Direct Response, Then and Now

This is CPG Insiders, the podcast that helps consumer packaged goods companies survive and thrive in business. Now, your hosts, Mark Young and Rob Taylor. Welcome, everybody, to this edition of CPG Insiders. I'm your host, Mark Young, and I'm here with Justin Gerard, who is the accounts director here at Jekyll and Hyde. So if you've ever called the agency or dealt with the agency, you're the first guy. Typically, you're almost the first person they're gonna see. They might talk to me, they might talk to Steve, but you're right up there as one of the first people they're gonna meet.

I'm right in the front lines.

So, folks, what we're gonna talk about today is we're gonna talk about direct response. And first, I wanna go back in a little bit. History of it. We started in direct response. And when we started in direct response, it was the business of, but wait, call now and get this. And call this 800 number. Call 880, whatever the case is. And that's how it worked. But direct response has changed dramatically from what it was. So the original model of direct response, in most cases, and again, there's always an exception, but in most cases, the original model and direct response was to sell a lot of product, sell 50 to 100,000 pieces of a product direct to consumer. And then there was an industry number that told us that 12 to 18 people would buy that product when they could touch, see, feel, hold it. And that's because most people wanted to put something in their hands. They wanted to see it before they bought it, sight unseen. So in many ways, what we would use with direct response, we did many of these. We would go out, we'd sell the product on TV, radio, print, whatever the case is, we'd sell that 50 or 100,000 pieces. We would then go to the retail accounts and the retail accounts would put it on the shelf. Oftentimes on the as seen on TV end cap that every store has, there's a separate buyer just for that category. Or sometimes it would go into the category. Now, the business model of that. And by the way, we still do this. So this model isn't dead by any means.

It's actually growing.

And the way this model works is when you see a product on TV and you see it on TV for $24.95, let's say, understand that the cost to make that product was somewhere between a 5 to an 8 multiple. So that $25 product costs no more than $5. Landed maybe 3 right and that 50 to 60% of that entire $25 goes to pay for advertising. So that's the biggest expense. But also keep in mind that the marketer is getting the full retail price. So if you look at putting it into retail versus putting it in direct response, the margins aren't that far different.

No, not at all.

So the idea behind that model is go sell that 50,000 pieces, 100,000 pieces, focus on trying to break even, build that pent up demand. Now get to the retailers and get the retailers to bring the product in. And now you basically what you did is you had a self funding advertising agency that built you a brand to get into retail. That's one model. But the direct response industry has changed a lot now. And you now have direct response companies that are selling the product direct to the consumer. And they will always be selling the product direct to consumer. So you know some of the examples, Justin, you might have a few examples of companies that do that.

Yeah, I mean right now you're seeing a huge emergence. Everyone has seen what Dollar Shave Club has done. And Dallas Shave Club will always continue to be a doctor company, right? Always. And there's no reason not to be.

No. Boland Branch.

Boland Branch, Casper Mattresses. Casper Mattresses always be doctor. And you've got a lot of the subscription services. Now that again, that is a true Dr. Model and it's spanning across a ton of categories.

Now. What do you think has changed this? I know the answer to this, but I'm gonna let you answer it. What do you think has changed people's opinion of not having to touch something before they buy it?

You know what I think the biggest change has been for one thing, the emergence of Amazon. That's a huge piece of it. And the reason why it's changed the consumers again, the lack of need to touch, feel or hold the product, is we have now Amazon has created a home for consumer reviews. And now consumers can go in there, provide reviews, they provide videos, they provide pictures of the product. So now consumers can have that same experience in the comfort of their own home. Right.

You go to YouTube and watch people do a test video on almost any product.

Yeah, absolutely. The unboxing videos that are now so popular today, so that now with the consumers shift and how technology keeps advancing, consumers don't have to actually have that product in hand in order to get an understanding of what their experience may be like.

And Amazon's brought two other things to the table too. One, I'll have it tomorrow.

Yes.

Whereas in the common direct Response world you are used to, you know, allow two to four weeks for delivery. Well, now I don't need to wait two to four weeks for delivery. Sometimes it'll show up the same day with Amazon.

Oh yeah.

The second thing is I know that Amazon will take it back.

Yes, yes.

So there's no challenge that I get it home, I get it out of the box and I'm like, this is junk. This isn't what I wanted. And I'm stuck with it fighting for a refund. I know I'll get an immediate refund.

And I would assume almost every consumer today has had to return some type of product to Amazon before. So they've already experienced what that's like. And it is a very smooth process. It's nothing to worry about.

