#34 How to Steal an Idea and Destroy a Fledgling Business

Issue #34 — Wednesday, December 5, 2018

http://dennyhatch.blogspot.com/2018/12/34-how-to-steal-idea-and-destroy.html

Posted by Denny Hatch

How to Steal an Idea and Destroy a Fledgling Business

 

The hottest magazine for mail order sales in the 70s and 80s.

In its heyday—with 140+ editions nationwide and circulation of 17 million—TV GUIDE was a gold mine for direct marketers who wanted to test cheap and cash in big.

    You could create an ad for a product that does not exist—aka a “dry test.” You could run the test ad in a distant urban and in a rural issue of TV GUIDE and in within hours see if your offer fogs the mirror (has any life).

    Basically it’s a secret test. Chances of a competitor seeing it are slim to none. And it would yield essential marketing information.

    When orders come in for this non-product, you immediately respond with a flattering, effusive “delay letter” expressing gratitude and saying the manufacturer ran into an unforeseen production problem. (“The dog ate my homework.”) I’m terribly sorry about this and I will get back to you just as soon as the product is in stock. I know you are going to love it as I do. Thank you for your patience.

A Windfall Jaunt to the Orient

Here’s a scenario. Harry’s father dies leaves a nice inheritance to Harry and Joyce. They decide to dip into their windfall and take a trip to China to help forget Daddy’s long, all-consuming final illness.
    They fetched up in Hong Kong’s Stanley Market—a vast bazaar of products from all over the Far East. A huge percentage is knock-offs—counterfeits—of world-famous brands. Here is a dazzling array of women’s wear, shoes, electronics, luggage. jewelry and whatever—the entire range of splendid consumer goodies for a fraction the cost of the real deal.

Unexpected Entrepreneurs

Harry, a radio aficionado sees a gorgeous portable multi-band AM/FM/TV/WB short wave receiver on sale for literally peanuts. He gives a listen and the sound is clear with zero static. He buys it.
    When he and Joyce get home, they take it to the beach club and their friends are mesmerized. “What did it cost?” they ask.

    “$62 dollars.”

    “Great price.”

    “Hong Kong dollars. That’s eight bucks U.S.”

    “Fantastic! Where can I get one?”

     “It’ll cost you $1,900 round trip to Hong Kong,” Harry said smirking.

     Harry and Joyce unknowingly had taken part in what’s known as “mother-in-law research.” (If it appeals to your mother-in-law, it’s worth testing.)

Dipping Their Toes in a Business

It dawned on Harry that if all his friends went gaga over this radio, he might start a business. But how?
    Jack Freed, Harry’s college roommate works for the world’s leading direct marketing agency—Wunderman Worldwide whose major accounts are Book-of-the-Month Club and Columbia House.
    Wunderman is major TV GUIDE advertiser. Harry and Joyce invite the Freeds to dinner and Jack is enthralled with the radio. He explains the TV GUIDE dry test business model and offers to write an ad for a percentage of the new business. 
    Harry and Joyce agree at once.    

    “Three questions,” Jack said.

     “Shoot.”

     “Do you know who made this radio? Can you get them in quantities large enough to start a business? What do they cost in bulk?”

     “I don’t know who made the radio. But I saw four different models in Hong Kong. This is the one I liked best.”

    “What is the price in bulk?”

    “It cost me eight bucks. I assume we can get them cheap.”

         The wheels in Jack’s head started turning. “Let’s say we buy radios for $5.00 plus $1.00 delivery and price test it for $34.95 plus shipping and handling, that’s a six-time mark-up. Should work.”

     “What’ll the TV GUIDE ads cost us?” Harry wanted to know.

     “Roughly two grand.”

     “Let’s do it!” Harry said.

