Magnum PI? What The Heck is The Value of Per Inquiry?
Published on November 5th, 2009 in Uncategorized
I have been in the direct response media buying industry for thirty years, and I have always been mystified by the entire concept of per-inquiry advertising or “PI”. Even the term “PI” is a bit misleading because many clients don’t pay for the “inquiry” but for the “sale” or per order “PO”. However, the PI name has stuck where the PO name has not, perhaps because PO sounds too much like BO, and, well, that just stinks. Badum-dum.
For the uninitiated, the concept works like this; a radio station, or TV station or newspaper or magazine has some unsold time or space. Rather than put a “house ad” or public service announcement in this unsold inventory, the station will run a PI spot in there and the advertiser, who agrees to pay a fixed amount for each order, will have their spot run, and then they report to the TV station how many orders they get and the station will bill them and the client pays a pre-agreed amount based on each response. This amount is usually some percentage of the overall income each sale represents to the advertiser – perhaps somewhere between 30-50%, sometimes more based on future earning potential the client may realize from that customer. Seems fairly straight forward – and it’s a win-win for everyone – station gets revenue for time that would have otherwise have gone unsold – client gets a no-risk opportunity to run their direct response commercial and only pays if they sell something. It all sounds great, right?
So I am mystified because – well – OK – first off, any inventory that a station has that is unsold that has any value will probably not be unsold for long, right? So, you can’t build on the success of anything because if it’s any good it will disappear and if it isn’t any good, it won’t generate much. Secondly there are several companies that act as intermediaries between the media and the agencies and clients. My old acquaintance Bonnie Schalle at EMM in New York comes to mind, or RevShare out in the California desert has long been creating a giant reel of PI spots for TV stations to pick from. So now there is a company that represents the stations that also will take a small piece of the action, ostensibly a bit from the station and a bit from the advertiser. If you are selling a $19.95 widget and you are splitting a PI “payout” of say $10 at least two ways, wouldn’t it be just easier to look for change in the seat cushions of your couch?
Plus the PI companies want a deposit against future sales up front, so if you are a client you are going to dole out a few grand before you even see sale #1. Plus you might have to hire or pay extra to have a stand alone in-bound call center handle your calls, not to mention purchasing of different phone numbers, tape and shipping costs to get the commercials out there, manpower of traffic, tracking, sourcing, training etc, . Plus you are often betting on the future value of that customer, which could be nil. Plus if a spot cost $50 and you regularly generate 10 calls and pay $10 per call, you are paying $100 PI for a spot that you could flat out purchase for half the price, why wouldn’t you do that instead?
Then of course there are all the other costs associated with that sale, in-bound telemarketing, customer service, returns, credit card expenses, etc. Even if you are the client and you are making a couple of dollars per sale after all these expenses, how can you ever turn this into a scaleable and financially viable business model? And how can a station be forced to rely on a completely one-sided reporting system that the client either pays for or owns themselves? And, what station wants their airtime all “junked up” with this year’s cheap plastic Widgets, Gadgets and Obama Inaugural Plates? On both sides of this business model it seems like a lot of work for a measly few shekels. As my old business partner Don Potter used to say “is the squeeze really worth the juice?”
Rather than pass my judgmental wand over the proceedings of PI or PO or cost-per-acquisition, I call upon my brethren and sistren of the PI world to come forward and show me the light. Who does this work for? What is the real big money value? At what point in the product life cycle of a DR campaign does this make the most sense? At what point are you just paddling up river? How many similar products can a station take on before they burn out their entire audience with these DR offers? I welcome reasoned and thoughtful debate on the subject. Please! Leave your comments here or email me at dave@overthemoonmedia.com
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