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May 24, 2006

Another Company Saved by Direct Response Advertising Fundamentals

Some of the great truths about building a successful business with smart direct response advertising are conveyed in this article. It is one of the few times we've seen a journalist get the story right without exposing some glaring lack of knowledge about her topic. Nice job, Ms. Burling.

NutriSystem was in bankruptcy in 1993, and floundered through 1999 when it was bought by a group of investors who exhibited basic marketing smarts. As the article states, last month the company posted a 600% increase in profit (it doesn't say whether this is sequential or year over year) and revenue growth to $500 million from 22.6 million in 2003. The stock closed Friday at $72.03 in Nasdaq trading, up from a 52-week low of $11.05. Wow. Let's hope B-schools around the country are reading this in their core marketing class. It's a more relevant and practical roadmap for success than what is taught via most of those HBS cases. Now let's distill some of the great truths this article highlights...

1. Profitable ads aren't the ones that were created to win awards. They are the ones created to drive sales and profits. Pride and ego must be taken out of this process.

"The more clever and the more edgy a commercial is, the less likely it will work in direct response," CMO Connerty said. "The less glamorous stuff is the stuff that sells product."

We've seen this time and time again and it's one of the hardest things to convince clients about. People just want the flashy, funny ads. But the data shows that they don't sell as well.

2. Success requires a deliberate, disciplined approach and a focus on distilling and applying what works and what doesn't.

"The prior managers had ... no idea what was working and what wasn't."

Sounds like a lot of companies out there today. The new management tracks responses to all ads with unique web URL's and phone numbers. That's discipline and basic direct response advertising acumen. It enables the type of analysis that yields vital insights that drive a business.

But we'd go one step farther and ask: what are the insights that the data yields?

And the article reveals them:

"Based on customer responses, the company has learned that ads that emphasize results, a week of free food, and compelling stories work best. Attempts at cute, funny and slick have been less successful."

Bingo - these insights will produce an enormous increase in the effectiveness of NS's advertising.

3. Good market research always helps. Market research is tricky to get right. Done poorly it can lead a company down an expensively wrong path. In this case NS appears to have reaped excellent understanding of not only its core female customer segment, but also male and elderly segments that will partially fuel future growth.

The only opportunity we see NutriSystem missing is that of direct response radio. Hmmm...

Posted by Jeff Small & Brett Astor at 06:43 PM | Permalink