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Revisiting Retail: National Chains Online

Revisiting Retail: National Chains Online Jim Meskauskas

They are the conduit through which our economy's lifeblood flows. They are both the veins and arteries of this nation's economy. Dollars flow in and are carried like oxygen to all corners of the country through every capillary: clerks, maintenance, manufacturers, raw goods providers, packagers, and every other market segment that might touch any part of the production and distribution of goods. In turn, goods and their various and sundry components flow out to the masses in exchange for those dollars.

And so the global organism pulsates with life. The economic cardiovascular system breaths in and breaths out, and just like the human body, performs this function without consciousness, but certainly in need of a brain.

These channels we are talking about here are retailers; in particular, national chains.

National retailers like Wal-Mart, Target, Home Depot, and several others are all terribly important to the economic health of this country because they all move an enormous amount of product. There are a few reasons for that. The most important, of course, is because they HAVE a lot of product to move, and by virtue of possession, these places are destinations. But these companies also do an enormous amount of advertising on their own behalf. They spend a great deal of money making sure that a great many people spend an even greater deal of money with them.

A growing distribution channel for many of these retailers is the Web. It is one more opportunity for retailers to interface with customers and take their money in exchange for goods and services. But the Internet is also an increasingly important channel for the distribution of advertising messages. The Internet is fast becoming an indispensable platform by which retailers make contact with prospects and transform them into consumers.

What’s the Role?

What role the Internet is playing or is going to play as a marketing tool for national retailers varies quite a bit depending on who you ask. There is nothing more frustrating than “it depends” as a sign post on the path to truth and knowledge, but there it is.

On the one hand, retailers’ spending priorities have been more towards information technology and building and maintaining Websites. Over the last two years, 45% of respondents to a Gartner Consulting study said that their companies' Websites were a priority with point-of-sale systems, database systems and in-store technology devices listed as a priority among 39% of the retailers surveyed.

On the other hand, retailers have not spent significantly on online advertising as other industries have. Yes, online retailers continue to spend significantly (e.g. 1-800 Flowers, Amazon.com, and the like), and there are others like Home Depot and Target which have done some interesting and healthy sponsorships and display advertising online. But for the most part, retailers have still not shown the kind of enthusiasm for the medium as some other categories.

Julie Kessler, the online marketing manager for Bebe Stores, Inc. says that use of the Internet as an advertising vehicle for her company has been minimal.

Among the 15 largest retail industry advertisers in the United States, Internet advertising has averaged just less than 1% of their total advertising budgets in the last two years. Among the larger spenders, Gap Inc. was the only national retailer to spend more than 2% of its total advertising budget online. This can be attributed to Gap being an early entrant to the online game both as advertiser and seller of product.

But most retailers so far have used the Web more as either a distribution channel or a means by which relationships are maintained with existing consumers.

“First and foremost, interactive channels are great Relationship Marketing vehicles for retailers,” says Jason Heller, president of Mass Transit, an online media and marketing agency in New York City. “The ability to drive valuable customers into stores is proven, and powerful.”

Though his clients won’t let him reveal just who it is his agency is working its magic for, he can say, “I would argue that online advertising is also great for driving consumers into stores as well, however, our retail clients were more relationship-marketing focused over the years.”

Part of the problem with getting retailers to risk portions of their advertising budgets online is due primarily to two main issues: 1) their traditionally risk-averse approaches to marketing which is driven by their 2) desperately thin margins of operation. The reason that CRM and diversification of channel distribution is so popular is because the causal relationships between dollars spent and results are so readily available. Though many in the online advertising and marketing industry would posit that online advertising can drive same or similar results as offer-driven print or product-feature broadcast, retailers are still reticent to get involved.

Seasons of Change

While some national retailers like Bebe are still waiting to see whether or not the Internet can be an important tool for marketing and/or product distribution, others are convinced that it can and are getting more involved.

