a better chance of avoiding heavy discounts before moving on to mass, where such price reductions are perhaps inevitable. “We could have made concessions on prices that would have given us enormous orders,” Little Giant’s Wing conveys. “But instead we were steadfast about maintaining our minimum advertised price (MAP). You have to have that backbone to sustain your direct program and keep the whole sales machine moving and growing.”

Another tactic is to create different offer configurations for direct versus key retailers, who each want their own sweetened version of a product so that consumers can’t readily price shop them on an apples-to-apples basis. By keeping the TV offer distinct, marketers can extend the life of their direct program as they expand their retail presence. Having said that, as a product moves into the late majority phase along the Rogers curve, it is common for the DRTV campaign to transition from a profit center into retail support advertising. That isn’t to say that sales from the DRTV won’t continue to offset advertising cost, it is just that the more broadly a product is distributed at retail, the less likely consumers will be to order it off of television. Given the ability to touch it and buy it on-sight versus waiting and possibly paying shipping costs, the majority of consumers will opt for the former. At this stage, short-form DRTV spots often augment long-form programs, because awareness of a product’s benefits and features has been seeded by months or years of an infomercial airing. Short form allows the marketer to infiltrate more dayparts and perpetuate consumer impressions that will translate into sell-through at retail.

Give the People What They Want
At the same time, regardless of channel, clarity of message and availability of product that aligns with consumer demand are paramount. As Carey Grange, executive vice president of direct to consumer for premium skincare marketer Murad, says, “We expect that less than 1 percent of infomercial viewers will actually make a purchase, so it’s critical that we continually refine a touch-point strategy that creates the most likely path to purchase for each new lead generated by the TV media. With that in mind, we make sure that all our other sales doors, including online and bricks and mortar, are merchandised to match the message of our TV creative.”

As mainline product marketers such as packaged goods manufacturers have seen DRTV-built brands take over shelf space at retail, they too have gotten in the game. “The reality is there is less concern than ever from retailers over competition from manufacturers’ direct business, in part due to retailers’ growing power via consolidation, and their expansion of private label,” comments Ben Smith of the blog “Retail Leverage,” adding, “I don’t think the retail buyer spends much time worrying about you selling your product direct, as long as your product sells well in their stores.” The proof is apparent as DRTV products have migrated out of the As Seen On TV bin to virtually every corner of big-box retail, a testament to consumer demand whetted by another sort of box: the one in their family room.

Peter Koeppel is president of Koeppel Direct, a full-service media-buying agency based in Dallas. Contact Koeppel at (972) 732-6110 or online at pkoeppel@koeppelinc.com or twitter.com/DRTVBUYER.

May 2010 – Column: Shop Talk

Integration: The Key to Direct Success

By BJ Fazeli

According to Dictionary.com, the word “integrated” means, “combining or coordinating separate elements so as to provide a harmonious, interrelated whole.” It’s a particularly apt word for direct marketing, because in today’s consumer-controlled marketing landscape–where buyers freely trade product quality and price information–their experience has to be a consistently exceptional one. Having a firm grasp on every operational aspect of a direct marketing campaign is, therefore, critical. It’s a lesson the most enduring direct marketing companies have learned through trial and error over many years.

But if you’re new to this business, you can’t just wave a wand and acquire the infrastructure and expertise required to make it. So it’s logical that outsourcing makes sense. But choosing the right partner is crucial because while many agencies and companies assert they can produce seamless integrated marketing communications by leveraging their “turnkey” services, a closer look reveals that few can back up their claims. Further, many established firms offer only one option: a royalty model where the inventor receives a small, single-digit cut of profits in exchange for giving up control of his or her brainchild; a scenario many find unacceptable.

Changing Your Thinking
It is time for a new model–one that leverages the fully integrated operational expertise of an established direct marketing player with a deep track record of success, and makes this knowledge available to the general marketplace.

The challenge is most entrepreneurs who are trying to build a business do not have the time or the direct response (DR) expertise to manage many separate vendors, personalities, business processes and reporting systems. Further, direct marketing is all about testing and retesting; to quote one Nike campaign, “There is no finish line.” The argument for centralization rests on the notion that if one set of hands working in unison control the reigns of a campaign, it is far more likely to succeed. Compare this to a decentralized model where disparate supply chain partners are employed and you risk the “blame game.”

If the conventional wisdom in DR is that one in 20 or 30 campaigns actually work, that means the majority of the time members of your “team” are likely pointing fingers at one another for the failure of a campaign. In a truly integrated model, assuming your product has achieved some measure of market acceptance, the focus becomes on figuring out what the barriers to success are, shoring up those barriers, and then committing the resources necessary to test, gain marketplace intelligence and win.

When you consider all of the spokes on an integrated direct marketing “wheel,” which include but are not limited to: research, creative, packaging, production, media management, telemarketing, fulfillment and customer service, not to mention multiple direct channels, it is a daunting mix. While many direct marketing companies are adept at one or two aspects of the business, in today’s hyper-competitive and unforgiving environment, it is essential to choose a partner that understands how all angles interrelate in this multi-faceted industry.

