May 2005 - A Road Map to DRTV

Three main routes can transport your product campaign to its final destination.

By Greg Sarnow

Television marketing has been at the forefront of brand building over the past 50 years. But in the last five years, marketing executives from multinational corporations to entrepreneurs, have found a better return on investment (ROI) when adding direct response television (DRTV) to their marketing mix. Even more interesting, elements of a DRTV transactional sales process are becoming more commonplace in general advertising campaigns.

Five reasons stand out why marketing professionals consider DRTV:

  1. Introducing a new product, service or idea to market.
  2. Giving life to a product performing below expectations.
  3. Repositioning an existing product or service.
  4. Explaining a more complex proposition value that needs more than 30 seconds.
  5. Helping a product in a cluttered category stand out.

Deciding that DRTV should be part of your marketing strategy is the first step. All too often the critical second step, choosing the best DRTV entry path, is where marketers can get off on the wrong foot.

Following are three main entry paths to DRTV, according to how the profits of a marketing campaign are distributed.

The first one is turnkey royalty avenue, where a direct response marketing company will attain the license for your project and take over the campaign from A to Z. In that scenario, you will end up with a royalty. The second one is the joint venture way, where you share 50/50 with a partner. The third one is the DRTV marketer path, where you manage the project in-house, take all the risks and get all the profit.

I will be examining the workings (pros and cons of each path) to help you discover the best way for your project.

TURNKEY ROYALTY AVENUE
If you have a great product but don’t want to raise capital or invest your time in marketing, the best thing you can do is find a reputable “turnkey” marketing company that specializes in building brands through DRTV.

Start with a general meeting or a phone call with a company that takes products from concept to household name. It is best to have applied for a patent before the meeting, and even better, if you’ve already received a patent. Before showing anyone your product, get one or two references. Talk to them extensively about their experience (both positive and negative) with the company you are considering. Keep the first meeting centered on the product category and the success this company has had in the past five years.

If you feel comfortable beyond the first step, have the company sign an Non-Disclosure Agreement (NDA). Many people think they are protected when they have someone sign an NDA prior to discussions. This is a false sense of security, as a signed contract is still only as strong as the person signing. But it is better to have one than not.

Since there are only a few companies that can take your product from concept to household brand name, initial interest is exciting, but due diligence is required. Most inventors and entrepreneurs are thrilled when someone shows interest in their product. Don’t let that initial interest blind you.

You can be sure any serious marketing company will do a rigorous evaluation of your product, including the size of the market, the manufacturing costs, financial feasibility, and how they would proceed even before they tell you they are seriously interested.

Likewise, you also need to do careful evaluation of the marketing company. Even after interest is acknowledged, step back and judge which one of these companies will be the best fit for you? The areas you need to judge are:

  • How much success in your product category does the company have?
  • What product categories have been the biggest successes for the company? A large fitness company will not be the best fit if you have a kitchen product. Keep looking for a better fit.
  • What kind of TV offers have been the most successful for the company? Soft offers, where no exact price is included in the commercial, need a very different kind of telemarketer and production strategy than hard offers, where the price is mentioned several times throughout the commercial. If you have a breakthrough anti-oxidant vitamin, and you know you will offer a “Buy 3 Get 1 Free” special, don’t choose a company that specializes in $19.95 household widgets. It won’t be a great fit.
  • Is your product likely to reach retail shelves? Make sure that your partner knows the retail landscape for your product category and can leverage the DRTV campaign for a full retail roll-out.
  • Will your product need to be made overseas? If so, manufacturing quality is critical. If the product will be manufactured in China, find a marketing partner with employees in China so they can micro-manage quality control and production schedules.

The last, but one of the most important issues about hiring a DRTV marketing company, is the financial agreement you can expect.

Take a deep breath. Your product is your baby. You’ve taken it all the way from an idea to a patented prototype. No doubt you want to make several million dollars for your invention but, in most cases, that is not realistic.

Remember, the marketing company will put up all the risk capital. They will get manufacturing started, buy inventory, make an infomercial and test it on TV. Dollars invested proving the concept are the riskiest dollars spent. Plus, if you have a successful test, another round of financing occurs for media purchases, which can increase capital needs exponentially.

These large investments in capital, human and temporal resources are only worth it to the marketing company if it makes the lion’s share of the profits. That is why a royalty deal works well in this scenario. A royalty means that for every product sold, you get a percentage of net sales. The percentage is usually between 2.5 to 3 percent. It’s a great deal if you have a fantastic product but no inclination towards marketing or capital investment.

Experienced people in the world of DRTV know that, only one out of 15 projects are successful. Even that number is deceiving. The experience of these DRTV marketing companies increases their percentage of winning shows to one out of four, which is much higher than the number for the entire industry. Therefore, teaming up with a DRTV marketing company will give a greater likelihood of success.

PROS

  • Experienced marketers have better success rates.
  • Experienced marketers have expertise in a complete marketing strategy from concept to household name.
  • Direct response marketers know how to leverage a successful DRTV campaign into a worldwide product launch.
  • They have the capital to make it happen.
  • They have the infrastructure, capital and human resources to keep trying until it works.

