Sunday, April 27, 2008

DRTV - Mistakes made & Lessons Learned

When we started the infomercial projects, my personal objective was to observe the entire process from a close distance.  We knew from our research that a successful direct response television (DRTV) campaign would require a perfect execution of video production, logistics and broadcasting.  We were also well aware that it would be a miracle to hit a home run on the first shot. While hoping for the best, the game plan from the very beginning  was to  minimize the risks as much as possible.   We were focusing on gaining the first hand knowledge of  all the pit falls of the direct response marketing while avoiding any severe negative impact on the rest of the business. As part of the risk mitigation strategy, we got several stake holders involved in the potential risk and reward of the project. 

Our initial target markets were Canada and the United Kingdom. We found out at a later point that the UK had a very rigorous and strict approval process for the infomercial before it could be aired.  We easily got the approvals in Canada but the objections from the UK approval board required us to redo the entire production from scratch.  In the future, we would not take a single step in the UK without getting the script approved first.

Another mistake that we made was that we chose to go with a product that was already selling well through our retail customers including the Shopping Channel. Successful direct response products always go from TV to retail sales. As we learned through experience, a backward scenario can create a lot of conflicts especially in the flexibility to structure the price to be successful on TV.  A product (or a similar product) that is easily available in the nearby store shelf is generally not a good candidate for DRTV.

There were some good lessons to be learned on the production front as well.  If I had to name the most critical factor in the success or the failure of an infomercial, I would say it's the host who is presenting the product. A host must be able to get in front of the camera and get the viewers to a state of mind that it will be the biggest mistake of their life if they do not buy the product right now. We selected the hosts with acting background thinking that they would not be shy in front of the camera. However, a good actor is not necessarily a good sales person also who can sell a product with conviction on TV.  An infomercial host has to be an evangelist who can demonstrate his/her passion about the product on camera.  One of our big mistakes was that we did not screen-test the hosts before the actual day of filming.  If I knew then what I know now, I would have stopped the filming and would have given our hosts few more weeks to rehearse the entire script a few dozen times using a handy cam. We had good hosts but we did not provide them enough time and guidance to master the script.

Talking about the script, we had it written by a writer who was very experienced in writing dramas and did an excellent job of writing the script more like a documentary.  Once again, if we had to do it all over again, we would give her a proper guideline to write the script.  We also counted on a producer that we hired to know all these things, but apparently, while he had some experience with the film industry, was absolutely clueless about the infomercial production.

Although it might sound like we dived into this project without thinking much but the fact is that we did put a lot of thought into this entire process from day one. We overcame many technical challenges,  successfully executed the filming process, created wonderful animations, beautifully edited the video footage and came up with an impressive CAT (call-t0-action).  We gave this project to Alive Pro Studios knowing it very well that they did not have much experience producing an infomercial for DRTV. However, it was worth the risk given that we had years of working relationship with them and knew that they will give it their best.  And they did.  The final product was an artistic master piece but just did not deliver the results for the infomercial to be a success.

In the direct response industry, the only measure of success of the infomercial is the amount of revenue that it produces.  At the end of the day, being the president of  Heaven Fresh, I take all the responsibility of less than perfect outcome of the project. The only thing I would add here is that this is not the end, it's just the beginning.  We will go back at it and and I am very confident that all of this time and money investment will pay off in a big way down the road.

If you are interested, you can watch the infomercial here.

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Monday, April 21, 2008

Heaven Fresh Infomercial Results

I have written a couple of posts in the past about Heaven Fresh infomercial and I wanted to summarize the results as we concluded the trial in January 08.  To sum it up, this experiment cost us approximately $125,000. A rough breakdown of the figures is as follows:

Total Sales:.............................. $30,000
Product Cost:........................... -$10,000
Production Cost:...................... -$55,000
Media Cost (Air Time):............. -$70,000
Miscellaneous Costs:............... -$20,000
Net Loss:................................. -$125,000

As it can be seen from the numbers above, we achieved an MER (media efficiency ratio) of 0.5  i.e. for each dollar that was spent on buying the air time, the infomercial produced 50 cents in sales.  Even though being on TV does give the company some brand exposure, a micro multinational simply cannot sustain the purchase of expensive airtime without pulling off enough sales to at least cover the air time costs. The rule of thumb is that a direct response TV campaign has to achieve an MER of  at least 2.0 for it to be considered 'viable'.  I used the word viable because, although monetarily we took a hit on this experiment, I still consider it very 'successful' as we ended up learning a lot from our first direct response venture.

Given that the profit margins are just about 10% in our business, it takes one million dollars in sales to cover a loss of $100,000.  As expensive as it might sound for a micr0-multinational to produce and broadcast an infomercial, anyone familiar with this industry knows that the above mentioned numbers are small potatoes even for running quick trial.  If an infomercial campaign takes off, it can produce millions of dollars in sales very quickly.  Obviously, this potential reward simply cannot be realized without a proportional risk attached to it.

This is not the end for us when it comes to direct response, this is just the beginning. We know what to do and most importantly what not to do next time.  Although, we hoped for the best but we also prepared for the worst. Even when we started it, in my mind, it was mostly about going through the process and learning the intricacies of the direct response industry. Obviously these valuable lessons had some tuition cost associated with it.  I whole heartedly believe that the time and money spent on this project are going to pay off for us in the near future. I will try to shed some more light on the things that we did not do right in a subsequent post.

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