Cracking Down on "Dirty Little Secrets"

Every industry has at least one: the "dirty little secret" that only industry insiders are generally aware of. Planes with too many empty seats suddenly develop mechanical problems, requiring you to take the next flight, which just happens to be booked to capacity.  What's the dirty little secret of the electronic retailing industry?

Response Magazine: July 2003
By Timothy R. Hawthorne

Every industry has at least one: the "dirty little secret" that only industry insiders are generally aware of. Planes with too many empty seats suddenly develop mechanical problems, requiring you to take the next flight, which just happens to be booked to capacity. Mutual funds are forced to "pay to play," forking over high fees to be on a broker's preferred list and recommended to their clients. And for years, the Nuclear Regulatory Commission (NRC) has not required nuclear facilities to guard against an assault by more than three attackers.

What's the dirty little secret of the electronic retailing industry? "Which one?" might be the answer. If you've been in DRTV for a few years or more, you can probably relate a dozen "secrets" - inflated "shipping and handling" charges that become a profit center; media commissions on marked-up media time; productions at "cost." And on and on.

Hurting Ourselves
 How about this one: purposely reaping millions of dollars in profits from an apparently "illegal" campaign while allocating a percentage of profits for an eventual settlement with the Federal Trade Commission (FTC)? We all know, on a regular basis, that successful DRTV campaigns with inflated claims hit big and eventually get yanked. And in many ways we've been complicit. Attorneys, producers, media buyers, fulfillment operations and telemarketers have been quick to provide their services to these campaigns while turning a blind eye. "Everybody does it," some say. "I'm not the party responsible to the FTC; my client is."

Not only has this practice promoted a continued erosion of DRTV's credibility in the eyes of consumers and government regulatory bodies, but also it's immediately harmful to each of our companies. How many times have you reviewed the IMS or Jordan Whitney rankings' top 2-3 shows and become angered by "rogue" shows, with outlandish, unsubstantiated claims, that dominate the airwaves by paying exorbitant media rates?

As media rates soar, fewer and fewer legitimate commercials succeed, inhibiting the growth and health of our industry. Another result? If the FTC has its way, future penalties may not just be fines, but full disgorgement of all revenues with more and more of the ancillary service companies that support such campaigns paying fines.

A Simple Fix
 All of us are aware of the problem. In a recent Electronic Retailing Association (ERA) membership survey "a majority of respondents believe that industry self-regulation programs increase consumer confidence and improve relations with federal regulatory agencies, [but] only 12 percent believe that ERA's self-regulatory program is effective."

Many ERA members believe a real solution is enhanced self-regulation. It's good to hear ERA is actively looking to revamp its self-certification program and provide a new structure with teeth. Perhaps our industry can finally implement self-regulation that the FTC will respect, thus lightening that agency's scrutiny of electronic retailing once and for all.

Certainly, it should bring better days so that all industry participants no longer have to believe, as a prominent DRTV marketer was overheard recently saying: "It's impossible to make a 'legal' show work these days."