The Anatomy of a Successful Infomercial

Guest Post by Justin Fay of Jaya Productions

Infomercials are the butt of a lot of jokes. And with good reason. Many of them are terrible. One reason? The production cost of a typical national commercial is around $11,000 — $12,000 per second. The production costs for an infomercial averages about $138 per second. The following is a quick overview of the structure, formulas, and economics of why some succeed and a lot fail.

HOW IT USED TO WORK

“One-step” infomercials — so called because they were single-purpose campaigns, with no secondary sales points or retail components — made up about 75 percent of the direct response television (DRTV) landscape through the late 1980s and early 1990s. Outsourcing and internationalization made bringing new products to market cheaper than ever. As the market became flooded with new entrants, the success rates on one-step infomercials plummeted to 10% or less. Response rates — the number of viewers who bought something while watching an infomercial — dropped into the 1% range, where they remain to this day.

CORPORATIONS TAKE OVER

The DRTV landscape experienced a seismic shift away from mom ‘n pop advertisers and toward big companies. Firms, like Telebrands, that consolidated their power after a string of early hits in the medium, began to dominate the space. Big consumer-product brands, like P&G and even Apple, followed soon thereafter.

These firms took a more sophisticated approach to DRTV than their smaller, fly-by-night predecessors. They wanted to do everything possible to mitigate the 90% failure rate. Three tactics proved especially successful: 1) moving away from “direct” sales and toward integrated campaigns that drove purchases in retail stores; 2) using DRTV as an inexpensive testing vehicle, rather than an all-or-nothing launch pad; and 3) maximizing margins by relentlessly optimizing costs and sales prices.

The paradigms they set in place are the new norm of the infomercial industry. Despite appearances, it’s not about selling you anything. It’s about selling you to retailers — running cheap tests in local markets, building local retail relationships, then moving up the chain to national deals. This is where the big bucks get made, and it’s the reason the once humble medium is poised to become a $250 billion industry in 2017.

THE END GAME

DRTV viewers, today, are the beta audience for Walmart shoppers of tomorrow. If you see a wacky product advertised on TV at 3 a.m., chances are, it’s part of a test in a tightly controlled enterprise sales campaign. Many aren’t designed to sell products; they’re designed to test the salability of those products in a mass-market environment, like Walmart. No matter how crazy the infomercial appears, the campaign is all about minimizing downside and maximizing upside. Producing compelling spots is simply a means to an end. This formulaic approach has been making money for years.

CELEBRITIES ARE WORTH THE INVESTMENT

Using well-known spokespeople, like the late Billy Mays, or celebrities, like George Foreman, runs up production costs ($250,000 for a half hour show), but the investment can pay off. A 1999 study found that using celebrities in DRTV spots could result in a 20 percent lift in response rates.

Celebrity partnership deals can be struck inexpensively if the brand uses a deferred payment structure. Companies often pay celebrities in equity and/or royalties on unit sales, avoiding up-front costs at the possible expense of long-term margins. A good example would be The George Foreman Grill. It ran at a successful and profitable response rate, before securing lucrative distribution deals at major retailers.

LIMITING THE DOWNSIDE

And what holds true in controlling production costs holds even truer of media buying. Infomercials are usually bought through local television stations in half-hour blocks. There are approximately 212 local markets offering these blocks, giving the buyer the ability to target specific regions and defraying the risk of a national network buy.

For $50,000 or so — half the cost of 30 seconds of primetime — a marketer can buy ten 30-minute infomercial slots. For comparison: a six-to-eight-week test run of infomercials on local TV can cost $150,000 to $250,000; the same period in network primetime can run $15 to $30 million. There is a tradeoff. Advertising during fringe hours of the morning reaches far fewer eyeballs. This means that, on a cost per thousand (CPM) basis, infomercials aren’t that much cheaper than network daytime or primetime.

Increasingly, large corporations are spending more in the DRTV space:

· Braun, Mattel, and Magnavox are using infomercials to drive their retail sales.

· J&J spent $22 million on infomercials in 2009 to launch its Neutrogena SkinID line.

· SC Johnson spent $21.7 million on infomercials to support its Ziploc and Oust.

· P&G has made infomercials a cornerstone of its Olay-brand moisturizer campaigns.

As for the little guys? DRTV is now a hostile medium for them, due to the high failure rate of releasing new products to market through late-night ads. A crazy concept, like Perfect Polly, could easily flop on introduction. But even if it does, it’s just one of about 50 products that Telebrands introduce each year. Telebrands absorbs countless misses to land a solid hit.

Jaya Productions sprang to life in the vibrant tech mecca of Seattle, WA in 2001. The early days included work on campaigns such as OxiClean, Space Bag, and George Foreman Grill. As the company matured, it grew into the broadcast space and corporate video, editing and finishing shows airing on networks like A&E, HGTV, and History, as well as work for Amazon, Real Networks, Microsoft and the Bill and Melinda Gates Foundation.