So what we've seen is an entire sea change in consumer behavior here, which that doesn't happen often. Those are very long term trends. But this is one that took place pretty quickly. So I'll tell you this real quick. So I'm on a committee for a condo association. So we have a condo down in Florida and our condo group, it's a couple high rise buildings and it has 140 units in, was built in 2002. They never anticipated the amount of packages that were going to be showing up in the facility. So from a 2002 construction project to today, so we're talking 17, 16 years. Seventeen years later, the building doesn't have the facilities to handle the volume of packages coming into the building because so many people are buying on Amazon and buying online.

Yep.

So we're literally, I'm on this committee where we're actually looking at purchasing these.

Large lockers so that they can house it all.

Where Amazon and UPS can come in and they can put it in a box. The box they put it in will have a code which will automatically text to the owner of the package and you'll get a text that says it's in box 1, 2, 3. Type in code 456 to get your package out. So I mean that's how much the, the dynamics of shopping have changed.

Well, look at the, look at the product line Ring. I mean they created these video doorbells and most of it was because people were stealing Amazon packages.

Yeah.

Their entire business was built off of this consumer trend. They saw the opportunity, took advantage of it and now look where they're at.

And guess who owns Ring now? Amazon.

Amazon.

Own it.

Imagine that.

So now one of the things that people need to understand, let's say that your business Model. We're to discuss your business model of how to get into retail. Yeah, Direct response is a great tool for getting into retail because it's very hard to get on the shelf.

Yes.

But if you can walk into a buyer and you can say, look, 50,000 people ordered this in the past eight months. The buyer's going to look at that and say, well, 50,000 people. So there's a half a million to 800,000 that'll buy it. Yes, when it gets in my store. So, okay, I'll bring it in. But if your business model is you want to stay direct, let's still talk about the economics of that. Because the economics of selling something on an Amazon or selling something direct is advertising is still going to be a major expense.

It should be your largest expense.

Unfortunately, that's the case. So one of the things that's really important when you're trying to build a direct response, a permanent direct response business is lifetime customer value.

Yes.

So when we're saying lifetime customer value, we have two numbers that we wanna look at. We wanna look at customer acquisition cost, then customer lifetime value. So customer acquisition is how much did it cost me to get this client?

Exactly.

So maybe I'm selling a $20 item and I spent $10 worth of advertising to sell a $20 item and I've got $10 left and I spent three to five dollars to make it and I've got returns and I've got to run my company. Not a super profitable business model. No, but the key here is, do you have something that can be sold on subscription? So are you selling a vitamin that you can put a monthly subscription? Are you selling T shirts where you have thousands of different T shirts that people can choose from? Are you selling some consumable, like Guthy Ranker with proactive solution?

Yep.

So are you buying, you know, some kind of cosmetic where I'm going to run out every 30 days or 60 days and I can renew it. You have to focus on customer lifetime value. But again, what's the most important thing with customer lifetime value? You need to keep customer happy. So talk to us a little bit, if you would. Let's expand, Justin, on how people can keep that customer lifetime experience going, you know, through things like, you know, trickle emails and communications.

Yeah. So it's in any. With any brand. Now we've talked about this. Doesn't matter if you're a direct response or you're just your brand. At retail, the. The job of the brand is from its communications, is to stay in front of the consumer. Well, after the sale, it's what we talk about. We've gotten the first date, but now you want to make sure you stay married in a good relationship. You know, you got to take care of your spouse. And it's the same thing here. So like you're talking about, you can have different email drip campaigns where you're simply from everything from just holiday sales to newsletter content. Whether you're a supplement.

Satisfaction surveys.

Exactly, exactly. It's about staying in front of your consumers and providing them with content again that is valuable to them. A coupon can be valuable. Why? Because they bought your product, they see value in your brand. So why wouldn't they save a little money? Why not? But like we've talked about before, let's say that in the essence you're a vitamin or supplement company. Okay, then what type of supplement is it? Is it a exercise supplement? So then providing maybe just a newsletter that talks about different exercises they can do or stretches they can do or maybe even just other nutritional things that they can into their routine. Again, content that they will seem valuable, that's going to build that relationship, that's going to keep them coming back. There is a lot of. One of the biggest, I think, and this is something we haven't touched on yet, but one of the biggest changes that we're seeing now also is the growth and almost dominance of social media. That is huge.

Along with the reviews, you need to have those good reviews on your product, but you also need to be responding quickly to any conversations that are happening about you in social media. Because if your customers are having bad experience, people are going to go out there and they're going to trash you.

And you already know it's a lot easier to get somebody who's upset to start telling everyone about it than if they had a good experience.

Absolutely.

It's easy.

