March 2008 - Channel Crossing: Online

Are You Undermining Your Direct Sales?

By Kenneth R. P. Osborn

Most of today’s DRTV marketers have a business model where retail sales are the prime goal. This is a fantastic way to create wealth, but some practices being used by these marketers, and the parties they employ to wholesale their products, are doing something that undermines the DRTV ad campaigns themselves. It has to do with selling the retail goods to entities that, in turn, market the products online for less than the TV offer.

Marketers are selling the retail items wholesale and then the wholesale buyers are marketing the retail items online via search engines and affiliate marketing. These sales compromise the DRTV campaigns themselves, because consumers looking for the TV offers online find their way to the wholesaler buyers’ sites where they make their purchase rather than purchasing products from the marketers’ sites. There is practically zero accountability for these sales, leaving the marketers with the impression that the TV ad dollars aren’t paying out. What makes matters worse is the marketers are selling the retail items and not the mail order packages. This allows the wholesale buyers to sell the main items for less than the TV offers. Consumers looking for the best bargains online find and purchase them from the wholesale buyers’ sites and not directly from the marketers.

It is important to understand that marketers come up with “TV offers” in order to produce the ever-so-critical high average revenue per order amounts, which are critical to making a campaign succeed. Just selling the retail items alone generally doesn’t produce enough revenues to offset the price of media. For example, a typical $19.99 TV offer is comprised of the base unit and a premium or bonus item. The retail item is just the main item, which typically retails for $9.99. Let’s say the TV offer is “Buy one, get one free, only $19.99-and get two free widgets.” The manufacturer has a “special TV offer” created to build the value (the mail order package).

Thus, they have to cover the costs of two main units, as well as the two free widgets. At the same time, the marketer is most likely selling the retail unit wholesale for as low as $4.50. Wholesale buyers purchase the retail item and sell it online for $9.99 and literally win the business away from the marketer. Or, even worse, the wholesale buyer offers the base unit for $14.95, still underselling the manufacturer, but increasing their margins. When the manufacturer goes out to compete on the search engines or looks to pay affiliates for sales, it has fewer margins with which to work.

The point is that wholesale buyers are selling retail items of the TV offers for less online than the marketers’ offers. Therefore, they are in a position to pay more for clicks, affiliate orders and other online marketing than the marketers themselves. Most important, you need to understand that these sales are compromising the very effectiveness of the DRTV ad campaign.

Manufacturers have to come up with a way to work with the wholesale buyers of goods and understand this macro event in order to see more success. What’s more, controlling the sale of retail goods and timing the sales is a critical element of today’s DRTV direct/retail sales model.

Kenneth R. P. Osborn is CEO of Liquid Focus, a full-service e-commerce and interactive marketing agency based in Westport, Conn. He can be reached at (866) 892-0259.


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