Taking phonics global

The Baltimore Sun

Hooked on Phonics found success in late-night infomercials in the 1990s, selling up to $100 million a year of packaged materials that were used to help teach children how to read.

Then the once-successful marketing formula was scrapped when Baltimore's Educate Inc. bought the struggling brand in 2005 and turned it into a retail product sold at the likes of Target, Wal-Mart and Costco.

Now, Hooked on Phonics is returning to its TV roots by promoting its products on airwaves around the world.

Smarterville Inc., the successor to Educate's products division after the parent went private under a management-led buyout in June, is turning to infomercials to market Hooked on Phonics in Latin America, Asia and Europe.

The company hopes the strategy will help expand its business abroad as demand for English language instruction grows, partly fueled by foreign parents who see English as a way to give their children a leg up in the global market.

It's also a gamble, company executives acknowledge, since it is using an approach that gained fame on U.S. airwaves - with its "Hooked on Phonics worked for me!" slogan - but has yet to be proven overseas.

"In any territory, it could be quite lucrative," said Chip Paucek, Smarterville's chief executive officer. "The question is where it's going to hit and where it's not going to hit. We just don't know."

Smarterville is selling a product that was made specifically for international consumers: Hooked on English, which is designed to teach non-English-speaking children, ages 4 to 6, the language.

The product, which costs about $200, includes DVDs, CDs and flashcards for more than 50 English lessons. There are multiple versions of Hooked on English in numerous languages, including Spanish, German, Russian, Korean, Japanese and Portuguese.

An infomercial for Hooked on English made for the Mexican market and featuring local celebrity Martha Debayle began airing in that country last month.

A second direct-sales commercial, to be dubbed in various languages, is expected to roll out this month in Italy, India and Central America, including Guatemala, Panama and Nicaragua. By next month, more than a dozen countries, including Portugal, Poland, the Czech Republic, as well as Brazil and Chile, are expected to air the infomercial. The company also is in discussions to air its infomercial in South Korea, Japan, Denmark, South Africa and Turkey.

"With infomercials, it provides a way to create a larger marketing impression quickly," Paucek said. "We think Hooked on English winds up being the wedge in each of the territories to get the brand known."

Just as in the United States, so-called direct-response television is a widely used marketing tool overseas, industry experts say. Infomercials have become especially popular in Latin America, in part because of its population growth and the increased use of satellite television, said Judy Harris, assistant professor of marketing and e-business at Towson University's College of Business and Economics.

Moreover, production and media placement costs are cheaper in foreign countries compared with the United States, meaning companies can get a higher return on sales, said Osania Del Rio, director of marketing at Williams Worldwide Television, a direct-response marketing company in Santa Monica, Calif.

"In the U.S., if you are making $2 for every $1 spent on media, it's something to be happy about," Del Rio said. "Internationally, we have seen [ratios] as high as 8-to-1."

But infomercials overseas often are met with the same kind of skepticism that U.S. viewers have for them, academics say. That's because the advertisements typically are not as polished as traditional commercials, they often air during the early-morning hours and they sometimes use hard-sell tactics, said Harris of Towson University.

"They can still be effective, of course, just like they can be effective in the U.S.," she said. "But they will be more effective when they are designed with the particular country in mind."

Hooked on Phonics faced criticism about its infomercials in the years before Educate bought the brand for $13 million.

At the end of 1994, Hooked on Phonics agreed to settle Federal Trade Commission charges that it made unsubstantiated claims about being able to teach reading quickly to children with learning disabilities.

That same year, it settled another set of FTC charges that it violated federal law when it allegedly sold consumers' personal information to marketers after promising it would not do so.

Gateway Learning Corp., which owned Hooked on Phonics at that time, did not admit any wrongdoing.

As a repackaged retail product in the U.S., Hooked on Phonics has acquired shelf space at major retailers in a competitive and crowded market.

The transition was bumpy, however, with the company experiencing operational and distribution delays. It saw higher costs related to expanding its product business, which also includes educational materials associated with PBS children's series Reading Rainbow and electronic learning aids.

"Doing it in a public company, it's tough because you have quarterly earnings," said Paucek, who was hired in 2004 to start a products division at Educate. "I could tell you now that we're private-equity owned, the focus is on the next five years. So it's all about growth. The international business is expensive to set up [but] it has tremendous growth potential."

The global market for all language instruction, including English, is fragmented, analysts say. But the market is huge, with one estimate putting the figure at $50 billion, said Trace Urdan, an education analyst at Baltimore's Signal Hill Capital Group. The English instruction business for children is particularly strong in China, where parents see such fluency as a means for advancement, Urdan said.

A year ago, Costco began stocking Hooked on Phonics' Learn to Read English products in stores in South Korea, Japan and Taiwan. Sales in those markets exceeded U.S. sales, accelerating the company's plans to expand globally, Paucek said.

Now, international sales are a third of Smarterville's business. So far, the company is seeing a 100 percent increase in sales compared with the $18 million Educate reported last year.

With its Costco success, the company began developing Hooked on English and an infomercial to market the product and the brand elsewhere.

The infomercial is the big piece of Smarterville's international marketing strategy, but the company is also airing traditional commercials as well as selling its products at toy stores and bookstores in certain countries.

In China, for example, Hooked on English will be sold at retail stores and at two Hooked on Phonics learning centers in Hong Kong. The company's infomercial will not air yet in China, where problems with poor-quality products and false advertising have tainted the infomercial business, said Sam Lo, president of PolyEd International, Smarterville's Chinese distribution partner.

"The demand for a good English-learning program is huge in China," Lo said. "A well-established business plan can drive these products into the mass market, especially since parents in China are starting to understand the importance of early childhood education."

hanah.cho@baltsun.com

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