E-Retailers Take To The Airwaves--Again

No question that pay-for-performance advertising has soared online in recent years as its providers and users alike have gleefully extolled its advantages over both traditional advertising media and CPM-based online advertising: it’s more cost-effective; its impact is more immediately felt and its effects more easily measured.

Why, then, did online discount merchant Overstock.com fork over millions this year for a national television advertising campaign? And it’s not the only online company that’s ventured into offline advertising in major media recently. Shopping portal Shopping.com is testing TV campaigns in three media markets with an eye toward bigger roll-out, while competitor PriceGrabber.com has in the past year shifted up to 50% of its advertising spending from online outlets to magazines, billboards and radio. Digital music site BuyMusic.com choose cable TV ads to announce its launch this summer, while eBay’s TV ads still run on cable, a year after they first aired.

As the fight for survival among now-established online companies gives way to the fight for brand dominance online, it’s a war too big to be won exclusively on the web. While online ads may be the surest, quickest route to shoppers accustomed to purchasing on the web, online ads fail to tap a huge source of potential customers: the estimated 150 million or more of the U.S. population that has yet to shop online. Online companies have realized it takes more than direct marketing on the web to establish a brand and make it grow, and some are calling in reinforcements in the form of traditional advertising media from broadcast to print to billboards.

Companies like Overstock, which had earlier resisted pricier broadcast advertising, now see traditional media as a critical element. “We’ve made 40 million Americans aware of who we are in the past few months,” says CEO Patrick Byrne. Overstock launched its TV, print and radio campaign last summer. “It’s hard to do that just online.”

For companies such as Buy.com Inc.’s BuyMusic.com, whose growth depends on connecting with music lovers new to the digital category as well as those already online, the broader reach of traditional media looks good as well. “Especially with a category like digital music, if you stay only online, you may just be preaching to the converted,” says executive vice president of business development Elizabeth Brooks.

Spreading broader awareness is a problem for online-only companies without other channels to help anchor their presence in the marketplace. Yet they must battle for consumers’ attention with companies that have the multi-channel advantage. Overstock, for instance, competes with both online liquidator sites and offline liquidation outlets. BuyMusic.com competes with the digital music offering of established offline brand Apple. Shopping comparison sites Shopping.com and PriceGrabber.com compete not only with each other but also struggle simply to be understood, as a new category, by consumers.

Given its relative lack of accountability compared to the precise measurement that characterizes online pay-for-performance advertising, traditional offline advertising is a big leap for pure plays. “It’s a tough pill to swallow for people like me. We’re used to measuring everything, and we’re held strictly accountable for measurement ourselves by the people who advertise with us,” says PriceGrabber president Kamran Pourzanjani. “But we are trying to bring in people who are not already online, so offline is the only place to do it. We have to go to them where they are, if you will, by advertising in the publications they are reading and on the radio stations they are listening to.”

And on the TV programs they are watching. Though the CPM of some print advertising may actually exceed that of TV, depending on the outlets involved, TV makes a bigger dent in the budget if the audience is bigger. Surviving Internet companies that were themselves burned or saw competitors damaged by big spending during the expensive and largely unsuccessful TV dot-com ad blitz of a few years ago have generally avoided TV since. Nevertheless, those who can afford to do so are beginning to reevaluate the medium. Says Jupiter Research analyst Patti Freeman Evans: “Tracking results is important, but there is an understanding of what TV and print are able to do.”

The television medium in particular can create an emotional connection with consumers that online advertising doesn’t, another reason online companies now trying to strengthen their brands are eyeing TV with renewed interest. “TV advertising is overpriced and has its limitations. It isn’t as accountable as other media,” says Peter Storck, managing partner at K-Town Group, a research and consulting firm for interactive marketers. “But it’s still the most important battleground; it’s still a way to reach mainstream consumers in the most emotionally powerful way. People well up at an AT&T commercial where a guy calls his mom on Mother’s Day. That doesn’t happen when you see the ad on the Internet, while passing a billboard, or flipping through a newspaper or magazine.” Still another part of the appeal of commercial TV, an ad medium also used by big, long-established consumer brands, is that it can lend some of that same credibility to newer web-based companies, retail consultants say.

Yet there’s a key difference between the expensive dot-com Super Bowl advertising of three years ago and the current environment. The web-based companies experimenting with TV now already have some following, says Evans. “They are not trying to build their brand just through a lot of big-ticket spot purchases, which is what a lot of pure-plays tried to do,” she says. “They’ve already achieved a certain level, and now they are trying to establish themselves at another level. That’s why TV works for them now.”

A difference in three years

Its predecessors DealTime.com and Epinions.com spent millions on advertising in 2000—not always cost-effectively, admits says Sarah Leary, vice president of marketing at Shopping.com, which emerged in September from the combination of the two. Yet this fall the newly merged company launched with TV ad support. So what’s changed between 2000 and 2003?

