Retail Shoppers Hit the Web First

JULY 28, 2008

Checking purchases out before checkout

While some consumers in the US are shopping online to avoid driving, even those visiting stores in person are hitting the Web first.

Eight out of 10 respondents who had recently made consumer electronics purchases in a brick-and-mortar store said they had visited the store's Website first, according to a May 2008 Nielsen Online survey. More than one-half said they purchased from the retailer on whose Website they had spent the most time.

"Consumer electronics is an ideal product category to research online, since product features and prices can be easily compared," said Jeffrey Grau, senior analyst at eMarketer.

If they had to choose just one method of researching their purchases, 58% of respondents said they would choose the Internet—far more than would choose their own friends and family.

"Retailers that are able to facilitate consumers' multichannel shopping behaviors will enjoy growth in market share across the enterprise," said Ken Cassar, vice president at Nielsen Online, in a statement.

Consumer electronics companies will likely pay special attention to multichannel consumer behavior during the economic slowdown. More than three in 10 online buyers surveyed in April 2008 by Piper Jaffray said they planned to decrease the amount of consumer electronics they purchased.

The two leading consumer electronics Web retailers—Best Buy and Circuit City—offer an option to buy online and pick up in-store, which satisfies consumers' craving for immediate gratification and avoidance of shipping fees.

"The retailers also benefit from consumers' tendency to make additional impulse purchases once they are in the store," Mr. Grau said.

Learn about current online buyer behavior. Read eMarketer's US Retail E-Commerce: Slower But Still Steady Growth report.

Gas Prices Boost E-Commerce

JULY 25, 2008

Fuel-saving strategy has been a long time coming.

Depending on your perspective, online sales are up either despite or because of the economic slowdown. With gas prices continuing to climb, a growing number of shoppers are deciding to skip car trips to the mall in favor of online merchants.

Even as many brick-and-mortar stores are struggling, 11% of US consumers surveyed by Nielsen in June 2008 said they were shopping more on the Web as a result of gas prices.

"E-commerce is a bright spot," said Jeffrey Grau, senior analyst at eMarketer. "While retail store growth is in the middle-low single digits, e-commerce is still growing at least in the mid to high teens."

"With gas being such an issue, we know that mall traffic is down more than off-mall traffic," said Mike Boylson, CMO of JCPenney, in a July 2008 New York Times article. Mr. Boylson said J.C. Penney had an 8.7% increase in Internet sales in Q1 2008, compared with a 7.4% decrease in sales at stores open at least one year. The Times also reported that Gap had an 11% decline in same-store sales in Q1 2008, but a 21% increase in online sales.

The effect of gas prices on consumer behavior has been building for a while. Some 13% of adult consumers in the US surveyed in January by Vertis Communications said they were buying more online.

Over one-half of respondents to an April 2008 Piper Jaffray study selected rising gas prices as an incentive to increase online buying, while slightly less than one-half (48%) cited lower prices as a reason for making Web purchases.

Another April survey by iCongo revealed that high gasoline prices were an incentive for 33% of shoppers to purchase more online.

Fine-tune your online retail strategy for Q4. Read eMarketer's US Retail E-Commerce: Slower But Still Steady Growth report.

Microsoft Offers Reward

Consumers Can Get Cash for Purchases Via Search Service

By JESSICA E. VASCELLARO and ROBERT A. GUTH
May 22, 2008; Page B3

Microsoft Corp. announced a plan to pay consumers who buy items they find through the software company's search service, the latest in a series of moves to gain ground on Google Inc. in the lucrative business of Internet search.

The idea to get consumers to use a search service by enticing them with financial rewards has been tried by companies before with little success. Microsoft, a relative latecomer to the search business, believes it can improve upon the concept by implementing it on a broader scale and by coupling it with new options for advertisers.

Microsoft Chairman Bill Gates announced the new service, Microsoft Live Search cashback, at the company's annual event for advertisers. The program includes products from 700 merchants, including Barnes & Noble.com and Overstock.com. Consumers who buy items from participating merchants after searching for them and clicking on an ad can get a cash rebate via an online Microsoft account they create.

