E-Commerce Media: The Untapped Profit Opportunity

A few months back, our CEO, Jon Opdyke, wrote this great article for MediaPost: The Untapped Profit Opportunity for E-Commerce Sites. Here’s what he had to say:

Jon Opdyke, CEO of HookLogic

Jon Opdyke

The first 15 years of online retail saw breakneck growth and little reason to focus on anything but transactional revenue. As the medium matures, the smartest retailers will recognize they are sitting on a gold mine of media impressions and consumer behaviors that can keep the bottom line growing even as transactional growth slows.

Retail Web sites boast one of the best audiences a marketer could ask for: people who are actively researching and shopping products, practically raising their hands that they are currently in-market. In fact, brick-and-mortar stores have recognized this value for years, selling their suppliers premium placement such as end-cap displays, eye-level shelf space, and store circular ads.

Yet most online retailers are barely scratching the surface of the potential. The untapped media sales opportunity in online retail becomes even clearer when you look at conversion rates. Typically less than 5% of a Web site’s shoppers actually transact — but 100% of that traffic is valuable to advertisers since many of those shoppers will go on to buy elsewhere.

So why haven’t online retailers stepped up their game for in-store advertising?

Web retailers still have an aversion to online advertising, fearing that advertising will negatively impact conversion rate and brand perception. There is certainly reason for concern, since ads that link away from the site can distract shoppers, not to mention the negative effect that gimmicky fat-burning and dancing cowboy mortgage ads can have on user experience.

Yet sites like Amazon, Expedia, Wal-mart and Overstock.com have already proven that relevant advertising appropriately blended with the shopping experience can lead to significantly higher profits without adversely affecting transactions. In fact, the most successful e-commerce media programs can increase retailer net margins by as much as 2%.

So what does a successful e-commerce media program look like? Most programs usually start with a retailer’s own vendors who naturally place a high value on the shopper audience, then extend to partner businesses that offer complementary services. Advertisements generally link to pages within the retailer site to discourage shoppers from leaving the store.

The best programs offer a variety of media placements to maximize their available ad inventory and provide options to meet advertiser goals. Display (i.e., banner) placements provide a vehicle for brands to highlight their overall offering, brand proposition, or new product launches.

Product ads (similar to search advertising) enable advertisers to shift their products to more prominent locations in pages, such as top of sort order, often through a PPC (pay per click) model. The most progressive retailers are even beginning to offer behavioral programs that enable advertisers to target specific shoppers on their Web sites – and even as the shoppers browse other unrelated Web sites after they leave the store.

Implemented well, all of these strategies can bring value for advertisers, utility for customers, and new revenue streams for online retailers.

There are clearly many choices an online retailer can make when considering how to create or grow their shopper media program. For retailers that are not yet sure about the place of a media program for their online stores, consider the following advice:

  1. Get over it! When advertising is relevant and well executed, it’s not only acceptable, it’s useful to customers! Plus, few moments are more valuable to advertisers than when a customer explicitly communicates purchase intent. Google has ridden these concepts all the way to the bank and there’s no reason why online retailers can’t as well.
  2. Bite the bullet and invest in talent dedicated to generating non-transactional revenue. Media is incredibly profitable, especially when you’ve already got the content and site visitors. You’ll be amazed how quickly this talent will pay for itself.
  3. Get out of the box — the standard ad box, that is. You know, the one off to the side of a page that fills with that banner nobody looks at? Industry standard ad platforms and networks are designed for publishers, whose first priority is creating content and page views, not selling products. Retailers need to focus on creating better and more unique opportunities for advertisers to connect with highly engaged, purpose-driven shoppers throughout the buying path. Fortunately, a new wave of providers is emerging with technologies and services designed around the structure, consumer behaviors, and core objectives of the retail environment.

See the article on MediaPost.com.

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