February 28, 2001, 12:00 AM

How targeted marketing can help online retailers land the big one

Contextual marketing is hopping behind the wheel of results-driven online marketing plans.

Casting a net in deep water may be an effective way to catch a lot of fish. But those just looking for marlin will waste a lot of effort throwing the mackerel over board. Learning where the marlin are and how they behave can take the guesswork out of deep-sea fishing. Likewise, Internet retailers who bought banner ads on high-traffic sites are beginning to exchange their nets for poles.

“Eight months ago, you would have a perceived value of a banner ad on a search engine because you knew their traffic,” says Michael Lavoie, vice president of campaign management solutions for Epsilon. Epsilon is a Burlington, Mass.-based consulting firm that helps companies identify the best spots to place advertising. “You didn’t really care if it worked all that well because you were trying to create activity and traffic. All of a sudden money has tightened up. Now, before you put out an ad, you need know to what the return is.”

The average click-through rate for banner ads is about 2%, and the conversion rate far less. “The conversion rates of shoppers through banner ads are not meeting expectations,” Lavoie says. “Banner ads will deliver eyeballs; the question is will they deliver quality eyeballs?”

If banner ads are the net, contextual marketing is the rod and reel. But before retailers can become contextual marketing converts, it is important to know what contextual marketing is and why it is important. Retailers should also know what makes contextual marketing work and what are the barriers to such targeted marketing.

“It brings a particular offer from the store to a customer at a particular time when they have the highest propensity to purchase that product,” says Elaine Rubin, president of consulting firm ekrubin Inc. and chairman of e-retail association Shop.org. Rubin was formerly with iVillage, a pioneer in contextual marketing. Rubin says many parents came to iVillage for advice on toilet training. “Whether they were reading an article, engaged in a chat or a bulletin board discussion, there was a link to children’s potties and books on toilet training,” she says. The in-text links were crude by today’s standards, but it was cutting edge in 1995. “You could click on those links and basically impulse buy,” she says.

Contextual marketing has become more advanced and more dynamic than it was in the buy-link days of 1995. Companies like Merchandising Avenue Inc. offer ads that change with customer habits and content site material.

Making contextual marketing work requires a blend of art and science. “The science comes in by clearly understanding what your customer looks like, not just from a demographic perspective, but what does your best customer look like in terms of spending,” Lavoie says. “Then you have to understand where you are most likely to get that person-that’s where the art and hard work come in.” To get to those best customers, retailers must know which sites the customers are visiting-and why. They also must press the content site operators to clearly define who’s visiting their sites.

The pickax vs. the fingernail

Eric Marcus, vice president, general counsel and director of e-business research and consulting with The Concours Group agrees. “You increase the granularity of market segments down to the point where you are approaching markets of one, then you develop target market campaigns.” The Concours Group is an international technology and business consulting and research firm with headquarters in Kingwood, Texas. Marcus also serves as president of the company’s eBusiness Center of Excellence. Retailers need to gather sufficient demographic information in order to differentiate the market segments, he says. Some retailers will have information warehoused from customers’ previous purchases, or they may have bought data. Successful data warehousing depends on getting the right kind of data, which will differ based on the product and the customer, and having the right tools to mine that data, he says. “I’ve worked with several companies with great data repositories, with tera-bytes (1 trillion) worth of data, but insufficient tools to access it,” Marcus says. “It’s like being in a gold mine, but not having a pick. You can see the gold, but can’t get at it with your fingernails.”

It’s necessary to highlight the most important data and have the technology to send a targeted message to those markets, Marcus says. “You may sell the same thing to a huge market, but you are selling it to each tiny segment in different ways and accentuating different aspects of the benefits,” he says.

For example, Marriott Vacations identified different segments of its hotel customers and tailored its time-share marketing to each segment. It was marketing the same property to the party-loving crowd and the book-loving crowd with different messages, he says. “If you can get the right content to the right person at the right time, you’re providing a service, not just advertising,” Marcus says. “I’ve never heard anyone who’s shopping for a car say ‘I don’t want to see any car ads.’ Contextual ads move to the point of being consultative. Banner ads don’t do that.”

And it’s these billboard-style ads’ inability to deliver results that’s leading experts to recommend retailers incorporate contextual marketing. “We’ve seen click-though rates at precision marketing approaches that are 13% and above,” Marcus says.

Although traditional banner ads bring in more actual dollars than contextual ads, the return on investment is higher with contextual marketing, Lavoie says. Contextual marketing ads cost less and generally have twice the conversion rate of banner ads.

Being nimble

San Diego-based Merchandising Avenue says ads needs to be agile to drive results. The new company is using both computer technology and human intervention to provide fast-changing contextual marketing. Merchandising Avenue ads run on content pages and have revolving pictures of different, content-relevant merchandise. The company employs three merchandisers who match new content with products.

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