“We now have a lot more experience with the tool of broadcast advertising, a disciplined approach to testing it, and a product that is ready for prime time,” says Leary. “We are not spending double-digit millions out of the gate to move the needle when we don’t know yet what is going to move the needle.”

Shopping.com’s TV ad campaign, launched Nov. 17, was a test that ran in three network markets and on cable TV until Dec. 18, near the cut-off date set by many web retailers for holiday package delivery. Shopping.com chose New York, San Francisco and Portland, Ore., as test markets based on a combination of their saturation of online shoppers and the CPM of doing a campaign in those locations. Awareness and traffic at the end of the campaign in those markets were to be compared with markets in which the campaign was not aired. Shopping.com’s ads were created by Publicis and Hal Riney Advertising

Leary also points out that DealTime and Epinions previously did broadcast advertising in the spring. “The retail market is all about October, November and December,” she says. “This time, we did it at a time when shopping is top of mind.” As an additional point, Shopping.com has developed a robust shopping experience that its predecessors were less equipped to deliver in early 2000, she says.

Finally, the campaign sharply focuses on the amusing presentation of the single message that Shopping.com is a place to go to compare multiple stores and prices from across the web. “Shopping.com does a lot more, but we learned you have to make trade-offs about what you can communicate in 30 seconds,” she says. “You can try to communicate everything and wind up communicating nothing.”

Explain, position

Faced with the same challenge of explaining the concept of comparison shopping as well as positioning its offering within that new category, Yahoo’s shopping property, Yahoo Shopping, made a depiction of its price comparison grid the visual centerpiece of its Q4 offline ad campaign. In addition to a national radio buy that ran from October through mid-December, Yahoo Shopping’s print campaign ran in entertainment and newsweeklies and monthly men’s and women’s magazines in November and December.

“Print does a really good job of illustrating the comparison grid without the money that TV requires,” says P.K. Van Deloo, senior brand manager. Yahoo coordinated the print promotion of the comparison shopping feature with promotion of comparison shopping in ads throughout the Yahoo network. Van Deloo says the offline exposure helps reinforce the online network campaign. “If someone sees the print ad, then goes to Yahoo and sees the ads for comparison shopping that run across the network, there’s a better chance they’ll click over to shopping than if they just came to the network on their own,” he says.

Yahoo Shopping has done offline holiday season promotions in previous years, including TV. But with Yahoo’s vast network that advertises various properties within the network across the network for free, why go offline at all? “Our online promotion reaches people who are already Yahoo shoppers, but there are still a lot of people who are not Yahoo users and not aware of Yahoo Shopping. To build awareness in that group, offline vehicles like print and radio do a good job, especially in the holiday season when shopping is top of mind,” Van Deloo says.

Staking out the space

At the apex of dot-com TV advertising, Overstock’s Byrne steered clear of the broadcast medium, figuring it would be difficult to be heard over the crowd. But today, Overstock.com is waiting to see if a major investment in TV and radio brand advertising will pay off.

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Since Overstock’s “Have you discovered the Big O?” broadcast campaign launched in August, traffic is up. On August 8, prior to the campaign, Overstock ranked 14th in its category with 1.18% of the day’s total online visits to department stores, according to data from Internet traffic measurement firm Hitwise. On November 17, after the campaign had been running about nine weeks, Overstock had climbed to a 6th-place ranking just behind Sears.com, with a traffic share of 3.67% for its category.

The broadcast campaign, estimated to cost in the high single-digit millions, is a departure from last year’s ad spending, when all but about $50,000 of Overstock’s $8 million to $9 million marketing budget went to online, performance-based advertising. Weighing into Overstock’s TV buy was the fact that in comparison to three years ago, few online retailers are doing TV advertising, meaning that consumers more easily remember those who do. But more than anything, according to Byrne, the move to broadcast advertising and the bigger play for broader public awareness represents a preemptive strike against competitors.

“The Nordstrom space is taken in the online public’s consciousness by Amazon. You’ve got Bluefly in apparel, Hotels and Expedia in the travel space, and eBay doing its own thing. There is a big open space for online discount shopping,” he says. “We thought there was the opportunity to brand ourselves in that space quickly before anyone else does, which would give anyone else an uphill battle.”

Overstock lowered campaign costs by forgoing the services of an agency and doing both the creative and the media buy in-house. Using ad industry indices, the media buy was designed to focus primarily on outlets whose audiences include a disproportionately large share of Internet shoppers.

Byrne wouldn’t disclose the campaign’s impact on sales, other than to say the increase in traffic has been followed “to some extent” by a gain in sales. “I won’t really be able to say if this was worth it until Dec. 26,” he says.

