PetSmart acquired Pet360 for $130 million in cash and up to $30 million more in future performance-based payments.
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Dean Lubnick, vice president of new media services at New York ad agency Hampel Stefanides, won’t even negotiate a portal deal unless it’s based on performance. “People are now negotiating for customer acquisition,” says Lubnick, whose clients include CDnow. “Three years ago, Internet users were dialing up and looking at banner ads. Now there are more options-they digest information in many different ways.”
Fogdog currently has contracts with Yahoo!, America Online, Excite, Lycos, MySimon and WebTV. But none are the most costly anchor-store positions, Moellering notes, because the pay off isn’t there. Moellering pronounces herself mostly happy with those arrangements, but acknowledges problems setting Fogdog apart from the pack. “You don’t know who you’re going to be merchandised next to on Yahoo,” she says. “And for a consumer that’s a challenge because you don’t know who’s reliable.”
She has similar concerns with AOL. “They had a fairly well developed mall,” says Moellering. “They had a handful of retailers in each category, but then they went to a dozen or more. They fractioned the traffic, and retailers were getting less traffic and paying more money.”
CDnow, once a trendsetter for the huge premiums it paid for the best portal placements, also has switched to performance-based contracts and advertises only on a handful of sites. One such agreement with ad serving network C2 puts the store’s banners on AltaVista, Ask Jeeves, and DoughNet, says Samantha Liss, senior director of brand marketing for CDnow.
The bigger switch is the shift in spending on e-mail and personalized promotions, Liss and others say. At CDnow, that’s part of an effort to cut customer acquisition costs in half, to about $20. It’s learning to leverage the brand with less costly marketing. E-mail promotions, for example, run a couple of cents per customer but generate response rates four or five times that of bulk mail. “We were one of the first to go out and advertise in traditional media,” says Liss. “We already have a great base to build off of so now we don’t need to spend across the board.”