Friday, December 10, 2010
Why outdoor goods companies can avoid big media spends.
I was in REI last night and it is always astounding to me, the types of crowds that come in that store. They fit in a nice little box and all have similar traits. They do come in all shapes and sizes, but at the core they are all the same; Love the outdoors, a little crunchy, and willing to spend money on products they think will enhance their outdoor experience/image.
The products you see on the shelves in REI are very well known brands. The North Face, Mountain Hardware, Arc Teryx, and others. But the interesting part to all of this is that they never seem to advertise with big media spends. You won't see a North Face commercial during a Super Bowl, you won't see a spot for Mountain Hardware even on the Outdoor Channel (that often). The reason for this is the fact that they know their audience and know how to reach them. The channels that touch these types of people are much different than a typical Nike, Coors, or GM channel.
The channels that do touch these people all involve the outdoors. It can be through an outdoor retailer, outdoor expo, outdoor event like a race, a climb, or an expedition. Specific videos, messages and placement of ads are the most effective way. Spokespeople are very important in this industry. If someone has used the Eddie Bauer First Ascent line and raved about it during an Everest Summit or the new Mountain Hardware softshell is phenomenal on the slopes during the spring, then the product has a following. This is sometimes caused by the the spokespeople.
These people (the spokespeople) are different than Lebron James or Peyton Manning, they are cult heroes in the world of outdoors. They are everyday people that aren't 6'8" and 260 lbs with some of the most incredible athleticism to grace the earth. They are people who have guts, the ability to stick to it, train, and are visionaries. All outdoors people alike deep down feel that they could be that person if they really wanted to. The spokespeople are the silent celebrities in the world. They are the ones pushing products through actions. What they wear the people want.
Spokespeople are just one channel. The function of the product is important too. It's all about how the product is going to make your turns better, your summit greater, or your day longer. This is communicated through a target message, a quick story, a website and word of mouth. Online retailers are big advocates for many of these companies. Backcountry.com is a huge North Face retailer and through their emails and online messaging it's seen. But if you weren't an outdoors person, you would never know about Backcountry.com, you wouldn't see any kind of advertising for The North Face. Sure you'd see some ads in Outside Magazine or Ski Magazine but even that is a targeted audience and all of those people know Backcountry.com
Advertising costs are low for the outdoors companies. They usually let their quality and brands speak for themselves. They leave it to the retailers to do the majority of the advertising. It's such a different model than a traditional consumer packaged good. Think of the Disney Channel advertising Nerf dart guns or a cereal for kids, those manufacturers are paying incredible amounts of money to get their products out there. They are making the kids aware of the product that is in turn purchased from WalMart or Target. The opposite is the case with REI, Dick's Sporting Goods and others. They advertise for the companies. The quality brands bring credibility to the store.
In the end it's an interesting business model. Start up brands have to spend, but the big boys don't. You would think they are printing cash, and probably are but there are a few things to be considered. First the reasons why they are not printing cash then why they are.
1- Big overhead with R&D, Spokes people, quality products cost more to manufacturer.
2- The market is very finite, for Arc'teryx the amount of people who want to spend that kind of money on a product is probably very small.
3- Unless you have used the products you probably don't know that there is a difference in quality... many people right now are very price conscious and shop at WalMart for everything.
Why they print money:
1- Low advertising and marketing costs (typically this is anywhere from 4-10% of budgets for companies) This means that they have an automatic 10% going right to the bottom line.
2- The finite group spends money (recent study shows that outdoors people spend $400-$1,000 a year on outdoor goods).
3- The margins are still pretty darn good especially on soft goods. Usually around 60%.
All of that being said it seems to be working for them. They don't need to spend on advertising and are still turning large profits. Conglomerates like the VF company own brands. The North Face is owned by the VF company because it turns profits. The model is working, by not advertising with big spends and target their market they can keep their costs low and meet the audience head on.
Here is a little post script to follow up. I was watching TV and saw a commercial for The North Face during prime time. I was taken back for a second thinking I'd completely blown this post, but then it took on the feel of a different type of commercial. Ultimately it was a Dick's Sporting Goods commercial saying they feature The North Face products. This is very common, and companies like TNF are more than happy to let them advertise their products for free. As long as the outdoor companies continue to make quality products the Dick's, Sports Authority, and others will continue to advertise for free!