December 26, 2000, 9:55 AM

Though still striving to be heard above the noise, e-retailers tone down their ad spending

By Zack Martin

Editor in Chief

The first quarter was good to Pets.com, with revenue bounding by 40%. And for that, some credit is due the e-retailer’s celebrated “spokespuppet”-the sassy spotted dog featured in its national TV advertising campaign. In fact, the puppet is so celebrated that Pets.com is selling clones at $20 per, limit three.

Speaking at the recent Jupiter Communications Shopping Forum in Chicago, Pets.com Chairman and CEO Julie Wainwright wouldn’t go as far as making a direct link between the revenue surge and the sock puppet’s role in building her company’s brand. But she touted the two in the same breath. The puppet ads, which began appearing last year, reached the big leagues by airing during this year’s Super Bowl. Since then, the company mascot has made appearances on talk shows and even flirted with Diane Sawyer during an interview on ABC’s “Good Morning America.”

Last year, as the sock puppet campaign got under way, Pets.com spent more than $19.5 million on advertising tilted overwhelmingly toward TV, where it plunked down more than $18 million. Internet and radio ads soaked up the rest.

Despite the heft of its TV spending, Pets.com has generated more buzz via old-fashioned PR. The company has even sued a former writer for “Late Night with Conan O’Brien” for defamation and libel after he alleged the puppet was based on his creation, Triumph the Insult Comic Dog. Robert Labatt, e-retail research director at the Gartner Group, Stamford, Conn., credits Pets.com for using not only the commercial but the surrounding publicity to build its brand. “A branded experience leaves you with a keen understanding of what your business is and leaves you with a tangible positive consumer experience,” he explains. “The sock puppet has been very popular, and people recognize it as a champion for consumer pet products. The company also has the best URL.”

Slowing the spigot

The marketing of Pets.com, however, is a drop in the bucket compared with Amazon.com’s $47.3 million and eToys.com’s $38.3 million. But as e-retailers face pressure to show their business plans can produce profits, analysts don’t expect to see that kind of spending prevailing. In fact, high-profile Net companies such as CDnow, rapidly burning through their cash, have announced major cutbacks in marketing and advertising budgets to slow their spending. “Advertising is the easiest spigot to turn off,” says LaBatt.

“You have to take survival of the company into account,” adds Tom DuBois, CEO of Active Research Inc., Burlingame, Calif. “If you have $2 million in salaries and $2 million in marketing, and you’re in trouble, what’s going to go?”

But the pressure to cut back on marketing comes at an awkward time, with many e-retailers needing to raise both their brand profiles and their customer counts to reach the scale required to sustain the business. The good news is that they still have strong options beyond TV and Internet portal deals. “We’re seeing far less of the big $100 million offline campaigns,” says Marissa Gluck, analyst with Jupiter Communications, New York. “We’re seeing a shift toward more accountability and more direct marketing on the Internet.”

CDnow no longer advertises offline and has slashed its marketing expenses following the collapse of its merger with Columbia House earlier this year. On the flip side, Fogdog Sports started out modestly with radio spots before moving into TV, where it has concentrated its spending on cable network ESPN. The company recently launched a second series of TV commercials, along with numerous portal ads.

Portal deals, once commanding price tags of up to $200 million, also are changing. Retailers want better accountability and better customer tracking, something unheard of a year ago. But the switch to performance-based contracts isn’t easy. “We had to beg, borrow and steal,” says Anne Moellering, director of consumer marketing at Fogdog.

Branding on the Internet has proved more elusive, especially when it becomes multimillion-dollar banner ads and anchor positions with portals. “We’re seeing a great deal of unhappiness with the portal deals,” says Jupiter’s Gluck, explaining that retailers have complained that sales have failed to materialize.

Up to now, portal deals typically paid the portals each time customers clicked through to retail sites, whether or not a sale occurred. Burned by low conversion rates, retailers generally want to pay them only when a sale results.

Overall, the right mix of offline and online advertising has proved elusive for Web merchants, if for no other reason than the lack of a proven formula. “The challenge is twofold,” says Labatt. “They are trying to create a branded environment while creating immediate revenue.” And that often starts with the most basic of brand statements: a company’s name. When Fogdog relaunched its site in 1998, executives imagined a shopping site where customers had fun, starting with the new name, which contrasted sharply with the old plain-Jane moniker: SportsSite. The new name, says Moellering, “was fun to say, and people were quick to latch on to it.”

Fogdog followed up that decision with radio ads promoting the site in select markets. By tracking where orders were placed, executives were able to gauge the campaign’s success. Last year, Fogdog launched a series of TV ads featuring it’s own dog mascot, a character dressed in a shaggy-dog suit who comes to the rescue of athletes in various sports equipment dilemmas. Moellering says the campaign has put Fogdog on the map with its customers. “We looked at the number of options and at the time radio was diminishing,” says Moellering. “We knew we had a number of [competitors] coming up behind us, and we were trying to become synonymous with our category.”

Fogdog fell into a bit of luck when it launched the TV commercials. They first aired during the Women’s World Cup soccer finals, which commanded higher audience ratings than the Stanley Cup Finals in 1999. “The simple fact,” says Moellering, “is there’s no medium like television for creating a large national brand.”

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