Now another thing we'll talk about is, oddly enough, direct response is probably one of the the lowest risk and lowest cost ways to get into the market. So as an example, let's say that you got a deal to distribute into Walgreens. Well, Walgreens has 8,700 stores. If you had a $10 item, you'd have to send Walgreens between a quarter million and a half a million dollars worth of product, have another quarter million to half a million dollars on hand, wait 120 days probably to get paid and go run an ad campaign.

Yeah.

Now in direct response, you can start with a much smaller inventory. You can start your ad campaign and we have to remember people are getting. We're getting the money before they got the product.

Yep.

And we're getting the retail price, not the wholesale price.

Your margins are much better.

So it does help companies, especially new companies, get their products out there.

Yeah.

Now, it's not without risk because not every direct to consumer product succeeds.

No, no. I mean it's especially now. I mean, go on Amazon, search anything. You're getting pages and pages and pages of products on there. So the difficult point for brands now is they need to have products that really fulfill a need. Need to concentrate on that. There are so many, as we've discussed many times before, me too, products out there that unless you have the budget of a proctor and gamble, you're never ever going to be able to break into the market because they've already seen so many like them. You really need to find a specific niche need. And then you've got to find out, how do I communicate to them?

Yeah. So the other thing when you're thinking about direct response folks, is good direct response products have certain attributes and those attributes is it's demonstrable, it's easy to understand, it fixes a problem. So when you're thinking about is your product right for it? Can you tell me what it does in one or two sentences? Does it do something that no one else has, something that does or does as well? Again, what's the problem I'm trying to fix. So when we think of good doctor advertising, we always think in this problem solution model. So are you suffering with acne?

Right.

Yes. Proactive solution is the answer. That's the commercial.

Yeah.

Now what do you do? You show me a bunch of people with acne. Then you show me pictures of the same people without the acne. And those people say, I used everything at the store. Nothing worked for me. I got this and in two weeks my skin was clear. What's the last step? Give me a guarantee.

Right. Tell me it's going to work.

Right. And promise to give me my money back.

If it doesn't work, it fails. Right.

So it's not a complicated model.

It's not. And when you're talking about the world direct response, it's in the name. You're trying to get a direct action immediately. So when you're talking to consumers, we all know this, for anyone, really, it is much easier to get me to run away from pain than it is to run towards pleasure. So if you start with a problem, you start with a pain point, you activate me much quicker than you will if you're trying to sell me a.

Vacation and let me back in a little bit. When you think of how humans make decisions, humans make all their decisions, as Justin was just saying, based on the avoidance of pain, the seeking of pleasure. And if you think of any decision you've made in your life, one of those two elements has come to play, even, you know, and people will say, well, what about when I donate time to the church? When you donate time to the church, it's making you feel good or you're scared of going to hell. One way or the other, you're responding to one of those two elements. Everything is made for that. Now, as Justin just said, getting people to seek the avoidance of pain is stronger than getting people to seek pleasure.

Yes.

So if your problem relieves pain, that's an easier sell. Then your product makes people feel better.

Yep.

So an energy drink would be a harder sell than a pain relief product.

Yep.

Doesn't mean you can't sell it.

No, no, it's just much easier to sell.

All right, so there's a lot more to learn about direct response and what we just covered. But I think we gave people a pretty good idea on how it works. I would say, Justin, if somebody has, you know, if somebody has a product and they're thinking about selling direct to consumer, what's the next steps for them?

So they've already gotten this far. You've got your product. Okay. And you've figured out who your market is, and here's your product. You've got enough inventory, you're ready to go. Right. So first thing you're going to do is call us. That's your first step. But let's talk about step two. So once we've had a conversation with you, we're going to evaluate again, what is that market and what's the best way to reach them with your message. So your message, as we talked about it, will start in the foundation of problem solution. That's the foundation of it. Then we're going to move into. So where's the right place to reach them? And there's two different mediums right now. When you're looking at a good way to launch a doctor product, you can go to the traditional route which Mark alluded to earlier.

Tv, radio, print.

Exactly. Those are your traditional medias. Or you can go into the ever more growing digital market.

And that's tricky. Those are very tricky waters to navigate.

There are two different. There's of course, like everything else, there's your pros and your cons. So if you're going into the traditional route. The best part about the traditional route is that it is going to be the most efficient media you could have.

Yeah, it's still hard to beat television. Don't believe anything when people say television is dead. No, TV is not remotely dead.

Not even close to dead. Not even close. You cannot get any more efficient than going directly to television. So if you're looking at from a CPM model, TV was going to win every single time.

And it usually brings in the lowest customer acquisition cost, always because it's more expensive to get into, but the customer acquisition is less.

