Nautilus 2003 Annual Report Download - page 7

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Table of Contents
target customers. Historically, we have been able to measure with a high degree of accuracy inquiries to specific advertisements, and in turn,
predict the sales that will result from those inquiries. We believe that this expertise will continue to serve as a key factor that differentiates us
from competitors and will enable us to maintain a competitive advantage within the direct marketing arena.
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 while eliciting consumer requests for product information. Development of this interest is
achieved primarily through the use of spot commercials and infomercials, supplemented by Internet advertising. The second step focuses on
converting the informational requests into sales, which we accomplish through a combination of response mailings and outbound calling.
Advertising
Spot Television Commercials and Infomercials . Spot commercials are a key element of our direct marketing strategy. For products that may
lend themselves to a more in-depth explanation and demonstration, television infomercials are another important marketing tool. We have
developed a variety of spot commercials, infomercials, and marketing videos to support the marketing and sale of our products.
When we begin marketing a newly introduced product, we generally test and refine our marketing concepts and selling practices while
advertising the product in spot commercials. Production costs for spot commercials typically range from $50,000 to $150,000. Based on initial
results from the airing of this spot advertising, we may produce additional spot commercials and/or an infomercial, if suitable. Production costs
for infomercials tend to range from $150,000 to $500,000. Generally, we attempt to film multiple infomercial and commercial concepts at the
same time, in order to maximize production efficiencies. From this footage we can then develop a variety of spot commercials and
infomercials, introducing and refining them over time.
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 more fully understand the product’s marketing appeal and to evaluate advertising or product
modifications that may be appropriate. As we experience success, we then advertise on a wider number of additional cable networks.
Media Buying
. An important component of our direct marketing success is our ability to purchase quality media time at an affordable price.
Depending on the network, time slot and, programming length, the cost of airing spot commercials and infomercials varies significantly. Each
spot commercial currently costs between $25 and $25,000 to air, and each infomercial between $600 and $55,000 to air. Historically, we have
purchased the majority of our media time on cable networks.
We book most of our spot commercial and infomercial time on a monthly or quarterly basis, as networks make time available. Networks
typically allow us to cancel booked time with two weeks’ advance notice, which enables us to adjust allocation of our advertising spending if
our statistical tracking indicates another network or time slot is proving to be particularly effective.
Internet
. The Internet continues to play an important role in our direct marketing strategy. We consistently promote our product websites in
our television and print advertising and in our response mailing materials to encourage online product inquiries and transactions. Use of online
advertising on third party sites and paid search engine placement also helps drive Internet browsers to our product websites to request
additional information, learn more about our products, or to make immediate purchases. Our websites are loaded with informative content
including detailed product information, online videos, and testimonials from our satisfied customers. We operate direct marketing-oriented
websites in support of each of our products generating significant direct to consumer sales activity. None of the information in these websites is
part of this Form 10-K.
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