Retailers’ 2007 Online Advertising Outlook

Attending Shop.org’s FirstLook conference recently (as I did in 2005), I’d hoped to hear encouraging news about e-tailers’ reinvigorated online advertising plans. After all, with the resurgence in online advertising, wouldn’t e-tailers follow suit? For the majority, however, it seems to be business as usual.

The conference kicked off with a keynote address by JC Penney CEO Mike Ullman, who’s heartily embraced the Web, claiming, “The Internet is the foundation for our future growth and success.” But when I asked how much of JC Penney’s $1 billion ad budget was being shifted to online, Ullman conceded, “Not much. We’re still mostly doing direct mail.” I had a Charlie Brown moment: “ARGH!!”

To try to better understand this disconnect and why online ad spends are still so disproportionately low compared to the amount of business being transacted online, I sat down with Patti Freeman Evans, JupiterResearch’s retail analyst. She believes retailers are still too siloed and steeped in tradition to embrace Web advertising to the fullest extent. “Most of what retailers are trying to impact is offline sales.”

Are retailers’ traditional agencies part of the problem? Says Evans, “Agencies are structured in large part to align with their clients, and since [retailing] clients aren’t changing, neither has the agency. To service the interactive side, they have either purchased an interactive agency or partnered with one, so this scenario is siloed, too.”

I probed further, soliciting 360-degree input from e-tailers, ad networks, and agencies. Perhaps unsurprisingly, pure-play Internet retailers are the ones most likely to embrace and spend bigger portions of their ad budgets online. Though my sample responses can’t be viewed as representative of the whole retail industry, most e-tailers I heard from plan to decrease online display ad spends in 2007. On the other hand, most plan to increase PPC (define) search spend. I didn’t have consistent findings on other forms of online ad spends I asked about, such as e-mail newsletters, contextual advertising, online video, blog ads, and lead generation.

Ad networks, however, are resoundingly more optimistic. “We’re seeing a significant increase in business from retailers in 2007 versus 2006, more retailers wanting to put more dollars to work,” said Curt Viebranz, CEO of Tacoda.

When I questioned Brian Lesser, director of product marketing for 24/7 Real Media, about conflicting e-tailer opinions, his answer completely resonated with me:

I think there’s a significant divide between sophisticated e-tailers and those just dipping their toes in the digital marketing water. On the spectrum of digital marketing vehicles, we find e-tailers generally start with low-effort, high-reward vehicles like e-mail, affiliate programs, lead gen, and search, which can be difficult to manage properly but much more cost-effective and highly scalable when done right.

Then there’s display advertising, which can be overwhelming to e-tailers because it requires a strategy to get it right. E-tailers that buy untargeted display on a large ad network without a strategy may be disappointed with their results. Successful display campaigns start with a strategy that leverages the many targeting options available — geotargeting, contextual, behavioral, re-targeting — then homes in on the right audience using optimization tools.

Networks also sense that though most e-tailers still focus on ROI (define), there’s acknowledgment that branding and consumer engagement play a key role in influencing online sales.

I also asked e-tailers about budget allocations to other online marketing activities such as SEO (define), in-house e-mail campaigns, affiliate marketing, and social media. Again, responses were all over the board with the exception of SEO, in which interest seems to be on the rise. This parallels what our agency has seen so far this year.

Of the social media tactics most likely to be implemented by e-tailers in 2007, consumer product reviews rank highest. Data from Yahoo’s “Engaging Advocates” study shows an empirical means of measuring the social Web’s effect on retail. More than anything, it appears the buzz associated with social media has attracted e-tailers’ interest. Ever cautious, however, e-tailers primarily reply, “We’re thinking about it,” or “We plan to test it in the future.”

But check out “Mr. Cupid” on YouTube, which Ice.com, an e-tailer never shy about forging ahead, has posted to help market Valentine’s Day. These guys get it!

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