Friday, June 03, 2005

The Reinvention of the Infomercial

The “long-form” format of commercials otherwise known as infomercials has been plagued by a past reputation of cheap production and a mass peddling of junk products. The key word is past; now infomercials are creating a medium for mass appeal products that could give commodity products a decisive competitive advantage in an increasingly crowded market.

In the past infomercials were seen as a way to peddle junk products that were traditionally marked up ten times or more over their direct price. Most of the products were not available in retail outlets and were housed in warehouses ready to ship. The number of infomercials that were pulled by the FCC and/or charged with deceptive advertising was many. Many of the infomercials were aired late at night to prey upon unsuspecting insomniacs. The primary products advertised were fitness and diet, health and beauty, home convenience appliances and get rich quick schemes.

There are now a number of successes from the infomercial sector. The George Foreman Grill has earned $1 billion in sales; ironically good infomercials also drive traditional in-store sales because the retail revenue from the hit infomercial by Foreman was many times higher than actual infomercial sales. Ron Popeil has sold $1billion worth of Ronco rotisserie ovens. Endorsements for Proactiv acne products ($2.1 billion is sales) from such mega-stars as Jessica Simpson, Alicia Keys, and Sean (P. Diddy) Combs have encouraged us to do a double-take. Infomercials are well-suited for introducing new products, high-ticket items and complex products within the specified time format by varying between entertainment, information, and a hard pitch that includes multiple calls to action and purchase incentives. Interactive television technologies such as digital cable, satellite TV, TIVO, and video-on-demand are creating new infomercial sales opportunities.

The products that have been successful as mentioned have mass market appeal and solve a common denominator problem. The products must seem like a bargain. Quick, easy, greed, new, fun, and vanity must be reiterated many times over to appeal to the masses. Only one in sixty infomercials turns a profit. The products traditionally have been easy to demonstrate and all have been pitched as a story to tell. Approximately thirty percent of viewers will buy anything from the TV. However as aforementioned good infomercials boost brand awareness and motivate shoppers to seek products in retail stores. In light of this it seems appropriate to build a two-channel sales strategy.

Fortune 1000 companies are seriously integrating infomercials into their brand differentiation strategy. Apple Computer, Braun, Nissan Motors, and AOL Time Warner have started using the infomercial medium to combine rigorous product development, exhaustive consumer targeting, and daily scrutiny of advertising rates to create pitches that can be altered to maximize sales. Joined with the opportunity to boost margins by selling directly to consumer infomercials can be a powerful tool to create brand recognition and translate it into sales. Land Rover and Disney are creating their own infomercials. The brand recognition power comes from viewer recall which can be three times higher than for traditional 30-second spot commercials. Approximately ninety two percent of consumers have heard of the Nautilus Bowflex home fitness system (featured in infomercials), about the same number of people that recognize the Nike brand.

Experienced infomercial producers have begun to take a “soup to nuts” approach when marketing its marketers by changing product packages, collecting customers’ cash and purchase data and building customer loyalty. Warren Direct, the direct marketing firm for the SCOOTER Store, identified the target market, repositioned the product and designed complementary messages that created synergies which reinforced the SCOOTER Store brand name. Warren Direct also asserts that there are 14 steps to infomercial success including “The Art of The Sale”, “The Art of Delivering the Brand Relationship”, and The Science of Analytics.

Many industries could leverage the power of infomercials to give them a strategic advantage in the ever increasingly competitive commodity markets. Automobile manufacturers such as Nissan and Land Rover have already begun implementing infomercials into their brand awareness strategy. The automobile is essentially a commodity which has an increasing number of new manufacturing entrants. To distinguish themselves automobile manufacturers such as Ford Motor Company spend roughly $30 billion for commercials per year. At the same time audiences are scattering as television fragments into hundreds of cable channels and the Web, video-games, DVDs, MP3 players, and satellite radio compete for consumer attention. The infomercial segment could allow this same company to target its products directly at consumers. Jac Nasser former CEO of Ford Motor Company actually envisioned the two-source strategy during his tenor at the automaker; Nasser felt automobiles should be made to order and available through e-commerce (website) and through traditional automobile dealerships. Recall that effective infomercials use a two-source strategy that requires products to be available for purchase directly through infomercial and retail outlets. Product differentiation could be further realized through the infomercials and reach consumers on a more cost effective basis than what would have been otherwise possible.

Infomercials are just beginning to be realized as a powerful medium for building strong brand recognition, cost effective advertising, and product development strategy. We believe this type of medium should not be overlooked in increasingly competitive commodity markets where company’s struggle to differentiate themselves.

Submitted by:

Sachin Kelkar
Riahna Phillips
Bryant Houston

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