Moderator: Larry Isen
February 26, 2008
3:00 pm CT
Interview with Tim O'Leary, CEO of Respond2

Larry Isen: Hi. My name is Larry Isen and I am the Editor and Publisher of the OTC Journal, an Internet portal specializing in micro cap stocks. I've been covering eFoodSafety since January of 2007.

 I was originally compelled by their unique product offerings and their natural approach to product development. This theme fits very well with growing consumer demand for less toxic wellness products.

 The growth of companies like Whole Food Markets over the past five years serves as proof there is a megatrend towards much healthier choices in our lives.

 Like other eFoodSafety shareholders I was disappointed in the company's ability to get their products sold to consumers throughout 2007. I had high hopes earlier in the year but as the numbers rolled in throughout the course of '07 it became clear their distribution through large retail chains wasn't working out as well as we all hoped.

 To their credit eFoodSafety is tackling the problem and moved in a new direction for 2008. Respond 2 -- a unique direct response advertising agency -- will launch campaigns for three of their products beginning sometime in March. Respond2 will initiate campaigns for Cinnergen, Cinnechol and NumaDerm.

 As shareholders it's valuable for all of us to understand the potential for improving product sales. To that end I've invited Tim O'Leary -- the CEO of Respond2 -- to talk about his agency and how they work.

 Tim thanks a lot for joining us today. I want to start by asking you to describe Respond2's unique programs and tell us how they differ from the standard Madison Avenue style advertising agency.

Tim O'Leary: Sure. Happy to do it. In the traditional world of advertising the effectiveness of advertising is based on the - how people perceive the creative and essentially how many eyeballs see the creative, how many people see it.

 Our approach is quite a bit different in that we are a branded direct response agency which essentially means that we take the methodologies of direct response advertising but we work with major brands so that you get the efficiencies of direct response advertising and the impact of traditional branding.

 So how this would really differ is that as opposed to how many people see an ad and how clever or how many awards the creative wins for that ad what we really care about is how many people respond.

 So the creative is structured a little bit differently. It's more about salesmanship and explanation than it is just sort of interesting creative. We really attempt to sell the product. We shoot our commercials with all the production quality that you would have in a major production so that you get that good feeling about the brand.

 And the spots tend to be longer. As opposed to 15 or 30 seconds which you have with the traditional commercial we tend to work in the 60 second to 120 second range.

 And then the big thing is that at the end of every commercial you have what we call a call to action. So we drive the consumer to take a response. Typically that response is to go on-line or call a toll-free number and purchase the product or get more information.

 All this is measured then. And our media measurement is based on a cost per inquiry and a conversion to order so that at the end of the day as opposed to again being judged by those traditional brand metrics we're really judged on was the creative efficient. Did people like it? Did they understand the product and did they buy the product.

 And so we specialize in building all the systems. And that involves obviously coming up with the creative and the brand template; producing the commercial; building the back end systems which includes the right kind of telemarketing, the right kind of website; helping establish fulfillment; and then purchasing media that is ideal to hit that demographic; and then finally tracking it.

 So when you're a client of ours you get a report everyday that tells you exactly what happened to your advertising dollars the day before. And it's kind of the television equivalent of on-line marketing because we optimize. If we're doing well in certain media channels then we spend more on those media channels. If we're not doing well then we cut back. And we're able to get a daily read on how the advertising is doing.

Larry Isen: So you guys get live - real daily reports on exactly what result the advertising is creating.

Tim O'Leary: Exactly. Typically now about 50% of consumers when they see a direct response advertisement will use the web as opposed to telemarketing which is great because it's a more efficient way to handle the orders. So we have real-time reporting on that and we can see what's going on.

 The other thing that happens is that there's an enormous halo effect to this kind of advertising. Because you really are getting, you know, all the benefits of traditional advertising. People are seeing the commercials.

 And if they aren't buying, you know, per the - what we say in the call to action you do see enormous upswing at retail and, you know, in all the other channels where the product is available.

 So if the campaign works and it's orchestrated right it really gives you the most bang for your buck.

Larry Isen: Tim can you talk about the agency a little bit? Tell us how many employees you have, how many branches, how much media, your annual purchase…

Tim O'Leary: Sure. We are based in Portland, Oregon. And in Portland we have a large media operations. We have in-house production. We have web and on-line optimization.

 We also have a big media operation in Philadelphia, in Providence, Rhode Island. We have branch buyers in Los Angeles and Chicago. And we will soon be coming on-line with a new operation in California.

 So right now we are about 200 full-time employees. And last year we bought somewhere between $300 and $350 million in media.

Larry Isen: Tim can you talk a little bit about some of the products you've represented in the past and what kind of successes your clients enjoyed?

Tim O'Leary: Sure. Well we have a wide range of clients that kind of go from traditional direct response clients to major brands that use direct response. So, you know, current and past clients have included, you know, big packaged goods companies like Clorox and P&G.

 We do a lot in the health and beauty arena so Bare Essentials is a client. Philosophy is a client in those arenas. Some of the more traditional branded direct response direct marketers - we just took over the Bowflex Nautilus account.

 And then we work a lot in financial services and telecommunications. We're agency of record for Vonage and have been for about nine months and have really made great headway there making their marketing more efficient. Philips Electronics, Home Depot, a lot of different kinds of companies.

 But the commonality is that we are always working with a very specific cost per inquiry, cost per order metric. And so it could be a major brand that uses us as their direct agency or we could be agency of record for an entire brand if they measure on those kind of metrics.