The offering is designed to help attract a greater share of commerce-related queries.

Microsoft also is hoping the program will draw new advertisers seeking a more precise return on their investment and choices beyond traditional models, such as paying every time an ad is viewed or clicked on.

Merchants who participate in the program will be able to select a variety of options for buying advertising from Microsoft, including paying Microsoft only when a customer completes a sale. Google has begun testing a similar model that calls for advertisers to pay Google only when a consumer completes a specified action, such as buying a product or filling in a form.

The Live Search rebates are set as a percentage of the purchase price of an item and vary among merchants. Users can find a 5% rebate on a $60 coffee maker or 2% on a $120 digital camera, for instance.

Ellen Siminoff, chairman of search-marketing company Efficient Frontier Inc., said advertisers are eager to test new models that can help them spend their dollars more wisely, but that a variety of tools already exist to help them calculate spending on the likelihood it will result in a particular action, such as a sale. She predicts marketers will spend more money on the program if it increases the number of searches through Microsoft's search engine.

In April, Microsoft sites captured 9.1% of the U.S. search market, roughly flat from April 2007, according to comScore Inc. Google's market share in the period rose to 61.6% from 56.1%.

Microsoft withdrew an unsolicited offer to buy Internet giant Yahoo Inc. May 3 but has floated a proposal that includes acquiring Yahoo's search-advertising business, according to people familiar with the discussions.

The software company has tried to use financial incentives before to lift its share of the search market. In 2006, Microsoft tried a sweepstakes-like search service through which users could win prizes if their search terms matched those on a random list. Last year, it started its Live Search Club, in which users earn prizes for completing puzzles that involve searches.

The company's latest attempt is based on technology and partnerships Microsoft acquired by buying comparison-shopping site Jellyfish late last year.

Write to Jessica E. Vascellaro at jessica.vascellaro@wsj.com and Robert A. Guth at rob.guth@wsj.com

Retail E-Commerce and the Economy

MAY 19, 2008

Fewer new online buyers, less growth

The US Department of Commerce released retail e-commerce sales data last Thursday. Online sales grew by only 13.4% during Q1 2008 over Q1 2007.

That is quite a drop-off from recent e-commerce growth rates. For instance, in 2007 total e-commerce sales grew by 19.8% over 2006.

"This shows that the economic slowdown is having more of an effect than people suspected," said Jeffrey Grau, senior analyst at eMarketer. "It's accelerating existing trends."

Mr. Grau said that retail e-commerce sales growth would have slowed even without any concern about the economy. Since 2003, the real engine of e-commerce growth has come from increased sales to existing online buyers rather than new buyers.

E-commerce sales growth is still higher than overall retail sales growth, which has been 6% at most over the past five to six years. In contrast, retail e-commerce sales growth has been about 25% or more during the same time.

One reason for slowed overall retail sales growth is that existing online buyers are doing more of their buying on the Internet instead of in stores, according to USC Annenberg School Center for the Digital Future data. The organization reported that not only did large percentages of consumers say their online buying led to decreased offline buying, but that the number is growing.

This shift to online buying is happening because consumers have become more confident shopping on the Internet, which has also improved satisfaction levels. Additionally, merchants have figured things out operationally as far as product information, stock and delivery.

Although the economic slowdown is affecting retail e-commerce sales as well as retail sales overall, Mr. Grau said that online stores likely will fare better than brick-and-mortar ones—partly because of the downturn.

"Some people may shift their spending online to save on gas and because they think they can get a better deal," Mr. Grau said.

The eMarketer US B2C E-Commerce report will be published this month. Click here to be notified when it is released.

Greed Generation

by Josh Lovison, Thursday, February 1, 2007

PEOPLE ARE greedy. Oh sure, sometimes we break from the mold and have our altruistic moments, but at the core of our being, we love to receive. This shouldn't come as a shock to anyone reading this -- many advertising models are built on this premise: by submitting themselves to advertising, consumers can get things for free.

