Inventors Seek Pot of Gold on TV
You've probably never heard of Rachel Taylor. But it won't be long before you can turn on the TV and hear hard-sell pitches - again and again - to buy the one-size-fits-all hair clip she invented.
Taylor is a rare winner in a world of inventors bedeviled by losers. She recently earned a much-sought-after chance to strike it rich, thanks to a demonstration she gave for the right set of eyes.
USA TODAY was there, too, on a recent Friday for direct-response kingpin TeleBrands' monthly inventor's casting call. Taylor was one of some 50 inventors who sweated, squirmed and stuttered their way through product pitches they hoped would dazzle CEO A.J. Khubani.
During a long day at TeleBrands' headquarters in this suburban office park, the competition is intense. Each inventor has but a few moments in front of Khubani to land the sale of a lifetime. On the line: the potential to leap from inventor wannabe to serious player in the $170 billion direct-response industry. A nod from TeleBrands means a negotiated share of sales through royalties that can make an inventor wealthy.
A father of four pitches a plastic organizer for handheld video game cards. A man from Houston pitches an all-purpose clamp he's worked on for a decade. A technician from Georgia shows off her hand-painted Barack Obama and First Family Christmas ornaments. None made a sale.
Except Taylor, 41. Dressed in bright pink, she coolly demonstrates - on an assistant and on several other women, including Khubani's wife, Poonam - how her Clever Clip works on hair of any length or thickness. As she drove back to Baltimore, several hours after her pitch, her cellphone rang with Khubani's thumbs-up call.
"I felt like I'd just won 'American Idol,'" she recalls.
TeleBrands has a knack for finding quirky $9.99 products you never knew you needed, selling them on TV, then getting them into retail outlets, where sales can really rocket. The company is one of the biggest players in an industry that spent $2.6 billion in advertising last year. TeleBrands spent $300 million of that, the most in the industry, to air its hard-sell 30-second-to-two-minute ads, estimates direct-response tracker Infomercial Monitoring Service. While most direct-response companies are privately held and don't report earnings, TeleBrands has one of the most consistent records of hits.
Like many rivals in the industry, it also has a record of some ad tactics running afoul of the Federal Trade Commission, particularly in the early 1990s. And in January, Khubani paid $7 million to settle a 2002 FTC action about claims for the Ab Force, an electronic "abdominal toning" device he sold for about three months. TeleBrands lost two appeals and spent two years negotiating the settlement.
Khubani says his ads claimed only that the Ab Force cost less than rivals' devices with the technology. "We strongly disagree with the FTC's position on this matter. In the end, the payment ... was a practical business decision."
Khubani says his attorneys review every ad. "We're very clean and very careful, because I've had run-ins with the FTC before. I think I became the scapegoat for everyone that sold ab devices."
What's new? Well ...
To try to keep the hits coming, direct-response companies constantly look for the next big idea. There's no shortage of inventors who think they've got it. Khubani gets so many requests to look at products, he holds Pitch Days nearly every month.
But discovering the next PedEgg (an egg-shaped device that shaves and catches dead skin from feet) isn't as easy, says Khubani. "It takes a lot of work to find stupid products to sell on TV," he jokes.
But Khubani, 49, who started TeleBrands 25 years ago, knows the products are seriously big business. Even as the worst recession in a generation deepened, Khubani says his 2008 revenue was up 30 percent - helped by still-hot sales of the $9.99 PedEgg, which has sold 24 million units since its introduction a year ago.
"He's a genius," says Remy Stern, author of a book about the infomercial industry, "But Wait ... There's More". "He takes a novel product, and weeks later, it's on the air. No one can move quicker than A.J. Khubani."
That includes top rivals Allstar Products Group, Ontel and IdeaVillage. Khubani got hooked on the business as a kid when he purchased a Ron Popeil Pocket Fisherman. Khubani's dad ran an import/export business and helped his eldest son set up shop. Eventually, two of Khubani's three younger brothers became two of his biggest rivals.
Ontel is run by Ashok "Chuck" Khubani, and IdeaVillage is run by Anand "Andy" Khubani. Allstar Products Group, which makes the megahit blanket with sleeves, the Snuggie, is run by Scott Boilen. "We call him our fourth brother," jokes Khubani.