BJ Fazeli is president of BJ Global Direct and Concept 2 Consumer in Irvine, Calif. Contact Fazeli at (949) 825-5822.

April 2010 – Channel Crossing: International

Know What’s in Store Before Going Global

After a dozen years focusing on sales in the direct response industry, I’ve learned a lot about what it takes to successfully sell products in the United States. Now I’m applying that knowledge internationally. Implementing a global sales strategy requires unwavering commitment, plus a passion to discover and pursue emerging opportunities. It also takes an open mind with a willingness to travel, accepting the necessity of periodic absences from family and the comforts of home. Being on call to respond to messages as they roll in at any hour of the day or night is part of the job as well.

TIPS FOR GLOBAL EXPANSION
The process of building an international business has provided an educational experience, teaching me as well as my colleagues lessons that ultimately will make us stronger in the global marketplace. Instructional volumes could be written about how to sell and distribute DRTV products around the world. To save time and keep it simple, here are some important things to keep in mind as you plan to bring your products to a worldwide audience:

You can’t rule the world from behind your desk! - That’s right, it’s a big world out there and you need to be prepared for long trips abroad. I am now spending about five to six months over the course of the year on the proverbial road. You need to get to know your customers and although e-mail, phones and Skype are great, there is nothing like meeting your customers face-to-face, seeing their offices and meeting their employees.

Think globally, but act locally - You can’t physically relocate to each country, but you can find the right people to support your business. We have spent the time to find the best sales managers and partners in the field. This takes work; it’s no different than building your support team at home. We now have sales agents who manage either a specific country or geographic territory. Between my travels in the field and bringing our foreign representatives to ERA events or other shows, we get plenty of face time–and tools like Skype and e-mail sure don’t hurt!

Listen to your customers – You don’t necessarily need to speak the same language to understand your customers. Something that’s an effective tactic in the United States might not work in another culture. Take the practice of upselling in which we offer consumers the opportunity to add items to their order at a promotional price. In U.S. marketing for Jack LaLanne’s Power Juicer line, for instance, we recommend people buy protein booster to supplement their purchase. But in many countries where credit cards aren’t widely used or aren’t used at all, upselling isn’t a viable approach. People who buy COD might balk at the added expense when they take delivery, which could lead to buyer’s remorse, jeopardizing the original sale.

Protect your customers - One of the biggest problems almost every industry encounters is counterfeiting. Protecting intellectual property is equally as important to international customers as it is to customers at home. Trademarks and patents must be addressed; you need to make sure your customers have complete protection on their IP. When the time comes (not if, but when), they need to protect their territories. The first question will be: “What IPs do we have?” Regardless of your strategy on who is applying for the marks or how they are being sought in general, these steps are essential. If your customer can’t protect the product, then everyone loses.

Certifications, approvals, multiple language manuals – This, by far, is the most time-consuming element in doing business internationally. No corners can be cut when it comes to meeting standards of safety and technical quality to obtain proper authorizations–be it Germany’s TÜV certificate or Japan’s PSE mark, which are similar to Underwriters Laboratories approval. It’s crucial to get the advice of knowledgeable partners who know what is required in a specific region. Similarly, you can’t print instructions and manuals in foreign languages without confirming appropriate translations and making certain conversions of weights and measures are correct. I could go on for pages about specific requirements and what happens when missteps are made by trying to rush through the process. Being patient and doing it right the first time pays off.

Lost in translation - We all know humorous stories about what happens when a word in English has a different meaning when heard in a different language–but sometimes it isn’t funny! Recently, we tested the Comfort Pedic Slippers in an Eastern European country and fortunately found out before it was too late that “pedic” actually meant…well, I will let you use your imagination. The takeaway from our experience is: Do your homework and speak to your customers. It can be amusing when it’s a friendly joke with your vendor, but a serious problem if it slips through the cracks and winds up in your show! Laughter is one thing; being a laughingstock is something else entirely.

As for languages, some countries are happy to use the U.S. version, including the English-language box and packaging, but others need everything translated into their native tongues. Once again, it’s crucial to listen to customers to find out what they want.

A top notch team - International selling isn’t a one-man show. I consider myself the front man leading a talented team of marketing and distribution specialists responsible for handling the countless tasks associated with a successful global sales operation. Having a solid support team is essential. We are only as strong as our weakest link, and I have been blessed with a strong chain of reliable people. Meeting customers and showing them product is the easy part. Managing the countless details that go into processing every order, shipping each container, applying for each trademark or translating each manual, retail box or sales sheet, these are the jobs that take real work to make sales happen.

From my experience, I believe that if done right–with the right products, the right support and realistic expectations–going global is well worth the journey!

Joe Urbay is director of international sales at Tristar Products Inc. in Fairfield, N.J. You can reach Urbay at (973) 575-5400.