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Less than a minute into a half-hour infomercial for Miracle Skin Transformer, a persuasive male voice intones: “Customers of Sephora, the top retailer in the world, have given Miracle Skin Transformer gold-star status.” Three minutes later, the audience is introduced to brand founder Sarah McNamara as she’s speaking to customers inside a Sephora.
This story first appeared in the April 12, 2013 issue of WWD. Subscribe Today.
“That is the first time a retailer has ever partnered with an infomercial and, obviously, Sephora is thrilled because they are being mentioned on an infomercial,” says McNamara. However, she adds, “Sephora doesn’t think they are in an infomercial. Sephora thinks they are in a beauty ad.”
“As seen on TV” is becoming as seen, well, everywhere. Once considered a seedy vehicle for hucksters peddling kitchen gadgets and exercise gizmos, beauty marketers like Guthy-Renker, Bare Escentuals, Murad, Philosophy and Mally Beauty have legitimized direct-response television (DRTV) as a sales channel. Prestige retailers and brands have taken notice, and the beauty infomercial business is booming.
As with most gold rushes, those that strike it rich are few. Info- mercials have unique financial dynamics that outsiders frequently can’t make sense of no matter how much they pay for TV time. (Olay, Clinique and Neutrogena have all experienced how tough it can be to crack the code.) Even for infomercial specialists, the financial picture isn’t as rosy as it once was. The digital revolution makes getting a sale over the phone—DRTV’s historical bread and butter—harder and harder, while media costs are poised to rise and competition is fierce.
Still, the cash is flowing. Multichannel marketing-analysis firm Marketsmith Inc. reported that spending on long-form or 28-minute, 30-second beauty infomercials that run in the late night or earlier morning hours when there’s little else on TV increased 47 percent to more than $174 million in 2012 year-over- year, with almost 60 new beauty infomercials launched. In January of this year, spending on long-form beauty direct-response television ads climbed 38 percent compared to last year. Short-form infomercials have seen massive growth, too. According to data provided by Kantar Media to Response Magazine, spending on the 30-second, 60-second, two-minute, three-minute and five-minute spots that air throughout the day totaled nearly $1.8 billion during the first three quarters of last year. Although the fourth-quarter numbers weren’t out before WWD Beauty Inc went to press, if the spending trends continued, 2012 would mark the most spending on short-form infomercials since the 2008 economic crash.
“The economy is growing. Our current advertisers are continuing to spend—they are introducing new products and supporting them—and we are getting interest from advertisers who may not have been in DRTV before,” says Steve Miller, senior vice president at short-form DRTV media agency A. Eicoff & Co. The agency cited Kantar Media informa- tion to summarize the skyrocketing spending on two- minute short-form spots: It jumped 117 percent from $638 million in 2007 to $1.39 billion in 2012.
On the consumer end, shopping via DRTV is incred- ibly popular. Eicoff collected data from Experian Mar- keting Services’ Simmons National Consumer Study that found TV orders from online, phone and catalog sources rose 17 percent from spring 2011 to spring 2012 and 30 percent from spring 2006 to spring 2012. Consumers spending more than $1,000 annually as a direct result of TV ads increased 26 percent between spring 2006 and spring 2012. During the same period, there was a 35 percent increase in consumers who spent $150 to $199 annually and a 5 percent decrease in those spending less than $50 per year.
Beauty is by far the biggest category in direct response. In the third quarter of 2012 alone, Kantar Media figures show nearly $621 million was funneled into short-form drug and toiletry spots. The category in second place was household, furniture and appliances with a comparatively meager $107 million in spending. In long form, Monica C. Smith, president and chief executive officer of Marketsmith, estimates there are 15 major beauty players spending a total of $2 million a week on infomercials to reach women primarily 15 to 55 years old. By all accounts, it takes outlays of at least $75,000 to $100,000 weekly to make the top-25 list of direct-response spenders.
