Is Direct Response Right For You?

The answer is a very definite “maybe.” Direct Response, like every other form of advertising has its time and place. I believe that Direct Response has the widest range of possibilities. After all, the purpose of any advertising is to build and enhance a brand name, with the goal of generating revenues as that brand awareness grows. Direct Response advertising is designed to create awareness in the fastest possible time frame, and at a fraction of the cost of traditional image advertising. At the same time, Direct Response allows the merchant to begin generating revenues immediately. The Load Handler was a perfect example. According to Terry Jones, $5-6 million was spent on advertising overall, and most everyone who owned a pickup truck (around 30 million people) knew what The Load Handler was.  Imagine! More than 8000 stores took The Load Handler in less than two years. “You can’t do that with $5 million in traditional media. You just cannot do it,” Terry said.  At the same time, they sold – as Terry puts it – “a ton of units.” It is no stretch to say that Direct Response is worth some serious consideration.  

Should You Take on a New Client?

When a potential client comes to you with a Direct Response inquiry, your first question should be, “What do you want to accomplish with Direct Response? Do you want to make one sale, or do you want to build a long-term relationship with the same customer?” The answer to that question will determine the way that you approach the campaign. If there is a very transactional approach, Direct Response is used in one way. You should put the product into the market and get consumers to buy it. But if you are building a brand, you need to develop a long-term relationship with the consumer.

With the answer to that question and a host of others, you can then work with the client to create an advertising campaign. You are not married to any particular medium. Create a campaign with the components that history has shown – will have the most potential to get the client the result he or she wants. For example, if you have a national firm with a regional or local offer, Direct Response is a good way to take it. Insurance comes to mind. Insurance laws differ from state to state, and sometimes from county to county. So an insurance company could run national awareness ads and complement them with regionally oriented Direct Response ads that address the concerns of the people living in those areas. A national ad can certainly create awareness, but it does not mean much to the individual consumer until it is broken out to a more local offer. 

When utilized for the right products and in the right way, Direct Response can build powerful brands quickly and efficiently.

The one thing you should not do is take on a client whose product or service, in your best judgement, won’t work with Direct Response.  In other words, you should always want to do the right thing. Ask your employees to ask themselves a question whenever they work on a proposal, “Would I write a check for that?”  If the proposal will not return any revenue for the client, the answer is “no.”  So, if a product is not right for Direct Response, you should say so. Will this caused you to pass on some business?  Sure it will. A potential client could come in and show you the most interesting product, but if the markup is not right for DRTV, you should tell them so. It might work as a retail product, as a point-of-purchase product, but not as a television product. However, if their mind was set on DRTV specifically, then they will probably just go to another agency that will produce an underperforming spot that does not meet the measures of a successful campaign.

What Will Not Work

There is a category of products that just does not measure up for an effective Direct Response campaign. I simply refer to them as commodities – commonplace products that you can pick up at any retail store. These usually do not work well with Direct Response, and the reason is simple. The cost of any Direct Response campaign – and the subsequent markup you’d have to put on the product as a result – would price items beyond their perceived value. People won’t pay too much for a commodity, even if the Direct Response campaign meets their desire to have it right now. In fact, many commodity items tend to be impulse buys at the retail checkout counter anyway – the desire for “right now” is already satisfied.  Examples are general health-and-beauty items, books, magazines, chewing gum, photographic film, paper, and food.

There are exceptions to this general rule, but they are few. Time-Life, for example, sells books through DRTV spots, but it is not a one-time sale. Sold individually, a book does not have the markup room needed, but theirs is a “continuity” program wherein the customer buys a whole shelf full of books one month at a time. There is profit in that.

What Does Work

There are going to be some exceptions to these rules – there always are – but Direct Response works when certain criteria can be met regarding the characteristics of the product, and characteristics of the brand. Obviously, the more of these criteria the product or service meets, the better the fit with Direct Response.

