Best Practices for Online Advertising in Retail

A tremendous shift is taking place in online advertising right now. Google is pushing its display capabilities to new levels, Project Devil at AOL is bringing art back into advertising and organizations like the Interactive Advertising Bureau are pushing the industry to innovate with new ad formats. However, regardless of creative execution, the holy grail of advertising is the ability to reach the right person with the most relevant story — whether it’s through rich media or custom sponsorships — at the right time. At the end of the day, ads have one simple goal: to influence and drive purchases.

Online retail has grown at a breakneck pace for over a decade now. That said, it’s been tough to hit profitability with shrinking margins and conversion rates averaging 2 percent to 3 percent. The pressure to keep prices low is driving a tremendous interest in advertising that works. To sustain rapid growth while improving profitability, retailers need to both dramatically improve conversion rates and pursue innovations in online advertising.

Retailers aren't newbies when it comes to acting as publishers in advertising, but their reluctance to embrace it in its current state persists. While shopping for a specific printer on a large electronics retailer’s site, I was distracted by an ad for the same printer, but from a competing retailer. It was a perfectly targeted ad, but a total failure for the original retailer. Most retailers will tell you they don't appreciate it when competitors’ ads show up on their pages.

Along these same lines, the option of participating in a blind ad network opens a retailer's site up to the possibility of display ads disrupting the buying process. Retailers don’t want the "dancing mortgage lady" on their site, even if it's solving for remnant memory. A number of existing solutions fall short of optimizing the customer experience while solving for the retailer's own business goals, so it's helpful for retailers and brands to consider a few best practices for online advertising.

1. Get closer to the point-of-purchase decision. Online retailers sit at the most important point of the e-commerce transaction funnel — where consumers are making brand decisions for both their online and offline purchases. In fact, two-thirds of shoppers begin their purchase process online, with one in five starting at a retail site (the most frequent starting points among all retail shoppers). Even more significant, according to a July 2010 comScore study, 19 percent of shoppers who begin their search on retail sites either purchase directly on the retail site or navigate to a manufacturer site for further details.

There’s no question that retailers own some of the most valuable, untouched real estate in the advertising market. An ideal solution helps retailers and brands tap into this real estate in a couple of ways:

• complementing the user experience with ads that enhance rather than detract; and
• capturing value from the nonconverting retail audience (rougly 97 percent of e-commerce traffic).

2. Be relevant — it preserves and enhances the consumer experience. Many retailers have used and continue to use solutions such as Google AdSense, DoubleClick or other ad network technology to help them serve ads throughout the customer shopping cycle. Their solutions are built to solve nonretail publishing needs, however, and are therefore limited in their retail targeting capabilities.

Merchants dabbling with online advertising should seriously consider a retail-oriented ad server that solves the largest retail challenges, such as the ability to categorize ads based on products on search results pages or target ads based on brand attributes. This is a critical concern since an ad server that solves retail challenges will help advertisers within the retail ecosystem meet increasingly high expectations surrounding accountability and proven value for campaigns.

To preserve the consumer experience, the question of remnant inventory must also be carefully managed. As a premium publisher, retailers have the right to dictate how their remnant victory is handled. Dancing mortgage lady, “shoot the monkey” campaigns or other ads bought for pennies on the dollar to fill in remnant inventory should be abolished. Work with providers to find solutions for remnant inventory, using personalized content or in-house ads (e.g., your own product recommendations, in-house coupons or category sales).

Some of today’s most successful online retailers are already using advertising solutions as a means to reach profitability or to fuel growth by subsidizing price reductions. You might ask yourself, "How do retailers have entire categories that run at a negative margin?" This may be part of a loss-leader strategy, but in most cases these categories are actually printing money by matching consumers with ads paid for by the largest brands in the world. Advertising opportunities help them operate these loss-leading categories as profit centers for their business.

Jake Bailey is chief evangelist at RichRelevance, a provider of dynamic e-commerce personalization. Jake can be reached at http://twitter.com/#!/JakeBailey.