The money keeps on piling up. Guthy-Renker, the largest direct-response company with some $1.5 billion in annual sales, predicts its media budget will escalate this year, according to cofounder Greg Renker. (To give an insight into Guthy- Renker’s girth, Kantar reports that the company shelled out almost $69 million on Proactiv Solution short-form spots in the third quarter, exceeded only by varicose veins remedy Livariz’s $70.6 million spend.)
There’s no shortage of entrants into the direct-response space. In February, Mar- ketsmith reports that there were nine fresh shows, including relatively new entrants like MaxiLift, ElevenSkin and Elastin 3 in antiaging, Color Recover in hair color and Haute Polish in nail. Smith says, “This space is going to explode even more with the consumer product giant entrants. This trend will not go down. You will see more entrants in the marketplace than ever before.”
Granted, the lure of the infomercial is strong. But while they can be unbeliev- ably lucrative, the hurdles are high. The industry standard is that eight out of 10 infomercials bomb, a ratio that has remained the same despite the fact that everyone in the business knows the components of a winning infomercial: an efficacious product that creates a change, before-and-after images that capture that change, compelling testimonials, a captivating founder and perhaps a celebrity or two for good measure, a broad potential customer base, an offer that customers perceive as having value, and sizable margins. (In ballpark terms, margins on beauty infomer- cial products can be as much as 70 percent or as low as 30 percent.)
“If Johnson & Johnson or Procter & Gamble said to us, ‘You can have the keys to the candy store. We want you to start marketing our products,’ our first questions would be: Who is the creator of the product and what is their vision? Why did they want to sell [their product?]” says Renker. “That’s the art of what we do.”
“If your product shows before-and-afters and you have great testimonials, that is where you have had success on infomercials. If you don’t have that, this is not your venue for selling,” says Kathy Fields, who, with fellow dermatologist Katie Rodan, developed Proactiv. “We are the acne queens. So, pimple, then no pimple is a great before-and-after.” Rodan adds, “The ingredient that made Proactiv so spectacularly successful was that the brand served a need, not a want. Having a product that is a needed product and not something that is just desired is critical for success.”
Rodan and Fields make it sound simple, but the process of developing an effective infomercial can be onerous. Atlantic Coast Media Group, marketer of Hydroxatone, Keranique and Sarah McNamara Beauty New York, spends $200,000 to $300,000 to produce an infomercial, which is on the low end of a cost spectrum that ceo and founder Tom Shipley says is usually around $700,000 to $750,000, but can shoot up to $3 million to $5 million.
To begin, Atlantic Coast will test four or five different infomercial scripts to start. “Our goal within the first couple months is to find one or two winning concepts and then increase the media spend to see if they have legs,” Shipley says. The company often starts on radio before heading to TV; on average, one out of 20 radio scripts is successful. When those successful radio scripts are translated for short-form TV spots, one out of three are successful. “Typically, we are looking for a profit target. We are looking for a minimum rate of return of 25 percent on our media investment,” says Shipley. ROI is commonly understood, but the indicators DRTV experts use to analyze infomercial success are decidedly not. A key indicator is the media-efficiency rate or MER. The MER is the return on a dollar of media spending from the initial order. For example, a .4 MER means an infomercial marketer is generating 40 cents immediately when a customer purchases a product for every dollar spent on media. Other important indicators in the financial equation include the cost per order, which covers the cost of acquiring a customer, and the lifetime value of a customer, which factors in the additional revenue from future orders if customers are put on continuity programs. Tony Besasie, president of media agency Cannella Response Television, points to an MER of 2 as the “fundamental benchmark” of infomercial success. “If you spend $100,000 on media a month, you should expect to see $200,000 in sales that month,” he says. That’s a terrific goal, but Kevin Appelbaum, president and ceo of Tria, says an average beauty infomercial probably generates an MER of .5 or .6.
Infomercial beauty marketers are discovering the MERs of yesteryear aren’t being replicated. “The media environment is now very competitive with increasing rates and decreasing inventory,” says Marina Randolph, executive vice president of direct at Murad. “Beauty infomercials are lucky to get an MER of 1.0 today on the front end.”