Product Characteristics

Broad audience appeal. Generally, products or services in niche markets don’t work as well with Direct Response. There must be a large enough potential market out there to give you a profit.  And this is somewhat of a balancing act between the retail price and the size of the potential audience.  If the retail price is higher, the target audience can be a bit smaller. The Load Handler continues to be a great example. There is probably an audience of about 30 million pickup truck owners, who largely happen to be male. You might consider that a niche market. However, the retail price of the product was more than $100, so the profit margin for each unit was pretty good. The decision to use Direct Response turned out to be a good one.  On the other hand, if the item had been priced at $29.95, a maximum potential audience of 30 million might not have been good enough.

Demonstrability. Products that are highly demonstrable are ideal for Direct Response. Television is great at this, of course, because it is a visual medium. But demonstration is also possible on radio, in print, and on the Internet. If you’re able to show how your product can fill the potential customer’s wants, so much the better. In fact, in many cases, Direct Response is the only way to properly demonstrate how a product or service works.

Unique healthcare programs – or any complex service program – such as ExpressMed, were a good examples. There is not enough time in a 30-second or 60-second commercial to explain the program, let alone arouse enough viewer interest to get them to dial the phone for more information. A long-form DRTV program is required to explain the program and generate interest.

The Scooter Store was another example. People who considered themselves healthy would not buy something traditionally thought of as being for the halt and lame. We had to create a program that explained the benefits, and more importantly, showed healthy people using the scooter.vThis takes more time than a 30- or 60-second spot.

Uniqueness. The product or service is enhanced if it has an easily understood and demonstrable uniqueness. It doesn’t have to be completely new, like The Load Handler. In fact, variations on an already successful product are easier to sell than something completely new.  At the height of the fitness craze, for example, there were about eight products that claimed an improvement in technology that would lead to a flatter tummy, and they all did well with Direct Response.

There’s a back end. Do not let the size of this paragraph fool you, this may be the most important criterion.  You want a customer, not just a sale. King Gillette made his fortune by selling replacement razor blades, not by selling the razor blade handle he invented. In other words, what additional products or services can you offer after the first sale? This is about building a loyal customer following and if you have got a product that employs expendable parts, you may have a winner there.

Sufficient transaction margin. In Direct Response, you have to know ahead of time what you can afford to spend in advertising to get an order. This is called the “allowable cost per order (or lead or package).” Usually, we just refer to it as the “allowable.” Determining your allowable is easy. You subtract all your costs and your desired profit from the price you are selling the product for, using one unit as a measure. What is left is what you can spend on advertising to complete one transaction.  

Based on the transaction margin, and researching the cost of various media, you can determine the best Direct Response advertising mix for your product or service. Then, once the campaign begins, you want to be able to change an advertising channel as soon as possible if it starts costing more than that allowable.  

Brand characteristics

Brand loyalty and Direct Response. A friend of mine once told me, “There is no such thing as customer loyalty. The loyalty always flows from the company to the customer -from the company’s image and behavior and from the customer’s experience.” Having a brand is important. Two-thirds of all consumer activity is based on brand. People do not buy soup, they buy Campbell’s. They do not buy laundry soap, they buy Tide.  My ex-wife loves Tide. She would not buy anything else. When OxiClean came out, we ordered some. Sure enough, it did some things Tide wouldn’t do – some things Tide was not meant to do, of course, but she did not care. She still used Tide in her laundry. So, we bought both Tide and OxiClean.

If you have a strong brand, Direct Response can help you hold onto it. If you have a new product or service you want to turn into a brand, Direct Response can help you turn consumers from their current brand to yours.  Brand loyalty can be fragile.  Direct Response can make yours stronger. 

The ability to change set perceptions. Another brand characteristic that works well with Direct Response is the ability to change set perceptions. How does your brand set itself apart?  What do you have that even the established competitor brand doesn’t have? I believe several key questions must be addressed in order to be effective in changing set perceptions:

  1. What is your unique selling proposition or key differentiator? In other words, what can you claim that no one else can?
  2. What is your theme (hook)?
  3. What is your incredible promise?
  4. What is your call to action?
  5. What are you going to bring to the brand?

Michael Dell is a great example. His unique selling proposition was cost. You could get the same quality computer from him for significantly less than you could at the computer store. As time went on, he added customer service as one of his strong points. Today you can order precisely the configuration you want – memory capacity, speed, peripherals, and so on – and in many cases, even have it up and running at home faster than if you’d gone to a retail store to pick one up yourself!  That’s what he brought to the brand. Today, when people think of Dell computers, they think quality, price and service. That is the Dell brand. And it was created solely through Direct Response.

