Nautilus 2001 Annual Report Download - page 8

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selling directly to the end consumer, we are able to target premium price points paid by end consumers, eliminating all other parties from the
supply chain. Our ability to capture the entire gross margin has consistently produced a high financial return on time and money invested. The
size of the direct market is also substantial. Through our advertising initiatives, we estimate that we currently target 70 million homes. Success
within this distribution channel is almost entirely dependent on the ability to capture target demographics. By using over 1,000 different 800
numbers, we are able to measure exactly which ads our customers are responding to, and we have built a comprehensive database that enables
us to scientifically adapt marketing strategies to better target customers. Historically, we have been able to predict, with a good degree of
accuracy, inquiries to specific advertisements and the resulting sales. We continue to believe that this will serve as a key differentiating factor
and enable us to maintain a competitive advantage within this channel.
We conduct direct to consumer marketing through a combination of 60-second "spot" television commercials and 30-minute television
"infomercials." To date, we have been highly successful with what we refer to as a "two-step" marketing approach. Our two-step approach
focuses first on generating consumer interest in our products and requests for product information, which is achieved primarily through the use
of spot commercials and infomercials. The second step focuses on converting inquiries into sales, which we accomplish through a combination
of response mailings and outbound telemarketing to potential customers who have made initial inquiries based on our first step advertising
efforts. We have found that second quarter influences on television viewership, such as the broadcast of national network season finales and
seasonal weather factors, cause our spot television commercials on national cable television to be marginally less effective in the second quarter
than in other periods of the year.
ADVERTISING
SPOT COMMERCIALS AND INFOMERCIALS. Spot television commercials are a key element of the marketing strategy for all of our
direct-marketed consumer products. For direct-marketed products that may require further explanation and demonstration, television
infomercials are an important additional marketing tool. We have developed a variety of spot commercials and infomercials for our Bowflex
product line and several commercials and marketing videos for our Nautilus Sleep Systems product line. We expect to use spot commercials
and, where appropriate, infomercials to market consumer products that we determine are appropriate for the direct-marketing channel.
When we begin marketing a new product, we typically test and refine our marketing concepts and selling practices while advertising the product
in spot television commercials. Production costs for these commercials can range from $50,000 to $150,000. Based on market research and
viewer response to our spot commercials, we may produce additional spot commercials and, if appropriate for the product, an infomercial.
Production costs for infomercials can range from $150,000 to $500,000. Generally, we attempt to film several infomercial and commercial
concepts at the same time in order to maximize production efficiencies. From this footage we can then develop several varieties of spot
commercials and infomercials and introduce and refine them over time. We typically generate our own scripts for spot commercials and utilize
outside writers to assist with infomercial scripts on an as-needed basis. Typically, we contract with outside production companies to produce
our spot commercials and infomercials.
We test spot commercials and infomercials on a variety of cable television networks that have a history of generating favorable responses for
our existing products. Our initial objective is to determine the product's marketing appeal and evaluate creative or product modifications that
may be
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2002. EDGAR Online, Inc.