The e-retailer reports a $126 million net loss, stemming from a $640 million year-over-year increase in spending in the quarter on technology and content ...
Retailers increasingly turn to data and new tools to adapt to the evolving online advertising landscape.
'Twas the week before Christmas and a mother was on a mission. Her son sent her on a special holiday gift assignment: locate and purchase the "world's most perfect undershirt." He wanted a shirt made of high-quality, non-cotton material that wouldn't result in the dreaded stretched-out collar after a few washes and that wouldn't bunch up when he wears a fitted sweater.
The mother opened her laptop and typed "best men's undershirts" in Google.com's search box. She landed on the holy grail—a blog devoted to undershirts, "The Undershirt Guy Blog." Perusing the site, she saw an advertisement for RibbedTee.com, which sells high-end undershirts that promise to solve the common issues men encounter with the clothing staple. She clicked the ad, which took her to the retailer's site and found a style that ticked all the boxes. Sold. She bought three.
The scenario above outlines a common path to a sale at Ribbed Tee Designs LLC's e-commerce site. Advertising on specialized blogs and sites that attract highly targeted traffic is paying off for RibbedTee.com, which is why it accounts for up to 85% of its advertising budget (paid search ads make up the other 15%), says Mike Schwarz, the retailer's founder and CEO. For example, Schwarz says referral traffic from such sites as UndershirtGuy.com and Esquire magazine's web site account for just over 10% of RibbedTee.com's total site traffic and 10% of total gross revenue. That's significantly more than the retailer derives from paid search, which accounts for less than 1% of traffic and even less in total gross sales. The retailer's approach seems to be working; RibbedTee.com's sales have grown between 20% and 30% each year over the past three years, Schwarz says.
U.S. digital advertising revenue reached $36.6 billion in 2012, up 15.5% from $31.7 billion in 2011, according to the Interactive Advertising Bureau, a trade group for online ads sellers. As retailers increase their digital ad spending, they also have to adjust to an evolving online advertising landscape as Google Inc. and others roll out new ad and targeting options. Beyond seeking out advertising on the wide range of niche blogs and forums online that attract just the right type of consumers as RibbedTee does, retailers also can take advantage of Google's recent changes to manage their ads more easily and better target consumers in the market to purchase products. Retailers are in a never-ending struggle to fine-tune their marketing spend because if they don't they're wasting money and missing potential sales.
When it comes to online advertising, many retailers spend heavily on paid search ads. The 500 merchants in Internet Retailer's 2013 Top 500 Guide spent, on average, $93.1 million per month on paid search ads, up 24.5% from $74.8 million in the previous year, according to data available at Top500Guide.com. The median monthly paid search spend was $80,000 in 2012, up 48.1% from 2011.
And Google has been busy lately making changes to its advertising platform that can impact online retailers. In late 2012 the search engine and advertising giant replaced the free product listings that appeared in natural search results with Product Listing Ads, commonly called PLAs, which show images, prices and other information in the center of a Google search results page. Then, last February, Google launched Enhanced Campaigns, which lets retailers manage in a single AdWords campaign ads across desktop computers and smartphones, while also factoring in such variables as time of day and location.
Google's changes can help marketers who learn how to use them, says Darren Baldwin, e-commerce manager at apparel and outdoor gear retailer Dungarees.net. For example, he says Google's Enhanced Campaigns contributed to the retailer's 97% surge in its mobile sales from the day after Thanksgiving, Black Friday, to Monday, Dec. 2, this year over the comparable period in 2012.
Before Enhanced Campaigns, Baldwin had to set up and manage separate smartphone and desktop AdWords campaigns. That usually resulted in Baldwin neglecting mobile campaigns since they didn't bring in as much traffic as desktop ads. Now he manages both in the same AdWords campaign. When he creates an ad he wants to display on a smartphone he clicks a "mobile" checkbox in AdWords, enters a separate smartphone bid amount and fills in mobile-specific ad copy. For example, in most mobile ads he includes "Shop our mobile site" or "Buy from your phone" and uses m.dungarees.net as the display URL to let the shopper know he will be directed to a mobile-optimized site.
Because mobile shoppers convert at about one-third the rate of desktop shoppers, Baldwin starts his mobile bidding at about half the rate he bids for desktop ads. Then, if he sees shoppers buying after clicking on a mobile ad, he gradually increases his bid. He also cuts back bidding on high-priced items that rarely convert on smartphones, he says.
Since Dungarees.net began coordinating mobile ads within Google's Enhanced Campaigns, its mobile traffic and conversion rates have more than tripled, Baldwin says.
Baldwin also uses Enhanced Campaigns to adjust bids across geographic locations. Weather plays a big factor in Dungarees.net's sales because a shopper in Colorado is more apt to buy a winter coat in November than a shopper in Florida, Baldwin says. Being able to increase or decrease bids for some products in certain locations helps him target the right location with the right keywords.