GEICO is a household word primarily because of its unique selling proposition. The Gecko is the hook. The incredible promise is “15 minutes could save you 15 percent or more on car insurance.” The call to action is simply, “Call now!” What GEICO brings to the brand is a great experience talking to GEICO’s incoming telemarketers. As the result of an integrated Direct Response legacy, GEICO Direct has changed consumer’s set perceptions about car insurance. Other Direct Response insurance companies have since come on the scene, and a number of previously established brands have adopted Direct Response techniques.   

Progressive Insurance differentiated themselves by offering to compare their rates with other insurers, even to the point of recommending those other insurers if the other rates were better!  You may recall the tag line from the commercial spot, “I did not expect that from an insurance company.” Then they brought 24 x 7 claim service, in the form of the well-known Progressive white SUV’s, directly to the scene of the insured’s accident or location.  And Progressive claims to be the first “traditional” insurance company to begin offering auto policies directly to the consumer.

A little track record with Direct Response

Historically, products and services that have worked well with Direct Response include healthcare or personal development products (vitamins, sex-drive pills, wrinkle removers, skin softeners, tooth brighteners, exercise equipment, diets, waist reducers, and hair care); home and garden products (hoses, painting systems, lawn fertilizers, sprinklers, garden tools, workshop tools, and mosquito repellants); leisure and recreation products (barbecue grills, golf clubs, travel, and CDs and books on improving your [name it] game); accessories and electronics (jewelry, clothing, sunglasses, televisions, stereos, CD/DVD players, and computers); business opportunities (real estate investment, home-based businesses, and franchises); kitchen gadgets of all types; and services (insurance, pre-paid dental and legal, retirement planning, and child-support-payment collection).

As you can see, these products represent the widest possible range of goods and services. But they all have plenty in common – broad audience appeal, demonstrability, uniqueness in some way, some kind of a back end, and a sufficient transaction margin or “allowable.”  The most successful, the ones that truly built a brand identity also have built a loyal brand following, and even changed some set perceptions about their product or their industry.

Case Example:  The Scooter Store

Let us take a look at one of the more successful cases histories I have experienced in my years running my agency Warren Direct. The Scooter Store successfully used Direct Response, and based largely on the above criteria, revived and enhanced a great brand. 

The Scooter Store began doing business back in 1991, selling powered wheelchairs and scooters that average in cost from $5,000 to $6,000. They were regionally based in the southeastern United States, and targeted patients who qualified for Medicare payments. They were so confident in their pre-qualification process, that if Medicare did not pay for one reason or another, the company would not ask for the wheelchair back. How’s that for a unique selling proposition? The customer could keep the chair and the company ate the loss. Furthermore, the Scooter Store emphasized customer service. It serviced its own products with its own employees. The Scooter Store was quite successful with this proposition, and began expanding its market, first in the Northeastern states.

In 2000 their direct mail campaign reached a point of equilibrium. The Scooter Store was breaking-even on its advertising costs and sales. They were continuing to expand geographically, but they wanted to raise their market share in the markets they were already in. They decided to try DRTV and integrate it with their mail campaign. They targeted their mailings more tightly – which raised response rates from that channel – and created 60-second and 120-second DRTV spots. Thanks to DRTV in the last 18 months, not only were they able to expand nationwide, they were able to further diversify their advertising portfolio by adding cable, syndication, and network buys.

When the Scooter Store went into a new market they used DRTV and direct mail simultaneously. Some of the leads that would have come in later from direct mail started coming in earlier in the cycle from the DRTV spots. By 2003, the DRTV channel was responsible for two-thirds of the Scooter Store’s sales volume. 

In terms of response, the overall volume of leads from direct mail in individual markets stayed the same. The cost per lead was slightly higher than with DRTV, but the conversion rate is higher. This was because the direct mail piece could be more informative than the short form DRTV spots. The cost per sale from DRTV was lower than it was with direct mail, but because the conversion rate was also lower, the cost per sale for each kind of advertising was about the same.

