March 2010 – Online Insights: Strategy

What Does Cross-Channel Really Mean for Retailers?

According to a paper from Harvard Business School titled “Crafting Integrated Multichannel Retailing Strategies,” more than 80 percent of retailers are now selling across multiple channels, including physical stores, websites and call centers. However, according to Forrester Research, less than a third of retail executives say their companies can provide a consistent customer experience across those channels.

While some retailers have implemented specific cross-channel initiatives such as the ability to purchase online and pick up the order in-store, very few are able to go beyond these basic transactional capabilities. As retailers develop their cross-channel strategies, it’s important they understand the three core principles of a true cross-channel experience.

A Single View of the Customer
In a recent CrossView study, we evaluated 26 leading multichannel retailers and assessed their cross-channel capabilities. We researched products, completed orders and tracked customer information across the online, call center and in-store channels. Of the 26 retailers we examined, only one–cross-channel trailblazer Best Buy–could access a customer’s online profile in-store. For the vast majority of retailers, this relatively straightforward–and potentially valuable–request proves to be a challenge.

Access to cross-channel information isn’t just an in-store problem. We found that in 62 percent of call center interactions, the customer service representative couldn’t access online customer profiles, either.

It’s fair to say, then, that although modern retail systems do a good job of capturing a tremendous amount of customer data, very few retailers can leverage that information to provide a single view of the customer across their sales channels. Having equal and consistent access to customer information–including customer preferences, order history and recent behaviors–is the key to creating a focus on the customer, no matter where they are.

An Endless Aisle of Inventory
Every day, countless orders are lost because products aren’t available when and where they’re demanded. Consider the simple example of a customer asking for a shirt in a specific style and size that isn’t on the rack. The product they’re looking for could be available in another store just a few miles away, or at a centralized distribution center waiting to be shipped to the customer’s home. Having visibility into available inventory regardless of location, coupled with the ability to then fulfill to any location, allows a retailer to save the sale and increase customer satisfaction.

Although this concept of the “endless aisle” has received a growing amount of industry attention, many retailers are challenged to make it a reality within their organizations. For example, according to Janet Sherlock at AMR Research, just over half of retailers are able to fulfill orders in one channel with inventory from another. We consider this capability critical for any retailer looking to derive maximum business value from their cross-channel platform.

A Consistent Customer Experience
Inconsistencies are a flashpoint for customer defection and lost sales, so retailers know that their brand experience should be consistent across channels. The same look and feel, the same tone, the same level of service–whether in a catalog, online or in-store–are all critical to maintaining a consistent experience with the brand.

Equally important is the need to maintain consistent pricing and promotions. In the CrossView cross-channel study, 58 percent of retailers offered different promotions across channels. When a customer is presented with an inconsistent experience, it can breed several levels of discontent. First of all, there is the immediate frustration that they aren’t getting the best deal. Second, and perhaps more important, the customer may feel they are being treated unfairly, creating feelings of mistrust and damaging brand loyalty.

In a true cross-channel environment, promotions and pricing are addressed once by the merchant and then leveraged across all channels. The retailer has the ability to initiate a promotion across the board, so the shopper who browses the catalog at home finds the same deals when they log in online or stroll through the store.

The Implications of Wider Cross-Channel Adoption
In spite of the clearly identified customer value of a cross-channel experience, the reality is that many retailers are bumping into the same barriers again and again. Just as we’ve defined some of the most important cross-channel principles above, it’s also critical that we address in clear terms what implementing a cross-channel solution will mean for retailers going forward.

A brief look at the evolution of online retailing provides a better understanding of the current divide in the retail business environment. The web started as a small offshoot of traditional retailing. When it entered a period of unprecedented growth, it became apparent that the web presented a formidable revenue opportunity and significant brand experience. Suddenly, the online channel had a seat at the table, so to speak. Unfortunately, that growth as an almost separate entity created side effects that are now obstacles to multichannel adoption.

The ramifications are clear. Different channel leaders are competing with one another–rather than working in tandem–for both customers and sales. For example, if the manager of a retailer’s physical store is incentivized based on in-store sales only, it’s understandable that he or she would be focused on converting and selling to the customers they have within their four walls. But this leads to lost sales and a bad customer experience.

The time has come for retailers to reinvent themselves and reconsider the traditional way of thinking. Consumers are becoming savvier by the minute. Those out shopping today already expect retailers to have these core cross-channel values in place. They become frustrated when they can’t move seamlessly between the web, the store and the call center. They become especially frustrated when they uncover inconsistencies in the overall experience, feeling that retailers are imposing their internal challenges on them, making it the customer’s problem.

A retailer risks higher customer defection and a loss of brand loyalty, which all translates into a loss of revenue. This is exacerbated by the rise of social media, which allows word of one bad experience to spread like a virus, impacting a retailer’s bottom line in near real-time.

