It’s the middle of the night. Television options are limited. Then, there he is: A man in an immaculate suit, smiling with too many teeth and gushing about investment secrets that will make you billions of dollars in the real estate market. Find yourself reaching for the phone? Never fear! This article is 100 percent guaranteed* to stop you from wasting money on bogus claims, or your money back. We’ll even throw in an amusing infomercial clip for free! But only if you read now.
Infomercials are a form of Direct Response T.V. (DRTV), a television advertising method that encourages consumers to contact the company directly. Contact could be through a website or, often, an 800 number. A traditional infomercial lasts 28 minutes and 30 seconds. They are used to advertise everything from rotisserie ovens to real estate investment seminars.
How infomercials work
There are several key elements behind infomercials, according to Tim Hawthorne, chairman and executive creative director of Hawthorne Direct, a direct response advertising agency. Five of those elements are:
- Big Promise
- Magical Transformation
- The Offer
These elements are designed to appeal to the sensibilities of viewers. Let’s look at these elements as used in an infomercial by the infamous Tommy Vu, a well-known real estate infomercial personality from the ‘80s and ‘90s.
The problem presented here is a lack of wealth. The solution is learning Vu’s secret.
The big promise is “a punchy, one-line statement of what the product will do for me, how it solves a problem and will change my life for the better, forever,” Hawthorne said. In the case of Vu’s infomercial, this statement is “become financially independent.” This phrase is repeated in various forms by various people throughout the course of the infomercial.
The magical transformation is “sacred to DRTV sales success. Dramatically show me how: She used to be fat, now she’s thin. He used to be bald, now he’s hirsute. They [used] to be poor, now they’re rich,” Hawthorne said.
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Vu’s infomercial displays photographs of his destitute immigrant family, two parents and 10 children living in a tent. This picture is followed soon after by a newspaper headline: “Ex-busboy buys Butcher mansion.” Meanwhile, Vu’s voice exclaims, “Thank God that I found a unique system to make millions in real estate starting from nothing. As a result we became financially independent.” Vu has dramatized his ascent from rags to riches, the same transformation many consumers likely desire for themselves.
One of the key elements of an infomercial is a sense of urgency. The person or company doesn’t want consumers to wait to call; they want them to call right away. In the full version of Vu’s infomercial, at one point the words “Last chance to write down the location for Tom Vu’s seminar!” flash across the screen.
But wait, there’s more! The offer tries to hook viewers by pushing for a transaction. “People love a bargain. Bonuses, premiums, discounts, coupons. ‘Free’ is the strongest word in direct marketing,” Hawthorne said. Vu makes sure to point out that his seminar is free, emphasizing the idea that people who don’t go are lazy and “deserve to be broke.” For more unintentional humor, see our Top 10 Tom Vu Quotes.
The fact that a particular investment service or product is advertised in an infomercial does not automatically mean that it is dishonest; however, there are some things about the format that do attract shady people.
“The barrier for entry to becoming a DRTV marketer—getting a DRTV commercial on air—is very low. Some marketers spend just $5,000 to produce their commercial and buy some media time on TV outlets and they’re in business,” Hawthorne said. Another element that makes infomercials a particularly attractive medium for scam artists is the fact that it can be easy to create significant sales quickly. Upgrading is as simple as buying more air time.
“Fortunately, the industry’s trade association, the Electronic Retailing Association, established their own watch dog group (ERSP) which has monitored over 4500 DRTV commercials since 2004 and brought 155 complaints,” Hawthorne said. “With ERSP and the FTC monitoring DRTV commercials, [an] unscrupulous marketer’s life on TV is getting shorter and shorter.” Even with increased monitoring, investors should be aware of issues and red flags commonly found in infomercials to lower their chances of being scammed.
Those glowing testimonials? They’re probably actors. According to Hawthorne and other industry sources, these semi-professional actors try the product or service and then deliver a real testimonial on camera. But actors can be pressured to stretch the truth.
In 2006, Dateline did an undercover story on infomercial production. They created a pill that supposedly moisturized the skin from the inside-out—it was actually filled with Nestle Quik—and hired a DRTV production company to produce the infomercial. The actresses in the ad gushed about the amazing changes the phony pill brought about in their complexions; all of them had tried the pill and were supposedly giving honest reactions. But when Dateline later interviewed these women, they admitted to embellishing the truth. Most of them were “undiscovered” actresses, and the excitement of getting screen time and $50 nudged them in the direction the producers wanted.
Although Dateline’s exposé involved a faux drug rather than an investment seminar, it’s easy to see how the same technique could be used when dealing with real estate. Testimonial givers may have sat in on a seminar, or actors may turn out to have no experience with the real estate guru’s services at all.
John T. Reed, an investment writer and former real estate investor, offers a list of 54 red flags that indicate a supposed investment expert is up to no good. The red flags he addresses include an emphasis on a luxurious lifestyle, a supposed lack of pitfalls to the approach, techniques that appear to be universally applicable, an emphasis on motivational material and emphasizing no-down or low-down investment techniques. For the full list, visit Reed’s website.
There have been many investment scam artists who have used infomercials to sell their seminars and publications, promising to help people get rich quickly. One such person is Tom Vu, the man behind the infomercial that was discussed earlier in this article. After retiring from infomercials, Vu went on to become a professional poker player. He had won $1,317,600 playing poker as of the end of 2007, according to the Hendon Mob Poker Database.
Another well-known infomercial personality was William McCorkle. McCorkle used infomercials to sell a “get rich quick” real estate investment system that focused on distressed sales and government auctions. It was later revealed that many of the claims in McCorkle’s infomercials were fabricated. In his advertisements he stated that he had made millions with his investment system when, in fact, he had recently filed for Chapter 11 bankruptcy. A jet and a yacht that he claimed to have purchased from government auctions were actually leased for filming. Despite an alleged 30-day money back guarantee, most dissatisfied customers were unable to get refunds. McCorkle and his wife, who was involved in the scam, were sentenced to 18 years in federal prison.
John T. Reed also maintains a list of investment gurus, whom he rates as recommended, not recommended or neutral. Investors would be wise to look up questionable investment “experts” before making a commitment to any investment program.