Online Advertising Equals Online Sales

Online advertising by Internet-only retailers has a positive impact when it comes to increasing quality visits to shopping sites, according to report by AdRelevance.

The research found a strong positive correlation between online advertising and engaged visitors (those who spend at least three minutes a day viewing content at an online entity) at online retail sites.

The AdRelevance research look at online advertising impressions and traffic patterns for online retail sites between January and May 2000. An analysis of the top three visited online retail segments in the month of April — books/music/ movies, flowers/gifts/greeting cards and computer hardware and software — uncovered a strong and very positive correlation of 0.83 between advertising impressions and engaged visitors (-1 would indicate a perfect negative correlation and 0 would indicate no correlation, while +1 would indicate a perfect positive correlation).

Of the top three categories, flowers/gifts/greeting cards had the lowest correlation at 0.78, while the more competitive sectors of books/music/movies and computer hardware and software both show high correlations of 0.82 and 0.87, respectively.

Retail ad impressions declined significantly with NASDAQ’s April downturn, falling from 19 percent growth in February to a negative 9 percent loss in April, according to AdRelevance, but they rebounded in May, showing 6 percent growth.

“Given the strong connection between online advertising and engaged users and considering the market’s need to see increasing profits, online retailers should think twice before deciding to decrease Internet ad budgets in response to NASDAQ’s fallout,” said Charlie Buchwalter, vice president of media research for AdRelevance.

“Despite the trying efforts of many dot-coms to build their brands with big-budget television ad campaigns, the latest AdRelevance figures for the online retail sector suggest that money spent online advertising is growing their businesses.”

According to the report, successful online-only retailers such as Amazon.com and eBay, have created a brand name by running regular online ad campaigns consisting of 168 million average monthly impressions. On the other hand, less successful companies, which often struggle with brand identity and differentiation issues, often have little to no online advertising and tend to operate in highly saturated or fragmented categories (see table below).

“Many of the more successful online retailers appear committed to online advertising, which they use to both drive traffic and build awareness for their brand,” Buchwalter said. “Online retailers that don’t quite have the same level of brand recognition, however, can still be competitive using online advertising. In fact, the AdRelevance Report shows that some companies, like Reel.com and PlanetRx, build good traffic using direct marketing impressions. It’s a challenge to find the right balance between online branding advertising and online direct marketing, and it will be those businesses that do that will survive the predicted shakeout.”