A colleague asked me to write this overview of an industry we have both been around for a very long time. I asked, “Are you sure since I am likely to irritate more than a few friends?” He asked me to be gentle if possible -- a trait or family gene noticeably left to my sisters with little trace found in me. So with a little trepidation, here goes.
TV Direct Response (DR) used to be a healthy industry that could support a slew of marketers and service providers. By service providers I mean production companies, telemarketers, media agencies, etc. But when an industry is fragile (read: exponentially in distress) it is felt by everybody up, down and around the ecosystem.
Let’s take a look at why it is fragile and then we might be able to see a way out.
We all know that media fragmentation exists on an unprecedented level. The average number of local broadcast, cable and satellite channels available to audiences is now 198. But wait -- there’s more! We have over 100 million Web sites available and the average person visits 99 different sites per month. A Web site is a rough equivalent to a channel. Choice abounds as attention dissipates.
Media fragmentation as a phenomenon is not a problem by itself. It is only when media rates do not reflect the decline in audience reached that a problem surfaces for DR marketers. So the real problem is that media rates have become destructively high. So high in fact that few long form or short form commercials deliver a ROI. Mind you these rates have escalated amidst a huge decline in marginal costs of media. But this will be left for a different post.
To accommodate irrational media rates, the entire ecosystem either wittingly or unwittingly conspired to alter the economic equation DR marketers used for years. If one could not make money on the direct marketing campaign, rather than solve this problem, most marketers began to kick the can of profitability down the road. If marketers could not make money on campaigns and acquiring customers, they would just put a mortgage on that customer -- in other words, use debt to continue spending. Pay now and earn profits later.
Simply put, when campaigns started to lose money time and time again, media owners, agencies, trade publications and of course charlatan pundits invented the phrase, “drive to retail.” Conventional wisdom suggested if DR campaigns lost money, they would become profitable down the road and would hopefully cash in big driving retail sales. Much more convention than wisdom I should say.
This one short phrase “drive to retail” changed direct marketing from a transactional, accountable discipline to a fragile, strategic retail play. DRTV in a sense became dependent on another fragile industry (retail) as a result. A short list of struggling retailers is in order; JCPenny continues its ignominious decline, losing another $170 million last quarter; Target lost money over the last 12 months; Radio Shack still has one foot in the proverbial grave; Sears seems poised for bankruptcy and still loses money. And has anyone noticed Walmart reported 4.3% decline in quarterly YOY sales?
If one wishes to delve deeper into the fragile retail sector, you discover more and more onerous terms being extracted from marketers -- even from “healthy” retailers like Bed, Bath & Beyond. Not only do they often demand 100% return privileges, but they demand holding back 30% of the invoice for 180 days to make sure they are covered for returns. CVS and Walgreens are forcing 100% returns to avoid putting skin in the game and thus avoiding risk. Under these conditions, retail is far from the savior of DRTV. Retailer fragilities increase marketers’ fragility.
Compounding the retail dilemma is how Amazon and other marketplaces affect pricing, thus eroding profit margins for all.
OK, so what else is problematic beyond irrational media rates and kicking the “profitability can” down the road by driving retail sales?
We should not discount how the Internet has affected the ecosystem ranging from predatory pricing to buyer psychology. Benefits still and always will outperform features to motivate consumer behavior. But there is a huge difference between authentic benefits and false, disingenuous benefits. With a click of your mouse, false or exaggerated claims are revealed. Hype in general starts to ring false. We face a much more skeptical audience than we did 10 years ago yet the DRTV creative approach has not changed. DR marketers have actually trained consumers to be skeptical with “golden hammer” pitches that increasingly look like the snake-oil pitches of yesteryear.
Our industry still “yells and sells” with every short form and call to action pushing the limits of credibility. We still think loud, blustery creative is the only approach that works because it worked so well in the golden age. Marketers and creative agencies seem to be the last people on earth that don’t know an entire generation thinks they are full hot air. In the 60s, we tuned in, turned on and dropped out. Today, our audience is just turning off.
Creative agencies hold on to an outdated formula with a vise-like grip, remembering the glory of past years. It is sort of like bloodletting that hung around for 400 years, even long after it was proven not to cure much. I guess writing about a way out of this fragile situation will have to wait for the next installment so if interested, stay tuned.
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