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Here
are the important rules that most successful TV products follow:
1.
Margin - Whether you
are buying TV time, or having stations air your product on a P.I.
basis, you must have an appropriate margin between your cost of
goods and the retail price. Most direct response television
advertisers work on a 5:1 margin, i.e. a product selling for
$19.95 should not cost more than $4 to produce. Selling a
product on TV is quite expensive; not only do you have the cost
of media to contend with, but you have costs of telemarketing,
merchant processing, etc. You need a proper margin to support
these costs. P.I. is no exception! Consider that the normal P.I.
commission on a $19.95 offer is 40-50% of the selling price or
$8.00-$10.00. Any less and stations will view your commission as
sub-par and will not air the offer!
2.
Mass Market Appeal -
Television is a medium for everyone. Therefore, TV products must
appeal to the largest possible market. Consider products that
you have seen frequently on TV. These products always have mass
market appeal.
3.
Novelty - Not only
must the offer appeal to a broad-based market, it must have a
unique selling proposition. For example, the product should
fulfill a dream, make life easier, provide a magical
transformation, or offer immediate gratification.
4.
Value - The offer
must have a high perceived value for the price you are asking.
This is a tough one when you consider the margins you must work
within. Consider adding a relevant, low cost premium with the
main product to increase the perceived value of your offer.
Examples would include a free mold-less sponge with a floor
cleaner or free mouth wash with a teeth whitener product.
5.
Price - For impulse
items, $19.95 is the magic price. If you go any higher than
$29.95, although there have been exceptions to the rule, it is
less likely that you will be able to sell your product using one
or two minute television commercials. If your price point is
higher than what an impulse buyer will respond to, then you need
to consider using a "long form" infomercial (28.5
minutes). The whole issue is one of perception of value. To get
a buyer to respond, you need to create enough value with respect
to the price point. For products priced higher than $29.95, it
is very difficult to say enough about the product in one or two
minutes to create sufficient value in the consumers mind.
6.
Demonstration - You
need to be able to tell your story and demonstrate the product
in the commercial. For impulse items, (priced under $29.95), you
are limited to one or two minutes. The demonstration should be
dynamic and believable. How well the product demonstrates has a
lot to do with success! If you can't demonstrate the product and
create sufficient value within the time constraints of a
commercial, it probably isn't right for TV merchandising.
7.
Media testing - All
direct response TV offers should be tested before the advertiser
considers PI advertising. This is one of
the reasons why we don't test products on a PI basis. A
station's commercial time is valuable and should only be
invested in proven offers. Therefore, the advertisers should
budget for a cash media test after producing a new direct
response TV offer. If the test is successful, we highly
recommend that you consider PI Advertising in your overall
media.
8.
Cost of Doing Business - Let's
look at a typical example of PI deal for a $19.95 plus $5.95
S&H product (total: $25.90):
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Cost
of PI Media: |
$8.00
per sale |
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This
would be what you would pay us, the PI agency, for
each sale generated. In turn, we pay the stations from
this. In other words, this is the entire commission
per sale including station fees. |
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Cost
of Telemarketing: |
$2.50
per sale |
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You'll
need to have your phone calls answered on a toll free
800 number. In addition to the toll charges, there are
scripting and call center charges. We recommend
contacting a telemarketing provider for this type of
service. |
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Cost
of Fulfillment: |
$4.95
per sale (est. cost of S&H) |
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While
this fee is meant to cover postage and handling, most
marketers allow for a little cushion of profit in
shipping charges. Actually, your fulfillment company
does a lot more than just ship the product to the
consumer. The fulfillment company interfaces with your
merchant processing bank and the telemarketing
company. Usually, they are highly automated and
computerized companies who also handle customer
service for you. They issue refunds, track shipments
for your customers and keep your customers happy. We
recommend contacting a fulfillment company for this
type of service. |
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Cost
of Merchant Processing: |
$1.00
(or upwards of 4% per sale) |
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This
is the discount fee to accept and process VISA,
MASTERCARD, DISCOVER, AMERICAN EXPRESS and other
credit cards. Rates are generally higher than regular
merchant accounts since you are considered to be a
mail order merchant taking verbal orders over the
phone. We recommend contacting a Credit Card Processor
for this type of service.
Recap - After all costs of media,
telemarketing, fulfillment, and merchant processing
are considered, you have a minimum of $9.45 left over.
Assuming you have a 5:1 margin ($4.00 cost of goods)
you should net $5.45 per sale on a Per Inquiry basis.
This doesn't include upsales.
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9.
Upsales - Almost
without exception, direct response television marketers will
make consumers a special offer when they call to order the
original product. Some offer the consumer a discount on
additional items purchased, while others offer a savings on an
attachment or related product.
Consider one client
who sold Pepper Spray on TV. When customers called they were
offered a discount on additional keychain Pepper Sprays. After
which, they were offered a refill canister for an additional
$9.95 telling them how important it was for them to regularly
refill and test their pepper spray unit. The end result was that
the average sale generated multiple orders and nearly 60% of
those who ordered purchased the additional refill canister. This
client made more on the upsales than the original offer itself!
10.
Agency - Your
success has a lot to do with choosing the right Agency. Not all
agencies are right for everyone. The existing portfolio is a
major factor to consider, as well as price and excitement about
the product. Very few offer a turn-key approach to television
and retail exposure.
Special
notes about P.I.
Per
inquiry advertising (PI) is also known as cost-per-lead,
cost-per-sale, or C.P.A. advertising. It is a risk-free way to
market products and services via direct response television
nationwide. PI is an efficient form of advertising where a
television station agrees to advertise a commercial on a results
basis. Advertisers pay the station a fixed cost per lead or per
order.
To
determine if PI Advertising is right for you, also consider the
following questions:
- 24 Hour Call Center
Operation
Can your operations handle calls 24 hours a day, 7 days a
week?
- Ability to Provide
Call Tracking & Reporting
Can your operations track the dialed toll free number for
each call and report the sale via computer?
- Branding
Is your marketing compatible with using 25 different phone
numbers and Web URL’s?
For instance, 1-800-DENTIST cannot be successfully
advertised on a PI basis using different numbers.
- Profitability
Is there a profit margin which you can share with the
stations?
- Existing Creative and
Test Results
Do you have an established track record for your offer
including current cost of media?
- Ability to Advertise
Nationwide
Does your company have the infrastructure and finances to
advertise nationwide?
The
bottom line is that if the product doesn't rate very high when
measured against these rules then you should consider
another form of marketing than Direct Response.
In closing, for those of you who
would like to submit a product or commercial for consideration,
please complete a needs
analysis and we will promptly respond to your inquiry.
(reproduced
with authorization)
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