With the economy improving, media rates are expected to stay the same or rise. “Rates are a condition of the economic factors of the marketplace,” says Besasie. “If consumers aren’t ordering and consumer confidence is low, the rates need to come down. If consumers are ordering, then there is a demand for media, and rates will increase.”
Throw paychecks for celebrities into the mix and the road to profitability becomes more arduous. But it’s hard to unearth a DRTV executive who makes the case against celebrities. Fields calls celebrities “channel stoppers.” “Celebrity still works,” she says. It only takes a few minutes of watching Guthy-Renker’s Mean- ingful Beauty infomercial to gauge the importance of star power: Cindy Crawford, Debra Messing and Valerie Bertinelli all make appearances in the opening minutes.
Social media has further increased the value of star power. Although social media is responsible for a tiny fraction of sales—Smith estimates only 3 to 5 percent for long-form DRTV infomercials—the audience is crucial to building brand awareness. The Twitter audiences of the musicians Guthy-Renker has signed up as Proactiv spokespeople speak volumes. Justin Bieber has 36.5 million Twitter followers, Katy Perry has 34 million and Adam Levine has nearly 4 million.
Celebrities or no, the profitability of infomercials can ebb if they are on air for prolonged periods. The industry norm is to refresh the creative content about every year and a half. Additionally, if they had the category to themselves when they launched, success attracts competitors quickly (see Bare Escentuals, which is thought by sources to have generated MERs of up to 4 with its initial infomercials, but is far from hitting those numbers of late. Bare Escentuals declined to comment for this story). Ultimately, there may be a point at which an infomercial has touched as many customers as it is probably going to.
The No!No! hair-removal device is a high MER holdout so far. Dolev Rafaeli, president and ceo of parent company PhotoMedex Inc., says its infomercials have maintained an MER of 3.5 since it launched in DRTV in 2008. The company spends about $1 million a week in advertising and has spent about $150 million over the last three years. No!No! requires a towering MER to make its infomercials profitable because it doesn’t rely on additional lifetime value. If an initial purchase is three payments of $89.95 plus $14.95 in shipping and handling, that $284.80 is probably all the product is generating in revenues on a majority of customers.
In contrast, sources say that Guthy-Renker’s Proactiv relies on smaller MERs of roughly .6 to .8, but makes its infomercials work based on the lifetime value. Renker breaks down the MER situation by talking about Perricone MD’s Cold Plasma Sub- D jawline, chin and neck products. Guthy-Renker offers two different collections of the antiaging products at $49.95 and $79.95 per month versus $19.95 for its Proactiv system. “We are taking in more dollars per order [for Sub-D] and therefore we can afford to take in less reorder in the aggregate. On Proactiv, we take in less dollars and, therefore, we need more reorder,” he says.
Not too many marketers have mastered the reorder portion of the business. “The infomercial industry in general focuses too much on acquiring a customer and not enough sophistication is happening retaining a customer,” says Randolph. “A lot of people may offer some small additional benefits, but no one has invested a lot on retention.”
Smith says most people pay for an infomercial product an average of 1.3 turns. “It is between that second and third package where most people drop off,” she says. “A good rule of thumb is that 70 percent of the people will cancel after the first leg and then 30 percent fall off every leg after that.”
The reliance on reorders is partly why skin care is such a sweet spot. Compared to other categories, customers are willing to pay a premium for treatment products and stay loyal to them longer, which ratchets up the lifetime values commanded from infomercials. Many marketers also contend that it’s difficult to starkly present the benefits of hair-care products on air. Hair regrowth is an exception and, appar- ently, so is Guthy-Renker’s Wen line, which Renker says shot from no infomercial sales to $200 million in sales in just 24 months.
“Hair is a commodity. People look at it differently,” says Hillary Solomon, president and ceo of Ouidad Holdings Inc. “You have to make sure that when you are putting together a show, the viewer is going to say, ‘Wow, this is unique. This is different.’ There has to be a high perceived value. A shampoo and a conditioner would probably be a challenge because it is nothing unique. Wen has had such wild success because they took a commodity category, and they added that never-been- done-before wow factor that really created a lot of value for the customer.”
