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The Economics of Infomercials

The Economics of Infomercials


We know that infomercial marketers want to make things cheaply and sell them expensively. That’s true of any business. But the infomercial industry has to take that mantra to the extreme.

Let’s start with the expensive, i.e., the product margins. A 400% markup (80% margin) isn’t unusual in this business. It’s actually something of an industry-standard minimum. Per Multichannel Merchant, a research firm and industry trade paper for the DRTV business:

“A DRTV marketer’s guidepost has historically been a 5 to 1 ratio of price to cost of goods, in order to afford media and other costs. How rigidly you apply this rule depends….For example, if you have retail store distribution and DRTV will drive store traffic in addition to direct sales, you may be willing to take a loss or merely breakeven on the DRTV direct sales. Retail distribution is often part of a DRTV marketer’s strategy from day one.”

Stashed in: Infomercials!, Retail, Price Is Right!, Freakonomics

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So a Snuggie costs $2 to make and sells for twenty bucks? Sheesh!

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