Educating the couch potatoes

Everybody understands the concept of discounted merchandise, at the core of Overstock’s value proposition. But BuyMusic.com, which sells downloadable digital music, has to explain both its category and its product to cultivate sales among a wider, more mainstream audience of music lovers.

“Offline advertising of online properties is necessary,” says Brooks, executive vice president of business development. “Though the penetration of digital music usage and the demographics are broader than most people think, there is still some fear of technology. It’s incumbent on us to educate people that using digital music is not scary or hard to do. You can take it with you, mix it up and have fun with it. That’s a message we need to get out.”

BuyMusic.com’s TV ads captured that sentiment by depicting a diverse group of people singing along to portable digital music players, in a deliberate spoof of Apple iPod ads that depicted digital music users as exclusively hip, young, and in-tune. BuyMusic.com’s ad tagline, “Music downloads for the rest of us,” underscored the point.

Brooks estimates the media buy, which initially ran aggressively and then tapered down over six weeks, was about $1.25 million. BuyMusic.com contained costs by producing the three 30-second spots mostly with in-house staff. The ads were considered so entertaining by some cable outlets that they ran them repeatedly at no charge when they needed filler. “For $1.25 million, we got about $6 million in advertising,” says Brooks.

While not disclosing numbers, Brooks says the company compared traffic to the site from regional markets where the cable TV ads ran to traffic from areas where the ads did not run and found the spots “effective.” She points out that the initial campaign was more about education than the product specifically. Future TV advertising, plus an online campaign it plans to launch this year, will incorporate a more aggressive call to action, she adds.

“The future of this business is in the person who loves music but hasn’t really committed to digital music interaction,” says Brooks of the TV buy. “Those people are probably on the couch in front of the tube.”

EBay is one of the biggest advertisers on the Internet, but still, it was finding that its Q4 wasn’t on a par with that of traditional retailers and it wanted to push itself higher into consumers’ minds for holiday purchases. That desire made eBay one of the first of the crop of current online retail companies to pursue TV advertising in a big way when it launched a campaign on both network and cable TV in Q4 2002. The humorous “Do it eBay” spot, a full-blown production number created by ad agency Goodby, Silverstein & Partners, sought to position the company as not only unique, but a better way to shop.

Decisions happen offline

Senior director of brand marketing Annette Goodwine says TV reaches consumers when they are in a different mindset than they are when online. “Certainly eBay is strong online, but we know that a lot of shopping decisions are made when people are not online. We felt that to increase our unaided shopping awareness and the notion of considering eBay for items people may not have considered eBay for before, it was important to be elsewhere,” she says. “So the purpose of TV advertising is not only to get people who are already online but to get people who are later adopters.”

EBay’s media buying strategy has evolved over the year since its TV campaign debuted. Goodwine says it’s found that cable TV, about a third of the cost of network television advertising, delivers better against the target market, both in terms of the overlap with the population of regular online shoppers and programming that targets special interest groups. By Q4 of 2003, the TV campaign was running on cable outlets only, supported through the year with print ads in long-lead special interest magazines such as Sports Illustrated and Vogue. For the first time this year, eBay also experimented in the holiday season with newspaper inserts focused on the consumer electronics category in Parade, the Wall Street Journal and New York Times.

Goodwine adds that there was initially some question within eBay as to what value TV would deliver. “Offline advertising is much more effective than online in terms of general brand building. But in terms of moving the numbers, which is what we’re all about here, there certainly was conservatism around what the television buy would bring,” she says.

A year later, traffic numbers suggest that eBay has settled that question for itself. EBay’s traffic has climbed steadily in comparison to Amazon, whose traffic has dropped over the past year during which it’s bypassed TV advertising in favor of other types of promotion. “We attribute that to television,” says Goodwine. Yet eBay, which spent undisclosed millions on the TV campaign, remains on the fence about increasing its TV spending. Compared with other television advertisers, “We’re not a large advertiser and we don’t know that we need to be,” says Goodwine. “Being relatively new to the space, we’re still figuring that out.”

The big reach

Goodwine’s comment underscores the position of other online companies that are beginning to experiment more aggressively with offline advertising: They’re still figuring out what works. What’s certain is that while online pay-for-performance advertising may be cheaper and easier to track, the big reach of TV and radio and the hang time of magazine and newspaper advertising are hard to ignore for online companies with growing financial stability who are now intent on building brand.

Online advertising and any success online retailers have experienced with it have played a role in the increasing interest among some in adding offline media to the mix, says Jupiter analyst Evans. “Retailers can see what kind of performance they’re getting there and extrapolate that to the other media they can’t track in the same way,” says Evans. “They’re telling themselves they’re not going to throw out any particular medium or use any particular medium just because it’s there, but see what they need to accomplish and which medium can help do that best.”

mary@verticalwebmedia.com