And that's the thing. It's that initial investment is usually the barrier of entry and it's a higher risk because you're going to have to pay more initially to get into that party.

Right when we do tv. So I'll jump in here saying when we do television and direct response folks, the cost of entry is a good direct response built website, a good set of television commercials, usually a 60 and a 120.

Yep.

So you've spent 10, 15, 20,000, 30,000 on a website. You could easily spend 30 to 60,000.

Even more on a commercial depending on the assets.

If you layer in a celebrity, that could cost any amount. And now what we do is we do what's called test media, whereas we actually run a variety of different networks and days and times over a week to 10 day period. And that's probably about a $25,000 spend. And then we go dark and we measure all the results and the first thing we do is find out, okay, did we get in the hunt? So if we spent 25,000 on, our goal was selling 50, but we spent 25 and we sold 30, we'd say, okay, we can figure this out, let's find out where it's broken, let's look at the spots, let's look at the reactions, let's look at each day part we bought. Maybe this product sells really well at night and you can't give it away in the morning. And then we'll go out, we'll test again with another 25, we'll get some new learnings, we'll go out, we'll test again. So typically, if you want to be in the direct response TV business, you kind of need to throw about $125,000 on the table and kind of know that you're going to put it all on red or all on black. And we're going to spin that big roulette wheel and see what happens.

Yep, that's It.

So it's not for the faint of heart.

It's not. And you even forgot, depending on again what our demographic is, you might have to look into telemarketing.

Absolutely. It's still a factor. Now in the digital world, we can test stuff for less money.

Yes. The barrier of entry is much lower when you talk from a cost standpoint for the digital space. And today, I know it's been in the news a lot, but our access to consumer data is so much higher than it has ever been. We can build out as Personas, we can get very targeted. If you understand your audience and we can reach them. Again, it won't be at this scale or reach of traditional, but it could still be efficient. So what it really comes down to when you're in that digital space is really, really, really understanding your audience. And you can come in at a much lower. But you need to understand your product to understand which tactics are going to be the most impactful for you. We've talked about this a lot. So for example, if you've got a product. And again, let's just kind of stick with this same theme here. Let's say that you've got a workout supplement and it's a very crowded category, but this supplement has a unique and new technology that is just groundbreaking. People have never heard of it.

And we have something like that.

We have something and we're really excited to roll it out. So if you got a product like this, it's got a complicated story. You need to concentrate most of your efforts in a long form type of.

Campaign, which means there's a story to tell. I can't just say, nope, have acne. Get rid of acne.

Right.

It's a more complicated story.

It's much more complicated. There's going to be much more elements to it. Whether that is a little bit of science. Right. It could be also what we've talked about comparing to other things in the category, whether that's the foundation of the knowledge of your consumer, it depends on who you're going after. But you're going to have to tell a longer story, which is going to take much like an advertorial in a digital space, which you can execute in many different ways and depending on the capital that you have, will really determine the initial reach of that content. But now continuing farther with these stories, again, social media has given us the ability to reach so many different consumers in so many different ways. And when we talk about that website that you were talking about earlier for the traditional side, it's extremely important to make sure that you have a very strong website. Not only that's built well to tell your story that is nice. That again takes that messaging and simplifies it in a way that everyone can understand. But there's one element that many times is forgotten here. When you built that site, you have to make sure that it is coded correctly so that you're tracking the activity of the site.

Because that's the advantage of being online, is everything can be tracked.

Everything can be tracked. So depending on again, the elements you have in your site, you need to make sure that it is built and it's tagged properly so that we can see the activity, so we can understand if we spent that money to gain a consumer and draw them into your site. They love your story so far. So let's complete that sale or complete that journey for them to buy the product, we have to know what elements of our site they're engaging in most. Where are we losing them? How are we losing them so that we can again make those changes to convert that sale. Right.

I remember looking at one account and we literally figured out that it was the shipping and handling page that was losing the business.

And it's that simple.

People didn't like their shipping and handling policy. We changed policy, fixed problem, and it.

Can be that simple.

Now, when you were talking about advertorial, so an advertorial is really like a 3 to 500 page story.

Word.

Sorry, pretty big 300 to 500 word story. That would be like a newspaper article or a web news article. Let's say that the supplement that you're selling is for bodybuilding or for building muscle.

Yes.

So we could go and put that on like a muscle and fitness website, right?

Absolutely. Yeah, absolutely. We could put it on any publisher that you desire. Again, depending on what kind of capital you have.

Right. What the budget is.

Right.

