Infomercials 101 from the man who brought you massage chairs and white-noise machines.
Richard Thalheimer, founder of The Sharper Image, made a fortune selling strange gadgets and niche products. Here, he answers an entrepreneur's question about selling merchandise on TV.
Q. When is it a good idea for a company to use infomercials to sell a product?
Stephen Rosa President Advertising Ventures Providence, Rhode Island
Richard Thalheimer responds:
For hot products with broad appeal, infomercials make financial sense. They give you the exposure of a commercial but at a lower cost because they air on late-night television. You can accurately measure how customers respond to your message, and the ads can pay for themselves in direct sales. A few companies have actually built entire businesses using just infomercials, but in my experience, infomercials work better if you already have retail distribution for your product. Our infomercials were great for driving sales at our retail stores.
In 2000, we did our first infomercial for the Razor Scooter. In-store sales of the Razor had been relatively strong in the first year, but I knew that cheap imitators would come into the marketplace and that the fad would eventually fade. We made a two-minute infomercial that ran between 10 and 50 times a day. We sold just enough scooters over the phone to break even on the ads, but our in-store sales jumped tenfold. We sold about a million scooters that year.
To avoid losing money on an infomercial, margins of at least 50 percent are essential. (The Razor had margins of 65 percent.) You have to cover the cost of the airtime. That can run you between $100 and $5,000 for a two-minute spot. It costs up to $50,000 to air 28-minute infomercials.
The longer ones also cost more to produce, from about $60,000 to $300,000. But they're worth it for complex products that retail for over $100. You wouldn't use them for something like the Razor. That was an impulse purchase. You either wanted it or you didn't, and there was no point in spending 28 minutes convincing people otherwise. Contrast that with the Ionic Breeze, which we sold through 28-minute spots. It was a $350 air filter with a lot more to explain. We ran those infomercials for five years, and the Ionic Breeze went from nothing to become the most popular air purifier in America.
I think about infomercials as an investment. If you are breaking even or better, you can expand slowly to more channels and time slots. You'll know its time to stop when you start losing money or your retail sales flatten.