They form the bulk of the industry, but there are thousands of small players. In any given month, companies air more than 220,000 infomercials (30-minute ads that look like shows) and many 30- to 120-second ads, says Sam Catanese, president, Infomercial Monitoring Service.
More eyes on the prizes
The recession has padded those totals for the industry, which thrives on cheap ad time. "The airtime is less expensive, and we're getting better placement," says Catanese. Ad rates have slipped as overall ad spending has fallen. And TV networks left with unsold inventory have been more willing to take direct-response ads and put them in better time slots. Ad spending fell 2.6 percent last year, according to Nielsen, but direct-response ads jumped 9 percent.
"We are the money they hate to take," says Khubani, who will advertise at least 50 products a year.
TeleBrands TV spots are designed for people such as David Zatarain from Dayton, Ohio, who admits to being hooked on direct-response ads.
"It amazes me - the effort I have to exercise 'not' to order something," says Zatarain, 62, a finance director at a Ford dealership.
Once a product sells well on TV, Khubani will get the product into stores in the next 60 days.
While retailers remain in a slump overall, direct-response products have become hot performers.
"We have become a retail destination for seen-on-TV products, and customers are coming to us looking for those hot new items," says Tony Santelli, merchandise manager, Walgreen. Santelli likes direct-response products because they have established sales track records before hitting his shelves.
Direct-response companies have the sales formula and process down to a science. Find a product, create an ad around it, and if consumers buy about twice the value of product as a company has spent on advertising, it's a hit. Khubani enjoys tweaking offers and ads to see what will make people buy. If he gets it right, he'll be able to turn that $20 item into a $40 purchase.
Continued TV ads typically drive sales at retail stores, where people can touch and feel the product and make an impulse purchase.
"They test to make sure it's viable on TV," says Dustin Sullivan, category manager for Walgreen's 7,000 stores. But he and Santelli try out the products themselves before they put them in stores.
Khubani looks for products with mass appeal, inexpensive production costs and good demonstrability in ads. He doesn't like niche or seasonal items.
"It needs to solve a common problem," says Khubani. "We like low tech vs. high tech. When something works, we need to make a million of them right away. We don't want a lot of development time. We've shot thousands of commercials, and I have an idea right away if it makes a good commercial. If it takes longer than 30 seconds for me to get it, I don't like it."
Put Randall Norman's "Grit Guard" in that category, unfortunately. Norman, 34, a U.S. Marine who served in Iraq, drove with his wife, Brandy, from Lenoir, N.C., to present the socklike accessory that slips over the tops of boots to keep out dirt.
At lunchtime, the Normans nervously ate in their minivan awaiting their moment in the sun. When it finally arrived, prayers and a heart-felt pitch were not enough. They got the thumbs-down.
"It works," says a disappointed Norman, of his invention. "It may not be a product that TeleBrands wants, but it's a product."
To get to make their pitch, inventors e-mail inventorsday(AT)telebrands.com with their ideas and contact information. Those selected to pitch must sign a waiver that they won't sue TeleBrands down the road. Only after that can they put on their product demo. The next open pitch day: Aug. 14.
What's to stop Khubani from ripping off an idea?
"It's not the right thing to do," he says. But if an inventor pitches a product and Khubani later sees there are already more out there, he may create a competing product. "If something is in the marketplace already and I can do a better job, I will."
Others, such as the Clever Clip, he buys directly from the inventor.
Taylor remembers receiving the call. "It felt surreal," she says. "It was one of those moments I was shocked and stunned." And financially rewarded.
Terms were undisclosed, but Khubani says he pays a higher royalty for products that are further developed, have a patent and have already been manufactured. The Clever Clip is likely on the higher end, since it is already being made and has sold thousands of units. The first step will be to develop an ad and see if it sells on TV.
What gave the Clever Clip an edge: a glowing endorsement from Poonam Khubani, a former Bollywood movie star.
But Khubani and his wife of 25 years still wish they'd reeled in one that got away. Asked to fess up to a big hit that his company passed on, Khubani answers with the question:
"Did you ever hear of the Snuggie?"