Thoughts on TV Marketing: Infomercials and 2-minute spots
by Mike Marks
Updated June 16, 2020
TV is a great way to introduce a new product. Features and benefits can be quickly communicated to a large audience. Retail buyers are more likely to accept a new product if it has TV support. And when a TV product has wide retail distribution sales volume grows exponentially.
If it is possible to sell your product on TV, then you should do it. But be prepared for knockoffs. Nothing gets the attention of knock-off artists like TV success. Ideally your TV campaign should begin after your patents have issued. That way you have a loaded weapon to fire when knockoffs appear. A pending patent is like a gun without bullets - it has potential to protect you in the future, but is impotent today.
The following discussion does not apply to home shopping channels such as QVC and HSN. Viewers of these programs often feel a relationship with the hosts and business and trust that what they are seeing and being told is true. Home shopping products typically sell at 1.5X-3X wholesale price.
This article applies to 2-minute direct response TV spots, and 30-minute infomercials - the kind you often see on the Weather Channel, Animal Planet and ESPN-2. Think Ab-Roller, Ginsu knives, Topsy-Tail, Ron Popeil, and George Foreman.
The biggest lesson I learned in TV marketing is that the true quality of a product has virtually no impact on its success or failure on TV. I participated in the production of 6 direct response TV spots (Gator-Grip was the most successful) where ALL of the people involved said things like, "Wow! This is really a great product! What a change from the usual junk we deal with! This has to succeed." Only to find that the wonderful aspects of my genuinely great products did not immediately communicate to a mass audience - the initial TV spots failed (later ones had success). Meanwhile, much to my chagrin, inferior junk was seeing great success the first time out.
Most people watching TV spots believe they are being lied to. They discount 50% of what they see. Thus, to communicate the true benefits of a legitimate product, a marketer needs to exaggerate by 100%. (It is a chicken and egg thing, we do not need to worry here about how this situation came about). Some products lend themselves to easy exaggeration while remaining within the bounds of law. Others do not.
For example, we all KNOW we need to sweat to get an effective workout from an exercise product. The people who buy from TV (primarily women) know it too. But no one wants to believe it. We are always looking for an easy way. If I show sweat and effort in the TV spot for my new exercise product I will probably fail. A successful exercise product should look like it does the hard work for you... and it should look fun. This concept can be generally applied to all TV items.
Ideally a product can be exaggerated 100% on TV, but also be legitimate and really useful. That is the case with our Gator-Grip. The TV spot implies that this one tool will replace an entire tool box (of course it will not), that it is the only tool you will ever need (no way). However, the product DOES do everything we claim (we make some big fat claims). It really works. And when someone buys it they are happy with the quality and performance - it works better than they thought it would.
The basic rule of sales is under-promise and over-perform. In TV marketing this rule roughly means that you should exaggerate by less than 100% - that way the received product will be better than expected. Note that any claims you make in your spot must be true. Exaggeration comes not from claims but from implications.
Typically the products you see on TV sell for 5X cost and more (the cost of TV time is going up and it is harder and harder to be profitable). Thus, a $20 item typically costs the TV marketer less than $4. If the seller of the product is making a typical markup of 50% the actual product cost is something like $2. There's little room for healthy inventor royalties in this equation (Read the article Money & Inventing to learn more about product pricing and how much is available for the inventor).
In the case of Gator-Grip the product was sold on TV for $20, cost more than $4 produce and no royalties were paid. Because of the value of TV advertising, WorkTools (the inventor) agreed to take no royalty and Endeavor (the manufacturer) agreed to sell to the TV marketer at below cost. If we had actually produced the spot and purchased the TV time ourselves it would have cost us more than what we lost on the units we sold to the TV marketer. We got the advertising we needed at a fraction of the cost - the advertising supported a solid retail sales program where both Endeavor and WorkTools made real money from the invention. In fact - over a decade after the last TV spot ran, people still remember the TV spot and the name Gator-Grip!
Much of the cost of TV marketing goes toward the purchase of TV time. The remainder goes to product cost, the TV marketing company and the producer of the TV commercial itself. A typical 2 minute direct response TV spot costs $30,000 for a video production + 2% of sales (paid to the producer). Also note that the TV marketer typically gets a cut of around 5% of sales made to retailers during the time when the TV spot is running and for up to a year or more after the spot terminates.
The standard measure of success in TV marketing is a term called Cost Per Order (CPO). CPO equals the cost of the product (including royalties) plus the amortized cost of TV time per order. For example, a product costs $5, the TV spot costs $500 to air and 50 people order - in this example the CPO is $15: $5 for the product plus $10 for the TV. If only 20 people order the CPO is $30: $5 for the product plus $25 for the TV. To make money the CPO needs to be below the offer price. If the offer price is $20 then a $15 CPO would be very successful and a $30 CPO a loss.
In addition to considering CPO TV marketers also look for income earned from up-sells. An up-sell is something the consumer learns about after responding to the TV offer. For example, in an earlier version of the Gator-Grip spot we offered a ratchet wrench as an up-sell. When a consumer called to purchase a Gator-Grip he/she was asked, "would you like to buy a ratchet for an additional $10?" Up-sells can turn a marginal TV offer into a winner and are thus very important. If you think your item is right for TV consider other items that you can sell along with it as up--sells.
Also, more important than ever these days, is how money is shared on sales in retail stores and online after the TV campaign ends. Because TV has become so expensive, the main way TV marketers make a profit today is by getting a share of retail profits. That share has become an key negotiating point.
Negotiating deals with TV marketers can be complex. Beyond standard contract issues such as payment terms, product cost and territory there also issues of rights. For example, who owns the TV spot? Deals can go in all kinds of different directions. It's important to use an attorney specifically familiar with TV marketing deals.
Mike Marks is President of Invention City and has been active in the field of product development since 1987. In conjunction with WorkTools, Inc. he has brought numerous products to market directly and through licensing agreements with others.
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