Larry Isen: Tim can you - can you maybe identify a couple of products that you've represented in the past or do currently that are kind of similar to the wellness products that eFoodSafety is going to be offering and tell us if you've had some success with those?

Tim O'Leary: Sure. Probably the most analogous campaign is for a number of years we were doing the direct response television campaigns for Pharmavite which owns Nature Made vitamins and a number of - they develop a number of condition specific nutraceuticals. So we worked on Cholest Off and Stress Ease - a number of different products like that for several years and they spent many many millions in direct response television.

 That was very similar in the kind of products we were selling. The difference was that they chose instead of direct selling to drive their retail distribution because they have quite enormous retail distribution.

 So we would invite consumers to call and get a coupon and then we would track the coupon usage. And driving through, you know, big (unintelligible) like Costco and companies like that. But in terms of the messaging of the campaign they would be the most similar.

 Other kinds of clients - this will be what we call a continuity campaign which is in our world sort of the gold standard if you can make it work. So a lot of makeup clients - again Bare Essentials which is one of the biggest direct response advertisers. They sell people into continuity beauty programs. But they also really want to drive their retail distribution in Sephora and premium retailers.

 So my guess is that if all goes well with eFoodSafety we will have a combination campaign where we will hopefully successfully run continuity on the front end. But they're going to see again that big halo effect at retail.

Larry Isen: Can you talk to us a little bit about the technologies and the metrics you use to measure the success of your direct response campaigns?

Tim O'Leary: Sure. At its simplest we are looking again for a cost per inquiry, a conversion to order, an average order, and in this case what we would call a lifetime valuation. So everything is keyed against that.

 We will have a target number to get a consumer to call or click. And that is a function of how well your creative and your media is done. Once we get them to do that we have another target ratio as to the percentage of those consumers that buy the product and how much they initially buy of the product. And that's a function of how you manage what we call the back end of the campaign.

 And then the final thing is the lifetime valuation of that client. And that is how many orders do they continue to receive as part of the program. And that becomes again a back end management and really a quality of product issue for consumers.

Larry Isen: And what kinds of midstream adjustments might you make if a campaign is - you know, if you're trying to fine tune a campaign to maximize the result?

Tim O'Leary: Well this is really a testing medium. And I always prepare clients for this because it can take you a while. Sometimes you hit it out of the ballpark on the very first campaign. And I've had other campaigns it's taken as long as a year to test.

 So the beauty of this is you don't have to spend a lot of money during the testing process. And then the testing process will tell you how much you can spend.

 But you are - you tend to test in two week increments. And I would say on an average you might test a couple to three creative configurations, you know, before you find exactly the right creative. And that would be how does the commercial come together and what's the right offer configuration and call to action.

 Once you have that sort of worked out -- and the offer configuration is really sort of a crucial part of it -- then you have to fine tune things like obviously it's more cost efficient to drive people to the web. So you need to get your website really pumping right. We specialize in building websites that are specifically designed for direct response.

 You have to have your customer service right. You don’t want to sign up too many people into a program until you kind of work out the (nits) and make sure that you have a very happy client.

 The other thing that becomes an important part of this is that most consumers now research quite a bit. And so we get very involved in all the relationship marketing aspects of the campaign including blogs, analyzing, you know, what competitors are saying, peer reviews, expert reviews, all those kinds of things that help us convert more people into buyers and then making sure that the clients are happy - the customers are happy and stay on the product for as long as possible.

Larry Isen: So in the case of say Cinnechol and Cinnergen these are two products you'll be introducing that have actual clinical trials that measure their capability for generating results…

Tim O'Leary: Exactly.

Larry Isen: Those will become powerful tools for you guys?

Tim O'Leary: That is real powerful and it's essential. There are, you know, certain - actually quite a few restrictions on, you know, the kind of claims we can make on television.

 And we're very specific on behalf of our clients and, you know, our own situation to make sure that all the claims are valid, can be backed up. The station's networks have different requirements for substantiation.

 What really makes these things work -- and I tell clients all the time -- is that if you have strong clinicals and you have very strong real testimonials that can substantiated that goes a long way in making a campaign successful.

 And I would, you know, a high percentage of the clients that come to us don't have that.

Larry Isen: So in the case of eFoodSafety they have both of those I assume, right?

Tim O'Leary: They do. They have strong clinicals and they have a good story to tell and good testimonials. It's nice because it's an established product that's been out there a while. So, you know, our job is to translate that into a compelling story for what we think is a pretty broad target demographic.

Larry Isen: Do you guys have a time table now for the launch of the initial campaigns for their products?

Tim O'Leary: We are shooting Cinnergen and Cinnechol as we speak this week. And I don't have the specific time table in front of me but there's about - once we finish shooting this week and we'll be shooting all week there's normally sort of a four to six week editorial and distribution process.

 We're building the websites. I was just approving the website copy this morning. And so we're moving full steam ahead on those two products. And, you know, you will see those campaigns launch within a few weeks.

Larry Isen: And for those of you who are listening just to clarify - I'm doing this interview with Tim about 1:00 Western Time - Pacific Time on the 26 of February - Tuesday.

 So that would imply that maybe towards the end of March/early April we'll actually start seeing these things appear in media. Would that be…

Tim O'Leary: Yeah I believe we have a March - we have a late March launch on these.

Larry Isen: Well Tim I can't thank you enough for your time. Thanks so much. You know, we're all rooting for great success in these product introductions. And for you investors who are listening or reading I think you have a good feel now for eFoodSafety's approach to its biggest challenge.

 I hope you found this information valuable. Thank you for your time.

END