     Here’s the kind of ad Jack Freed might have written and designed for TV GUIDE:

Gaming the System

This is the true story of a company with a business model based entirely using stealth for the naked theft of other people’s ideas using TV GUIDE. Let’s call it  J.Wisenheimer & Co, Jerry Wisenheimer president. Jerry’s Business in a nutshell:

• J.Wisenheimer is TV Guide’s largest subscriber. He buys subscriptions to all 140+ weekly editions. Jerry’s team scans them cover-to-cover every week of the year. They are NOT looking for TV programs.

• They are searching for advertisements of new products ripe for stealing.

• Jerry discovered the two ads for Harry’s radio and did the following:

—Stole the ad.
—Ran Jack's ad in rural Tennessee and urban Phoenix issues of TV GUIDE.¹

—Changed the name, address, website and 800 number, so all orders came back to J.Wisenheimer's office.

—Ordered a radio from Harry & Joyce.²

—Sent the ad to his guy in Taiwan and told him to find the radio

   (or models like it) and get prices.

¹ For 10 years, Jerry has run all his stolen ads in these two off-trail editions of TV GUIDE. He has a matrix of results based on products and prices. He will know within hours whether the ad will be a winner—and by how much.

² By ordering a radio from Harry and Joyce he will know whether or not this was a dry test or whether they were delivering product. If a dry test, he wanted their follow-up material. If a real offer, Jerry could see the packaging and enclosures.He would discover if other products are offered or whether this is a one-off effort by a pipsqueak.

Within two weeks Jerry had annexed Harry's radio idea and destroyed his dreams.

Takeaways to Consider

• Let me say at the outset I am not endorsing this theft-of-product business model. This is pure sleaze.

• According to a 2017 report by the United States Trade Representative, Chinese theft of American Intellectual Property currently costs between $225 billion and $600 billion annually.—Prof. Paul Goldstein, Stanford Law School

• The difference between what Jerry's did and the Chinese theft model is Jerry's business was built on marketing savvy vs. the Chinese model based on manufacturing knowhow. 

• "Build it and they will come is bullshit. Build it—sell the hell out of it—and they will come." —Willard Rouse, Real estate developer. 

• A marketer is nuts to lay in a huge stock of untested product and then try to sell it.

• There are two rules—and two rules only—in direct marketing. Rule #1: Test everything. Rule #2: See Rule #1. —Malcolm Decker, Freelancer and entrepreneur

• The Federal Trade Commission does not like dry testing and has a 30-day rule: If you offer a product via mail, phone, fax or Internet, you must be able to deliver within 30-days.

• Dry tests are done all the time. Three DO’s and DON’Ts.

—Don’t ask for cash. If you give a cash option knowing you cannot deliver, you are ipso facto committing fraud.

—Don’t hit the customer’s credit card until product is being shipped.

—If this is a dry test, Do, immediately, send to all customers an effusive, believable delay letter.

• The only truly safe medium for testing is direct mail. If you send out 10,000 direct mail pieces, chances are infinitesimal a competitor will get a whiff of what you are doing. Even if a competitor does see it, there’s no way of knowing whether (1) it was a test or a rollout (2) or whether it was successful or a bomb.

• If you test via space advertising, everyone who receives that publication will see it. 

• If you test via the Internet and your messages gets into the wrong inbox, it can be forwarded all over your industry and in the hands of your competitors worldwide in 30 seconds.

• Jerry Wisenheimer's big bucks could overpower Harry and Joyce’s meager inheritance

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Word Count: 1239

At age 15, Denny Hatch—as a lowly apprentice—wrote his first news release for a Connecticut summer theater. To his astonishment it ran verbatim in The Middletown Press. He was instantly hooked on writing. After a two-year stint in the U.S. Army (1958-60), Denny had nine jobs in his first 12 years in business. He was fired from five of them and went on to save two businesses and start three others. One of his businesses—WHO’S MAILING WHAT! newsletter and archive service founded in 1984—revolutionized the science of how to measure the success of competitors’ direct mail. In the past 55 years he has been a book club director, magazine publisher, advertising copywriter/designer, editor, journalist and marketing consultant. He is the author of four published novels and seven books on business and marketing.

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