Over the years, they’ve been comfort to insomniacs, the punch line of many jokes, and the butt of “Saturday Night Live” skits. But here’s something you may not know about infomercials: They work, and a growing number of small businesses are using them.
In fact, amid widespread weakness in the retail sector, companies behind the Shamwow, PedEgg and other products are thriving, thanks to infomercials, also known as direct-response television, or DRTV.
TeleBrands Corp., creator of the PedEgg foot-care product, says profits are up 30% from the same period last year. Square One Entertainment, Miami Beach, Fla., the seller of the Shamwow absorbent towels, says it has sold 48 million Shamwow products since launching in November 2007. Both companies declined to reveal revenue.
Sam Catanese, president and chief executive of Infomercial Monitoring Service Inc., estimates the number of businesses using infomercials has risen 10% in the past year.
The recession, he says, “means more sales as businesses are getting better air time at lesser prices and more people are watching in places they weren’t watching before.”
Indeed, some of the companies using direct-response television ads say they’re reaching consumers at a time when many people are jobless or spending more time at home, watching more television. Many of these consumers are often looking for a quick fix—or simple luxury—for the right price, says Ajit “AJ” Khubani, chief executive of TeleBrands, of Fairfield, N.J., whose products also include the Stick Up Bulb, a light that doesn’t need wiring, and Doggy Steps, portable stairs for pets.
Typically, DRTV comes in two forms: Two- to three-minute spots and 20- to 30-minute infomercials that explain how a product is used, and why the customer needs it, through demonstrations and testimonials.
These spots offer small businesses a way to advertise inexpensively and get quick, measurable results. The cost of television ad time has fallen as much as 50% from years past, largely because so many Fortune 500 companies slashed their advertising budgets, particularly in the auto and financial-services industries. Suddenly, DRTV advertisers had access to cheaper ad spots on more popular networks, which meant that infomercials could air at better time slots with more viewers.
“Prices became negotiable and networks were willing to unload” certain time slots for “fire-sale prices,” says Mr. Catanese.
It’s easy to track the success of such ads because customers make their purchases either through a Web address or a toll-free phone number, producing a clear record of each transaction for comparison against when the infomercial was aired. Results can be seen within minutes.
If a product in an infomercial doesn’t sell well within three to seven days, the company can pull the ad and try a new approach without continuing to waste money. Typically, infomercials are deemed successful when their sales make a profit of at least one dollar for every dollar spent on advertising, Mr. Catanese says.
Roger Fredericks, founder of Fredericks Golf, uses 30-minute infomercials to sell a set of three instructional golf DVDs for $89.95. For the first six months on the air, for every $1,000 Mr. Fredericks spent on advertising the DVDs, he says he made $2,700 in sales.
Mr. Fredericks, who teaches golf at La Costa Resort and Spa in Carlsbad, Calif., says that when he started airing the commercials in 2005, “my notoriety went up five levels. The infomercials opened up so many doors for me.” His classes were booked for six months out and people began to book him as a speaker at conferences and golf outings across the country, he says.
Mr. Fredericks pulled the ads for a while, he says, when media prices rose. But six months ago, he jumped back in. Now, instead of paying around $24,000 for a Saturday-morning show on Comcast Corp.’s Golf Channel, he says he is paying closer to $10,000. As rates fell, for every $1,000 he spent, he sold $3,000 in DVDs. But as summer approaches, he says, rates are edging higher. Mr. Fredericks says the DVDs have grossed more than $7 million since 2005.
In January 2008, Smart for Life Weight Management Centers, Boca Raton, Fla., decided to sell weight-loss meals and products through infomercials with the idea that the ads would drive traffic to its centers. The company spent $600,000 to produce two spots.
Smart for Life estimates it will have sold more than $22 million worth of products through infomercials by year end, “which we think is a phenomenal growth in the environment we are in,” says Rich Kayne, chief operating officer for the company.
Direct-response television doesn’t always translate into direct success. The upfront costs can be high, and experts say that generally only one in 10 products that rely on infomercials succeeds.
“Our new product launches fail 90% of the time, and that’s one of the highest batting averages in the industry,” says TeleBrands’ Mr. Khubani, who has been in the direct-response television industry for 25 years. Mr. Khubani says small businesses looking to sell products through infomercials still have to evaluate their products closely through good market research.
The start-up cost of a DRTV campaign that includes short spots and long-form commercials can range from $500,000 to $1 million, depending on the production quality, time slots and channel. For example, a spot at 1 a.m. on a national channel could cost as little as $200, while a prime-time slot on a business-news channel could cost $3,000.
Typically, a business will need to use a media buyer or advertising agency to help it haggle for rates and buy media time from various networks. These agencies may also help the business create and produce the ad.
Some small businesses that want to save on their advertising costs buy time through Google Inc., which currently allows advertisers to buy television ads on channels provided by Dish Network Corp., Englewood, Colo., General Electric Co.’s NBC Universal and Bloomberg LP’s Bloomberg Television.
Other campaign costs in addition to the advertising itself include hiring a knowledgeable support staff to answer phone calls and emails, and to handle shipping and returns of the products.
Says Mr. Khubani, “It’s not as easy as it looks.”
Shelly Banjo, The Wall Street Journal. May 11, 2009
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