But an example is you could take that story, put it on muscle and fitness, and now that story will live there forever. And we can use other digital media to drive traffic back to the story. But the story's now carrying the credibility of muscle and fitness.

Yes.

So in the reader's mind, it's not as much an ad as it is a story from a publisher who publishes content that they previously trusted.

Yes, yes. And you're also building up the credibility of your product and your brand because now you're connected to said publisher.

So if I was selling an antioxidant, I might go to Prevention magazine?

Yeah, absolutely.

Or if I was selling makeup, I might Go to Vogue or I might go to Women's Health or Cosmo.

Yeah, absolutely. So there's a lot of again, the beauty of the digital space is the ability to craft. Whatever story you want to craft is there now. It's absolutely there. And you can tell your story in any way that you want to. The what it comes down to is having a strong understanding of your audience and having really having a strong understanding again of your business and those margins you talked about, also understanding your fulfillment. And we talk about if you've got a five to ten week lead time to create product, then you need to understand that because the last thing you want to be doing is having a really successful campaign that's starting to launch off and then you got to shut it off.

Yeah. Amazon has conditioned, they've done a good and a bad thing. The good thing is they condition people that it's okay to buy products that you can't see.

Yep.

But they've also conditioned people that you're going to get them in hours.

Yes, yes.

So if you don't meet that standard, you're now inferior.

Yes.

And that long term relationship and customer lifetime value we spoke about kind of goes down out the window.

Oh yeah, goes right out the window. And that's a good point you bring in too is if you're talking so in this digital space and really any space, but really if you're going to be launching a product within, in the digital space, you need to make sure you're on Amazon. You have to be on Amazon. You are losing so much business, so much credibility if you're not there.

Yeah. We typically see now when we launch product and direct response that for every one we sell on the brand website, we'll sell 1.4 to 1.7 pieces on Amazon for nothing more than I'm a prime member, I can buy it in one click and I know it'll be here tonight or tomorrow and I know I can send it back.

Absolutely. That alone will take care of it.

Right. I don't have to open an account, I don't have to type in a credit card. Everything's already done.

Nope. And you have to also understand many of the people that are in Amazon, the beauty of an Amazon shopper is they're already in a buying mindset. It's already there. That's why they're there. Even if they're there just to. I'm just here to review, to see what people are thinking about this product. It's not just why you're there, you're making your decision whether you want to buy that product or not.

Amazon makes buying seductively too easy.

Yes.

Because there's no cash in your hand.

Yeah.

It's charged to a credit card. I don't even have to type the credit card numbers in. I'm just one click away from happiness. That's it. When I'm on Amazon.

Yes.

Retail fun and happiness is just a mouse click.

Yes. So you need to be there. Yes. You are going to be losing some of your margin to Amazon. That's just. That's part of the game.

But it's not as big as a retail number.

Well, that we could do a whole show on that. A lot of that's going to really depend on how you're selling. If you're doing fba. There's a lot of factors that go into that as far as how large your item is, how much stock they have to hold on. They increase their cost based on that. But initially. So what we're seeing now, usually you're looking at all in margin somewhere around 25.

And FBA, by the way, stands for Fulfilled by Amazon.

Correct. That's how you get that prime fastest. There's another way to be prime, but that takes a while. Right.

And you do want to be prime if you're on Amazon.

Yes.

I mean, I don't know. I don't know anything that I buy that isn't prime unless it's impossible.

I don't buy anything if it's not prime, I don't buy it. I just don't. Yeah.

And is it because you think it'll take too long or you don't trust the vendor?

No, it's mostly because I think it's gonna take too long. And why would I. Why wait? I get in two days.

Yeah. Occasionally I found something on Amazon that only had one source and there was no prime. That's very rare nowadays.

Very rare. Yeah.

But there are certain unusual supplements or health items that have a single source or very limited sources.

Yeah. Yeah.

Well, that wraps up for today, folks. If you want to learn more about direct response and Amazon, you can feel free to contact us at Jekyll and Hyde. The website is jekyllheidagency.com or jekyllheidlabs.com Yep. So you can go there, you can always call us and you can always talk to me. You can talk to Justin Gerard if you want to talk to him. And if you have other ideas, folks. So if you have other ideas for shows that you want us to do, make sure you send us an email through the website.

Yeah.

And because we like getting that and we're happy to build shows around the questions people have.

Absolutely.

So thanks, Justin. And that's it for today on CPG Insiders. If you're looking to greatly increase sales on your CPG product, don't hesitate to contact us at Jekyll and Hyde Advertising and Marketing. By the way, the only advertising agency with a guaranteed result. Just go to jekyllheidagency.com or feel free to give us a call at 800-542-10-RA.