It’s not just categories that are evolving. The infomercial channel is much more multiplatform than in the past. “For 2013, the name of the game is a more hybrid campaign,” says Murad’s Randolph. “We spent 2012 measuring cross-channel impact. This is the year where we are going to integrate cross-channel promotions, including short-form campaigns, national print media, digital advertising, retail support, QVC, social media and e-mail marketing.”
Overall, there has been a surge in online ordering, which accounts for approxi- mately 40 to 60 percent of sales. On the plus side, such orders are cheaper because marketers don’t have to pay for people to answer phones. The downside is that conversion rates from calls can be as high as 65 to 75 percent, while online conversion rates are generally 20 percent or less. Moreover, it’s tricky to tie online customers to specific infomercials, making gauging their success challenging.
“The 800 number is headed toward antiquity. Every year, we get fewer and fewer 800-number sales,” laments Renker, who continues, “We control over 10,000 800 numbers, and every 800 number is trackable. We know what TV station caused which sale. The problem with online is we don’t know what TV station caused that sale. We become like a retailer that doesn’t know where a sale comes from. The whole DNA of our business is measurable performance for our ads.”
While Guthy-Renker is investing heavily to snag customers online, the primary strategy is aimed at older consumers who are more likely to remain loyal to the TV medium. “We are going to skew older in our demographic because I think women beauty buyers have more extra income past the age of 50, more willingness to spend greater dollars, TV habits reasonably similar to what they had before and, if you look at the bell curve, that’s where the people are,” says Renker. “I’m not going to go for the 20 year old.”
The mind-set towards traditional retailers has shifted, too. Sephora, for instance, stocks Murad, Tria, Ouidad, bareMinerals and Kate Somerville, all brands that have infomercials. Even Guthy-Renker, which has largely avoided retail, is testing Wen at Sephora. “We want to be more channel agnostic,” says Randolph. “We want to be where the customer wants to shop.” Later this year, Murad will promote its availability at retail via its short-form infomercials. “Right now, our infomercials sway against getting it in the store because we want the urgency to buy now,” says Randolph. “It is still a higher margin for us to ac- quire a customer through DR than it is through the store.”
But the math can work in the favor of a brand. Smith estimates that for a single DRTV order, infomercial marketers generate three to five retail orders, because it creates brand awareness and education and subsidizes advertising. In a survey of people who watched Murad’s Resurgence infomercial, 58 percent said they would buy it in the store. “There is still a large percentage of people that will never buy on an infomercial because they want to touch and feel a product, and partly be- cause they don’t want to be on auto delivery,” says Randolph.
Rafaeli has experienced how distinct retail can be from infomercials. Three years ago, he recounts that No!No! entered around 110 Showcase stores in Canada priced about $45 more than the infomercial price, and became a hot seller in the stores. “That is mind boggling to us,” he says. “We did some consumer surveys. The reason is that people see it on TV, but they don’t buy it on TV. When they see it in the store, they buy it,” he continues. “Direct response accounts for a third of our sales. Indirectly, we think it accounts for everything. By being such a big advertiser, we communicate with retailers.”
Still, Renker maintains that excessive retail exposure is bad for a DRTV brand. It can devalue the brand as customers hunt for sales, and can blunt the urgency to pick up the phone that marketers are attempting to foster. “I don’t think there is a brand on DRTV that has been around as long as Proactiv, and that is all because it has never been at retail,” he says. “When a brand is overexposed at retail, it is dead on TV.”
The Art—and Science—of the Infomercial
High Ratings: Spending on infomericals has increased exponentially, up 47 percent last year and 38 percent thus far this year.
Clear Parameters: The factors that contribute to success are well-known, including an efficacious product, arresting before-and-after pictures and a compelling founder and backstory.
Star Power: Celebrities, called “channel stoppers,” are often enlisted as well,
thanks to their instant appeal with viewers.
Changing Channels: Once relatively insular, infomerical brands are increasingly omnichannel, as marketers work to harmonize on-air, online and brick and mortar.
Broadening the Reach: The success of Wen hair care has marketers looking beyond skin.