What does this mean? The technology exists today to support full cross-channel adoption. The most significant obstacles remaining are the internal silos and the lack of alignment within the merchant organization. As a result, retail managers must lead from the top down to break apart existing barriers and advocate for improved processes for a new business environment. A retailer will need to examine all aspects of their operations–from bonus structures to organizational structures–to determine how each piece fits into a more integrated approach. Most important, retailers must establish clear cross-channel goals and metrics, and commit to ongoing testing and measuring against those goals to achieve maximum ROI.

Mark Fodor is CEO of CrossView, providers of multichannel commerce solutions for both B2B and B2C organizations. He can be reached at mfodor@crossview.com.

March 2010 – Cover Story: The Offline/Online Disconnect

Harmonizing Your Online Brand With In-Store Customer Expectations

By Geoff Galat

If you conduct an online search query for “offline/online disconnect,” you’re likely to see an amalgam of results with no clear definition as to what this term really implies. Yet despite a lack of definition–or arguably, even general awareness–the offline/online disconnect is very much a reality–and an inevitable challenge for any company that operates in the online channel.

The Offline/Online Disconnect, Defined
So what is the offline/online disconnect, exactly? Distilled to its essence, the offline/online disconnect refers to disparities in customer service and experience across the various sales channels, primarily in-store and online. While improving customer service in the online channel presents companies with a cosmic opportunity to boost revenue and overall brand image, many companies simply aren’t up to par when it comes to their customers’ expectations and online experiences. And the proof is in the data.

In a recent survey conducted by Harris Interactive and commissioned by Tealeaf, we found that the percentage of consumers experiencing online transaction problems remains remarkably high at 80 percent. And the potential online shopping dollars impacted by transaction problems rings up at an eye-popping $47.6 billion! Further affirmation comes from recent Forrester Research data, which demonstrates that the majority of companies are still in the nascent stages of customer experience management, with far too many customers abandoning virtual shopping carts because of experiencing glitches and other usability issues online.

With customers across the online spectrum encountering barriers at the virtual checkout, it’s safe to say that brands with an e-commerce channel have a huge challenge ahead of them as they begin to match their online customer experience with in-store shopping. Compounding the offline/online disconnect is the fact that many successful companies may not even know that their online brand is being tarnished when customers’ experiences are derailed, one after the other, by an online glitch or website transaction problem.

Let’s use the example of Quicken Loans, the nation’s largest web retail mortgage lender and fifth largest retail lender. They were unaware of a major glitch in their site: a barrier was blocking one of Quicken Loans’ predominant online revenue generators being used by customers. Despite call center complaints and customer abandonment and frustration, the company simply did not have the visibility it needed to visualize and identify–and subsequently resolve–the online issue.

Quicken Loans leveraged customer experience management software to evaluate its online channel, and soon the company was able to make the small changes in the text on the online mortgage calculation tool necessary for fixing the online glitch. With online visibility finally realized, Quicken Loans increased the pull-through of the mortgage applications by nearly eight percent, which translated into more than half a million dollars in lost revenue recovered. By embracing a higher level of online visibility and tackling the issues at hand, Quicken Loans improved customer satisfaction, via the online channel, exponentially.

From airlines to Fortune 500s and every retailer in between, the proverbial virtual shopping cart needs a major makeover–and soon. With the amount of tools and services available to help companies optimize their online channel and resulting customer experience, every company under the sun is capable of closing the costly gap between their offline level of customer service and their online customer experience.

The Call Center Catalyst and Social Echo Chamber
Further exacerbating the offline/ online disconnect is the call center, as it can often function as a catalyst for online customer disapproval, as well as negative customer sentiment and experiences. Simply put, much of this “disconnect” lies in the fact that call center agents are simply uninformed about the website and so are not armed with the information they need to assist the customer.

This can be solved in part by properly training and educating employees about the website, how it works and the potential problems customers might have. Having this knowledge of the online channel is vital, but it still leaves call center agents blind to the actual experience a customer has had.

An even better solution is to provide agents with complete, real-time visibility into what a customer actually saw and did on the site–giving them the ability to replay a customer’s session while they are speaking to them on the phone or before replying by e-mail.

Today’s challenging economy has also impacted how consumers think about goods and services–every dollar counts. That, coupled with the exhaustive amount of data available on the social web, has prompted consumers to share their experiences on Twitter, Facebook and other social channels, often about sub-par online shopping incidents. The number of adults who share their experiences regarding plane-ticket bookings and other online purchases gone awry via blogs or social networks has more than doubled over the past year. These shared experiences, from a bad call center experience with an agent to a website transaction issue, can be highly influential. Online glitches can have profound effects on the “word-of-mouth” created via technology and new media.