The Scooter Store’s market share stood at 30 percent, which was a pretty comfortable figure when you consider there were about 5,000 companies that sold the same product in the United States. At the same time, the company wanted to branch out into other markets with complementary products, knowing full well that if it had only one egg in its basket it was setting itself up for catastrophe.

Looking at its figures, the Scooter Store found that of the 25,000 or 30,000 leads generated monthly, about 80 percent of them could not qualify for Medicare reimbursement. This was a huge number of unserved patients who literally raised their hands and said, “You know, I’m having trouble getting around. I could use a scooter or power chair.”  So there it was – the Scooter Store had in its database hundreds of thousands of prospects, gathered over time, which needed a $5000 product they could not afford. The Scooter Store wanted a way to help these consumers with an alternative they could afford and pay cash for.

Together with huge market of people over-55 people who did not necessarily have a mobility problem, but who may have just wanted to get around a little easier, the Scooter Store was presented with a compelling new market potential. They designed a small, sleek little scooter called the Star, which they could sell for less than $1,000 to this market segment. Now, if a caller could not qualify for Medicare payments, the inbound telemarketer advised, “That’s okay. We have a scooter you can have for less than $1,000.” Suddenly there was a solution for around 20,000 prospects per month that had none before.  

Now, those consumers over the age of 55 with light or no mobility needs might be a little hesitant to consider something regarded as for the infirm. In fact, there are no great indicators that showed people over 55 to look for a scooter, or even think about them. How does one reach that untapped market? They could buy a bunch of lists, but thanks to a pretty good track record with DRTV, they decided to give television a try once again.  They came to us, and the prospects added up very favorably.

This was a well-established brand from a company that focuses on building relationships.  The allowable was obviously excellent, and the product looked extremely good in demonstration.  

What was most exciting is the product’s ability to change perceptions. For this market, the Scooter Store’s advertising labels the Star a “personal transportation vehicle” that was fun and “sexy.” The product is completely unique, and with this approach our client was able to develop a whole new market – active adults over 55 who enjoy a fuller life with their very own personal transportation vehicle.  Essentially, they were selling freedom through personal mobility.  They literally changed the perception of power chairs for an entire market segment. The idea that this is some kind of physical assistance was not even in the picture. Did it work? You bet. With these methods, the Scooter Store is selling more than 1,000 Stars a month.

The Road Not Taken

I’ve said it before, and I’ll say it again: Direct Response may not be for everyone, but everyone should consider it. Direct response is an efficient and effective tool for brand creation, brand enhancement and opening new markets. I sincerely believe there is a greater risk in not considering Direct Response. The safest and most efficient road towards branding success, in my opinion, leads right through Direct Response. Again, images of carnival pitchmen and shady salesmen are no longer valid – if they ever were.   

When a Direct Response campaign is developed correctly, you can use it without alienating your current distribution chain. In fact, it can increase profits for everyone involved, including your agents and retailers.  By developing a national Direct Response campaign, you can provide more resources to your distribution chain than ever before.  

When the product or service is right – when it can meet the required price points, mass-market appeal, and other criteria – there is no better way to bring a product to market quickly.

Direct Response is also the best “focus group” you will ever have. At little cost, relative to traditional image advertising, the marketplace itself is your focus group. Ford and Coca-Cola found this out the hard way with the Edsel and New Coke. Focus groups told both companies that those products would fly. The marketplace proved the focus groups wrong.

With Direct Response, you can make money – or at least break even on your advertising costs – while getting a new product or service into the marketplace.  Direct Response has far too many positive facets to leave it under the table. Whether used alone or in conjunction with your other marketing and advertising methods, it can make the difference between leading your industry, or scrambling desperately to catch up.

By Jim Warren

Jim Warren began his professional career in the television and production industry working in Southern California where he discovered that he had a natural sales talent. Combining this talent with his love of film and video production, he built (and eventually sold) the largest infomercial production company of its day. Jim learned how the direct-response industry is an effective training ground for an analytical thinker who loves measured marketing and business metrics. With today’s focus on accountable marketing and online media, those lessons provided him with the advanced insight and skills needed for today’s online metric-driven business model. Connect with Jim Warren on LinkedIn