Opportunities in a down market: Direct response responds

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The economic downturn may have negative implications for TV advertising in general, but it's creating a fairy tale for step-sibling direct response TV.

"Having been the Cinderellas of the industry for so long, we're now getting the opportunity to go to the ball," said Gerald Bagg, exec VP of direct response TV specialist Century DR, Santa Monica, Calif. Direct response TV shops suddenly have dance cards full of marketers interested in the medium's lower rates. Among those being drawn in are nontraditional direct TV advertisers such as the U.S. Army, Indy Racing League and Char-broil, while more established direct response TV categories continue to boom.

The Electronic Retailing Association, in fact, expects direct response TV spending overall to jump 15% to 20% this year, three times the 5% to 7% growth in 2000, when advertisers spent $17 billion on the format, said ERA president-CEO Elissa Myers.

Much of the interest can be traced to lower rates, resulting from TV stations' need to sell off large amounts of available inventory. That's reminiscent of the last major economic slowdown in the early '90s, said Robert Yallen, president-chief operating officer of Inter/Media, Los Angeles. "When you have a slight downturn and there's more media available, all of a sudden you have more opportunities to increase your billings," he said.

"We're seeing [TV station] rates we haven't seen since 1997, and it's making campaigns that typically would be either break-even or marginal pay out for people that are doing direct selling," Mr. Bagg said. Because direct response TV is "self-liquidating," the sales directly generated by the ads pay for the media time; if they don't, the budget is adjusted accordingly. So a growing number of clients, instead of planning media against a fixed budget, are embracing the advertising-to-sales ratio that direct response TV affords. "We are talking to more and more of those general advertisers who have suddenly woken up to say `advertising as a percentage of our revenue maybe isn't the right way to go. Maybe advertising can become a source of revenue [via direct selling] if we start putting it into more accountable media,"' Mr. Bagg said.

One example is a Century DR client Mr. Bagg wouldn't identify by name, but said it is a household-appliances marketer that trimmed its $20 million-plus traditional media budget and reallocated the resulting $9 million to the direct response TV launch of a new product. "They cancelled their entire general-rate campaign after we did a test in January" that exceeded cost-per-lead expectations, Mr. Bagg said.

The uptick is good news for privately held Frederiksen Group in Falls Church, Va., which "made fairly significant" job cuts earlier this year before the direct response TV market started to steamroll. CEO Lee Frederiksen hopes to hire now that business is picking up. Havas Advertising's Tyee Euro RSCG, Portland, Ore., with $9.6 million in 2000 revenue, according to Advertising Age estimates, trimmed six administrative positions-less than 10% of its work force-earlier this year. And Century DR, now with 45 employees, also let go of 12 people in April. But ERA's Ms. Myers said the cutbacks aren't the norm. "For every company that isn't doing well, there are two that are starting to skyrocket."

Layoffs aside, Century DR, with $14.7 million in 2000 revenue, according to Ad Age figures, anticipates 15% to 17% growth in billings this year, Mr. Bagg said, lower than last year's 25% but still well above other marketing services and general media. Script to Screen, Santa Ana, Calif., which produces and manages direct TV campaigns, had its best fiscal year ever, up 24% in revenue for the year ended April 30, said Senior VP-marketing Tony Kerry. And Mr. Yallen expects Inter/Media billings to grow 25% this year, boosted by new clients like the U.S. Army, which for the first time has allocated money for a sustained direct response TV campaign.

The U.S. Army's $5.2 million direct response TV effort through Inter/Media-an extension of Bcom 3 Group's Leo Burnett Co.'s "An Army of One" campaign-exceeded its 21-week goal in 24 days. The push, designed to generate 21,000 leads in about five months, brought in 24,000 in the first three weeks. "The leads are three times greater than what we projected," said Capt. David Connolly, chief of the Army's direct marketing branch. "Overall, it's a better return on investment for us and a better source of lead generation," said Lt. Col. Ward Wood, chief of marketing at Army Recruiting Command. "Those leads tend to have better conversion rates than other sources," he added.

Granted, some categories using direct response TV-like Army, universities and schools-tend to get a boost in down times as people out of work look for other opportunities, and some categories are resilient. "In a soft economy, when people want to remodel their kitchen and they can't [afford to], they still need to make themselves feel good so they'll buy a $400 set of pots and pans," said Hugh Allspaugh, VP-client services and business development at Tyee Euro RSCG.

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