CONS

  • It’s difficult to get the interest of turnkey marketing companies.
  • After expressing initial interest, it is often hard to read the intention of the marketing partner.
  • It’s often slow to make a deal, jeopardizing the entire product because of similar products coming to market.
  • Royalty deals typically are not as lucrative as the inventor or entrepreneur had hoped.

THE JOINT VENTURE WAY
The second way to get into the DRTV industry is a joint venture. If a project is beyond its initial stages, but still needs further funding or a partner with DRTV experience, a joint venture may be the best alternative. Unless there is a disproportionate equity position between partners, joint venture deals are often a 50/50 split.

The biggest challenge in a joint venture goes beyond funding. Is there someone on the team with sufficient DRTV experience to be able to lead the DRTV project? Is the team capable of coming up with the messaging necessary to turn a looker into a buyer? Do you know the offer that will create a sense of urgency to buy now? Do you know how to find and manage the service providers necessary for a successful campaign? If your campaign becomes successful, you will spend more money on media than any other component. Do you know how to micro-manage media buyers, so that you are one step ahead of them instead of one behind?

All of these issues are at the forefront for success, because they will either generate greater revenue or save money spent needlessly. In DRTV campaigns, small expenses can have a huge effect on profits. If you and your venture partner are lacking in any of these areas, find advisors or employees who will get you up to speed. Otherwise, it will be very risky to go into DRTV. Additionally, very good legal advice is needed for joint ventures, especially if there is a 50/50 split and total agreement is necessary for a strategy to be implemented.

PROS

  • Most 50/50 deals come from investors outside the DRTV industry that don’t have expertise in marketing but do have cash looking for investment vehicles.
  • Considerable development beyond “concept” makes a joint venture a more attractive deal for both parties.
  • Other gaps in knowledge can be bridged by experienced DRTV educational organizations, which don’t have a hidden agenda or are subtly making a sales pitch.

CONS

  • Lack of DRTV marketing experience.
  • Partners don’t usually add core talent needed for implementation.
  • Often, final decisions can be based on shareholder’s equity, not sound marketing judgment.
  • Additional funds for legal advice can be considerable.

LEARNING TO BECOME A DRTV MARKETER
There are several situations where the only path to consider is learning to become a DRTV marketer yourself. Taking a DRTV project in-house and either utilizing your own resources or outsourcing can simultaneously be the most rewarding and the riskiest of endeavors.

Here are some of the decision factors that make it more favorable to keep a project in-house:

  • If you have already taken a project well beyond the concept stage;
  • If you manufacture or manage manufacturing yourself;
  • If you have favorable delivery times and payment terms from your manufacturers;
  • If you or an existing partner have the funding necessary;
  • If you have the marketing and sales experience to know what it takes to turn a looker into a buyer; and
  • If you have more than one of the above qualifications, and you have the time necessary to implement a DRTV marketing campaign.

Building and implementing a marketing plan, where DRTV is one component, will require a strong team and a strong leader. Do you have the necessary DRTV experience to be the driving force of your campaign? Without good DRTV leadership, bringing a project in-house can be risky because of the many tactics needing to be implemented simultaneously.

CHASING CAPITAL
Capital requirements and cash flow need to be understood and managed very carefully. If ever there was a business that lived by the numbers, DRTV is that business. The last thing you need is to create a commercial, buy the inventory, hire a telemarketer, purchase the media, put it on-air, have a great result and then run out of money.

There are many more projects chasing capital than capital chasing projects. The old adage, “once you have success, finding money is easy,” is not true anymore.

There are currently a wide variety of financial instruments to help capitalize a proven DRTV campaign. Media funding, multi-pay financing and retail factoring are just a few. Operational capital from outside sources can really help you choose carefully where to put your own funds. But, these instruments alone will not be enough to fund a campaign. If there are any hiccups along the way, under capitalization could put these financial instruments in default and put the entire project at risk.

EXPERIENCE IS KEY
Experience will fall into three basic areas:

  • Choosing your DRTV team
  • Negotiating deals
  • Managing the service providers

As mentioned above, the experience with manufacturers is the most critical, as quality control can derail even a very successful project.

Internet, retail, catalog, international, home shopping and e-mail campaigns are all positively impacted from a successful DRTV campaign. Coordinating the roll-out strategies of each of these venues can impact ROI dramatically and if done correctly, will work together to enhance your DRTV campaign.

For firms lacking in experience, there are several organizations that provide education and training in DRTV.

PROS

  • You will receive the greatest financial rewards when successful.
  • You will be translating and communicating your vision into a marketing plan better than anyone else.
  • You’ll be closest to the data for project evaluation.

CONS

  • It’s the greatest capital risk.
  • Only one out of 15 DR campaigns are successful.
  • Over-confidence needs to be compensated by experienced team members who are listened to.
  • Lack of funding can increase costs and limit opportunities (oftentimes seen in very successful projects).

Experience, capital and time. These three resources will be the key determining factors on the best way to get in the direct response television industry. However, “Product is still king!”

Once you have a product that has a true advantage over others in its field, the DRTV format can be the best way to communicate the message.

Greg Sarnow is founder of the Direct Response Academy, a DRTV educational training organization in Austin, Texas. He can be reached at (512) 301-5900, or via e-mail at [email protected] We would appreciate your feedback. To submit comments, please point your browser to roadmapmay.marketing-era.com.

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