However, there's been an oft-repeated phrase going on in advertising and marketing these days: "Give the consumers control." But I think that's obfuscating the reality: regardless of what you as an advertiser or marketer choose to do, consumers are taking control. And in the spirit of greed, you can expect Web 3.0 to be adding an additional twist.

Revenue sharing. Learn those two words well. With the boom of user-generated content, most users were just happy to get a voice. However, the industry of UGC is maturing, and enough competition between venues has arisen that a new factor has been thrown into the mix: revenue-split models. Right now we're seeing it primarily with video hosting sites. First there was Revver, with a 50% advertising split for post-roll ads. Brightcove is just starting to roll out the same model, with possibilities for expanded ad space. Panjea is a social network trying to implement revenue sharing. A number of bloggers take things into their own hands and put Google AdSense onto their blogs. I've also seen some forums tie their users' AdSense accounts into the system to share revenue, depending on who created the post. And just this week, we had the big news that online video industry leader YouTube is jumping on the revenue-sharing train as well.

In the past things haven't really taken off with revenue sharing because it's new, and until recently, most services trying it offered little in terms of service. Which is a nice way of saying they weren't very good. However, I return to the original tenet of this article: people are greedy, and even if it's only $20 a month, between two nearly equal services, people will choose the one offering the kickback.

And we should love them for it. There are three things revenue sharing could do for the media and advertising industry if we'd just let it:

1. Reverse bidding. The problem with current revenue-sharing models is that there's not enough targeted ad inventory for sites that appeal to multiple demographics. What inventory exists tends to focus on a single demographic, which decreases both the site and content producer's revenue when the content appeals outside that demographic due to decreased ad relevancy. But most content creators, no mater how amateur, know what their audience likes, both in terms of content and advertising. I'd love to see a content site allow users to select which ads of their hosting platform's inventory to include in content. Users could choose these based on the product's or the ad creative's appeal to their audience. For performance based marketing, this helps both the publisher/content creator and the advertiser by increasing relevancy. And as an added bonus for advertisers (and the reason I used the term "bidding"), the more your ad would be requested, the lower your CPC rates (because your ad would be bringing value to the site by performing well). This model doesn't yet exist, but it should.

2. Mainstream acceptance of behavioral targeting. Right now most consumers curl up their faces when discussing BT, as if you'd been offering them last week's casserole leftovers. "Companies tracking my data? No thanks!" And admittedly, it does sound a bit Orwellian. However, most of this displeasure is at the concept, not at the reality of the implementation. If incorporating BT into the ad selection for their own content was an option, users could see how allowing BT increases click-through on ads served for their content. And users aren't stupid, just uninformed. They will realize that higher click-through is resulting from increased relevancy. And in approving the option, the system should teach them how it works (anonymous cookies). Increasing their understanding of the process will increase their acceptance for the use of cookies in their own surfing.

3. Reframing of advertising in general. Involving users in the process of advertising, while on a rudimentary scale, will refocus and rebrand ads to those users. Today, if you are a marketer and you truly believe online ads are welcomed by Web surfers, you have a serious case of denial. Users don't like ads in the majority of cases (sometimes great creative wins them over, but that's less often.). Users see online ads as interruptive and cluttering-and, in most cases, don't notice them at all due to overexposure. Personally, I think I've only clicked on a handful of display ads in the past 10 years. The one exception was when I signed up to revenue sharing platforms. Ads were no longer clutter, they were what was putting money in my pocket, and more important, in the pockets of fellow content posters. If I enjoyed a video from a revenue-sharing site, I'd watch the post-roll ad out of respect for my fellow content creator. Ads went from a negative concept to, well, a less negative concept.

Revenue sharing will expand around the Web. All the dominos are lined up for this change and some are starting to fall. Because like it or not, consumers are taking control. And if you can't beat them, you can at least let them join you -- and don't worry, they will. Because they're greedy.