February 28, 2001, 12:00 AM

How targeted marketing can help online retailers land the big one

(Page 2 of 3)

Merchandising Avenue built a proprietary merchandising optimization engine that notifies the merchandisers when a content page is updated. The merchandisers have two screens: one with the content page and another with the merchandise. They then look at the new content and check the merchandise pallet to see what items will best fit; they then load the items to the content page. The entire process takes about 10 minutes. The merchandisers also track which items are selling and replace those that are not.

“We realized the fastest computer is the human brain,” says Michele Killman, Merchandising Avenue’s vice president of marketing. “Instead of trying to do artificial intelligence to perform category matches, we’ve built a system that allows our merchandisers to be pretty quick. Also, there’s no replacing somebody that understands buying trends. That’s why it works. It’s not arbitrary, it’s relevant. You’re getting down to the psychology of why consumers buy certain things.”

Jim Nail, senior analyst with Forrester Research, says being nimble is critical with contextual marketing. To be successful, marketers must think in the short term and pay close attention to the results. “It’s got to be a whole lot more hands-on than banner ads,” he says.

Marketing agility is translating into results for Merchandising Avenue. The click-through rate for some of the sites using its ads is about 14%, Killman says. The men’s magazine, Maxim, is now testing Merchandising Avenue’s system on its site. Merchandising Avenue did a similar project for Maxim this past holiday and had a 27% click-through rate.

More than a nibble

But a click is not the same as a buy. Killman says the company is too new to have solid data on how many of its clicks result in purchases. “The conversion rate depends on the audience and the product, but it’s been pretty significant,” she says. “We feel the people who are clicking through have a high propensity to consume.” The company believes it will deliver an average conversion rate of 10%, she says.

TrailBreaker Inc., Waltham, Mass., offer a reverse approach to contextual marketing, but one that focuses exclusively on conversion. TrailBreaker creates buyers’ guides-which it calls Microsite Funnels-that shoppers can enter while investigating an item. The funnel uses focused content to lead the customer through the purchase.

WorldWideSports.com is using a Microsite Funnel to sell inline skates. When customers look at inline skate pages, a buyer’s guide/expert advice box (the funnel) appears to right of the product page. Those who enter the funnel are asked what type of skater they are and given content based on that response. “Most retailers believe the way to increase the conversion rate is to drive more traffic,” says David Bailey, TrailBreaker’s director of marketing. “We focus on getting the visitor to hit the buy button and keep what they put in their carts.”

This, he says, happens because shoppers get the details they need to be confident in their purchase decision. The conversion rate is 57% higher when the inline skate shoppers use the funnel. That conversion-rate increase is consistent with other TrailBreaker customers, he says.

“The web allows us to make some inferences and direct correlation with behavior,” Lavoie says. “That’s going to play a part in marketing to a small group in such a way that your response rate should be in 50% to 80% range.”

The path to success

For all its rewards, the path to contextual marketing has its obstacles-and cost is one barrier that looms large. “The principal barriers to entry are financial,” Marcus says “It costs a great deal of money to acquire and continue to acquire the data you need to know your customer.” In many cases it costs a lot to separate the relevant data from the data a company already has. “When you have tera-bytes of data, human beings are not going to be able to recognize the patterns to create market segmentation.” This cost may hinder contextual marketing’s popularity, especially for medium-sized and regional retailers that lack the economy of scale of the larger companies, he says.

Rubin agrees. A lot of the technical products have not performed as well as they could have, and many of them were attached to bigger, more costly solutions, she says. “There’s the matter of being able to afford the technology and have it integrate with all the other technology, which can be very costly,” Rubin says. “Booksellers have very large databases that are cross-referenced in many ways. For other retailers, especially those with perishable goods or those that are seasonal, it’s much harder to create a complex cross-referenced database because it changes so frequently.”

Also, retailers need to categorize and catalog their products on an ongoing basis to know which product works well with different types of profiles or content. That is a huge effort, Rubin adds. “That’s been the big disappointment with personalization products-they have the capability, but they have to be programmed appropriately,” she says. “It is often under estimated how costly and time consuming that process can be.”

Demographic data, such as homeownership, number of children and credit cards held, are inexpensive, Lavoie says. However, more specific data, such as financial transaction or credit report data, are costly.

Merchandising Avenue charges retailers about 13% of sales generated by its ads, although the percentages differ from retailer to retailer on a per-click basis depending on a retailer’s technical capabilities. Merchandising Avenue gives 50% of its commission to the content site.

TrailBreaker bases its charges on how long the company spends with a retailer. Typically the cost starts at $50,000. Payback time on the investment from increased sales is about three to nine weeks, Bailey says.

The Internet will always have advertisers fishing for customers. And as the demand for results increases, those advertisers will spend more time searching for customers’ favorite feeding spots-making contextual marketing the next generation of online advertising. “The question,” Rubin says, “is when, not if.”

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