Plenty of data now exists to support claims of branding value as well as the medium’s ability to solicit and bring to satisfaction calls to action. Think what one may about the strength of the research, nothing makes retailers more hopeful and optimistic than the holiday shopping season.

DoubleClick's second annual Multi-Channel Holiday Shopping Study, which was conducted at the beginning of this year, showed that multi-channel shoppers (those using terrestrial retail, catalogue, and online) continue to spend more than single-channel shoppers, with triple-channel buyers spending the most on average. Multi-channel shoppers spent 39% more, on average, than single-channel shoppers, and triple-channel shoppers spent 68% more than single-channel shoppers.

Certainly traditional brick-and-mortar retail will remain the dominant holiday shopping channel, and will for the foreseeable future. No one disputes this, nor, I think, does anyone want to see the terrestrial form of shopping disappear. The marketplace is essential for a healthy community. But national retailers are starting to take note of the power of the interactive medium if for no other reason than that individuals can be engaged by the retailer within the confines of the medium, and then have a product sold to them in that same medium. As the DoubleClick study showed, in 2002 terrestrial holiday shopping went from 92% in 2001 to 87% in 2002. The Internet saw usage as a shopping channel increase to 64% up from 61% in 2001, and 10% shopping exclusively online, up from 6% in 2001. This is not insignificant.

Love the One You’re With?

National retailers are confronted with some significant choices now. Given the razor-thin margins within which they operate, can national retailers afford to redirect spending traditionally earmarked for national and spot-fill broadcast or print to online?

It couldn’t hurt. As the DoubleClick data shows, there is more to gain from being in more than one channel from individuals who engage more than one channel to shop than there is from being the monocular browser.

But so many retailers are enamored with what they’ve been doing for generations that the idea of doing something outside of the established, narrow ken should be anathema to 21st century marketing.

Those retailers who see what the future of a complete marketing mix has to be to persevere know what works and are willing to try new things based on those recent past successes. In this publication and even in this space, methods of use have been discussed at great length for which success has been the outcome.

“There are pockets of opportunity that will help to achieve retailers’ goals within content sites, contextual desktop advertising, SEM, affiliate program … all the general areas of interactive that are considered for any other category,” exclaims Heller of Mass Transit. “The only difference is scale within each category.”

For companies like Bebe, who see themselves as more niche market national retailers, search marketing is going to be a push in 2004, according to Kessler.

Permission-based email has proven to be among the most compelling tools in the online media and marketing arsenal for retailers using the medium. DoubleClick’s third annual 2002 Consumer Email Study showed that permission-based email is an especially effective incitement of both online and offline purchase activity. The study indicates that 33% of those responding had made a purchase by clicking directly through an email. Another 35% purchased later online and an additional 9% purchased offline as the result of an email. This latent, multi-channel purchase activity underscores the effectiveness of digital marketing assets and the vehicles that carry them.

There is still more to be done to convince national retailers of the effectiveness of online media, but a few things could be done now as tests by any of them. Taking a page from CPG advertisers, national retailers should be taking advantage of the low cost of entry of the Web to conduct promotions online and prove to themselves internally of the benefits of the medium.

“I like to see clients use online promotions as a means to quantify the level of retail store traffic and/or sales that are generated as a result of the promotion,” says Heller. “It makes the redemption of promotions a cross-channel reality, and makes the process simple for the consumer.”

There can be little doubt that after this holiday season, national retailers are going to need to figure out not just how to utilize the medium as an ancillary distribution channel, but also how to take advantage of the countless faces that are before countless screens every day, leaning forward with enraptured engagement, not watching TV and not looking at price-item advertising in newspapers but instead immersed in the Web.

Jim Meskauskas is a Partner and Co-Founder of Media Darwin, Inc., providing comprehensive media strategy and planning.  Prior to that, Jim was the SVP of Online Media at ICON International, an Omnicom Company, where he spent nearly five years.

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