Fostering Your Offline and Online Brand– Smarter and in Tandem
Despite the challenges ahead for online brands when it comes to customer experience and satisfaction, all hope is not lost, and there is a silver lining to the offline/online disconnect. Our survey found that online customer experience reached an inflection point in 2009. The percentage of consumers who have experienced problems when conducting transactions online showed its first substantial decrease in five years–from approximately 87 percent in all previous Tealeaf surveys to 80 percent in 2009. This improvement points to a growing business focus on delivering better customer experiences as we make our way through 2010.

Analysts and researchers alike are in agreement that more business is being conducted via the online channel than ever before. Companies embracing this new level of visibility are able to radically improve customer experience, brand affinity and agent productivity. It is also a great way to ensure that website errors or issues are rectified as quickly as possible, and customer sessions can be quickly packaged up so that underlying website issues can be corrected. With these changes on the horizon, the online customer experience, as a whole, certainly has a bright future “in store.”

Geoff Galat is vice president, worldwide marketing at Tealeaf, a provider of customer experience solutions, helping companies achieve visibility, insight and answers online. He can be reached at geoff_galat@tealeaf.com.

February 2010 – Online Insights: Viewpoint

Marketing a Small Business Today

Here’s how I created my first small business: Two years out of law school I was fired by the boss from hell. (Her reason? I didn’t “write well enough.” Unbeknownst to her, I was about to have my first book published, and if you think I wasn’t petty enough to autograph a copy and send it to her, you’d be wrong.)

Anyway, I made a profit the first month and never looked back. My business grew because I marketed the heck out of it using all tools available to me at the time: newspaper classified ads, networking at chamber events, seminars, cable TV ads, newspaper display ads and direct mail.

Modern Marketing For a Modern World
But here’s the deal: Today there are far more effective–and economical–ways to get the same, or better, results. While my strategy would be the same (advertise and market a lot, and then do it some more), I’d replace my “archaic” tools with these:

Craigslist instead of classified ads: The growth of Craigslist is evidence of how powerful a classified ad can be, and most Craigslist ads are free. That’s hard to beat.

Twitter, LinkedIn and Facebook instead of the chamber mixer: Networking the old-fashioned way was a bit of a drag–making small talk with people who may or may not be interested in what you do or sell. Yawn.

Social networking is a revolutionary improvement because, while you are still networking, it is faster, broader, more direct, and you can meet and influence a far greater number of people. Rubber chicken lunches be gone!

Podcasts instead of radio ads: I still love radio advertising in the right circumstance, but being able to create and broadcast your own original content is a great advantage.

YouTube videos and webinars instead of seminars: The value of being in front of the public is that you get to be known as the expert–the one pontificating, entertaining and informing others. With online video and webinars, you can craft that image easier, cheaper and more professionally. That you don’t have to rent a conference room at the Holiday Inn is a nice bonus.

Pay per click and pay per impression instead of cable TV and newspaper ads: If immediate sales are your goal, then a Google pay-per-click campaign can make more sense than a TV campaign. You only pay for qualified leads–people who like your ad enough to click on it–and as such you will spend far less because you won’t be paying to reach thousands of eyeballs who will never be buying from you. If branding is your goal, than a pay-per-impression campaign can yield fantastic results for much less money than TV, too.

E-mail instead of direct mail: Traditionally, direct mail has been considered successful if it creates around a four-percent response rate. But you have to buy lists, pay for postage and packaging, etc. E-mail marketing, on the other hand, costs almost nothing and usually yields better results.

As they say, everything old is new again…fortunately for us.

Steve Strauss is American Express OPEN Forum small business expert and author of the best-selling Small Business Bible. He can be reached at sstrauss@mrallbiz.com.

January 2010 – Online Insights: Viewpoint

Use Display Ads To Get More Out of Search

If you’re advertising online, you’re probably paying for search clicks that don’t convert and display ads that don’t drive sales. To solve both of these problems, find a way to make your search and display ads work better together.

I’m speaking specifically of search retargeting. Here’s how it works: after users search for a term that’s relevant to your business, they arrive at your site. But many searchers leave before ever converting. Historically, these visitors would have represented wasted clicks–end of story. But with retargeting, advertisers can drop a tracking cookie on the visitor’s computer and use this cookie to follow that visitor across the Internet. Consequently, advertisers can re-ignite the conversation with these former visitors, drawing them back to the advertiser’s site to finally drive a conversion.

This process increases the possibility that a conversion from a previously lost or abandoned click will occur. It also means driving display ad spend toward users who–through their search activity–have declared themselves as being interested in the kinds of things your company sells.

In addition to the ad agencies that offer retargeting services of various kinds, a number of ad networks offer systems with similar functionality. For example, Yahoo’s Smart Ads system dynamically targets ad offers to Yahoo users based on the activities they’ve performed across the entire Yahoo network.

So, for instance, a user who lives in Los Angeles, plays poker in Yahoo games, reads about poker in Yahoo sports and searches for flights to Las Vegas, is quite likely to be more than a casual Las Vegas searcher–he or she is probably a very serious candidate for receiving ads for flights to Sin City.

Yahoo might serve this user ads with special offers on Los Angeles to Las Vegas flights and these ads might appear anywhere on the Yahoo network.

While different vendors offer different flavors of search retargeting, the common thread is clear: web users spend their lives across the entire Internet. To target them best and to make sure advertisers stay engaged with them, advertisers need to maintain conversations with them across as much of the web as possible–through display, search and the many consumer touchpoints that lie in between.

Mark Simon is vice president, industry relations at Didit, a digital ad firm specializing in search marketing and targeted display ads. He can be reached at mark.simon@didit.com.

January 2010 – Feature: Bullish o Pre-Roll

Reports of the Video Advertising Format’s Demise are Greatly Exaggerated

By Caleb Hill

With the turn of the new year and interactive agency planning teams allocating their budgets for 2010, no doubt there will be a familiar debate between video and non-video planners: to invest or not to invest in pre-roll advertising. On one side will stand those who think pre-roll is a dying ad format for monetizing video content. (After all, as many industry experts have noted, haven’t we been waiting years for its breakthrough moment since the great video player wars earlier this decade?) The other side will defend pre-roll’s viability with as much conviction as Ad Mob will defend their valuation by Google. (After all, isn’t the very fact that pre-roll still dominates the conversation at many industry events testament enough that it’s worthy of a bigger line item in the planning budget?)

The fact is, both sides have a lot of convincing arguments for their cases. Pre-roll’s detractors point out that the format annoys users, it isn’t scalable, it doesn’t exploit the promise of interactive and that new trends merit more funding (like last year’s “next big thing”–widgets). The format’s evangelists point to data showing that pre-roll improves purchase intent and brand recall, that it can have interactive companion banners (that can even expand) and that it’s better to invest in proven, if vexing, video ad solutions than, say, widgets.

Those of us on the product development side of the coin look to where the money goes. And at last count, it seems the pre-roll bulls are prevailing over the bears in most of the planning arguments: the spend on pre-roll video advertising for 2009 looks like it will come in at roughly $500MM. The outlook for 2010–depending on which analyst you follow–shows incremental growth. Not a sea change of growth, but hardly a death knell for this ad format.

The eternal pre-roll optimist, I firmly believe the format is a lock for long-term ascendency as the ad format for the web. Given several important 2009 industry initiatives, I also see a lot of reason to be bullish about pre-roll’s near-term prospects–even beyond industry expectations.

I must now pose–and answer–the operative question: What happened in 2009 to suggest such optimism for pre-roll on the heels of a down economy?

Pre-Roll’s Growth in 2009
In 2009, ad agencies, web publishers, regulatory bodies and technology vendors made several notable advancements to the pre-roll format that should be recognized as further proof that the rumors of pre-roll’s eminent demise are greatly exaggerated. And while these innovators in our space stepped up and delivered more engaging user experiences and better mechanisms to facilitate scale, other contributing factors to a successful year for pre-roll included both an increase in broadband penetration and an improved technology platform for video delivery. Both factors dramatically improve the end-user experience for consuming video online, and have led to wholesale increases in the amount of long-form video now available. Long-form video is a special key to my outlook on pre-roll’s success, as it allows publishers to build a TV advertising model around their content that, if done correctly, can leverage the interactive qualities of the web (e.g., Flash) and monetize nearly as well as television, too.

For example, let’s take a closer look at premium content publishers like ABC and NBC. Their “branded canvas” and “ad pod” pre-roll products have been a revelation for marketers, a huge financial success for the publishers, and consumers seem to accept them as well. These products enable the networks’ premium full-episode player environments with custom, immersive advertising experiences that follow the same generally accepted rules of television advertising (e.g., ratios of ad content to network content displayed largely consistent with the consumer’s television experience).

But true to the interactive medium–and a quantum leap over companion banners–the new full-episode ad formats integrate the re-purposed television ad within a much more effective interface for user engagement. In some cases, users can even re-play the ad content–another leap beyond traditional “run-and-done” pre-roll advertising (and a reason the term “pre-roll” has increasingly become anachronistic, usurped by the more flexible term “in-stream”).

The Rise of Standards
As publishers revamp their sites around the long-form video content enabled by technology companies like Adobe and Bright Cove, for 2010 I predict big demand for a large-scale roll-out of pre-roll advertising products inspired by the big networks and video ad serving innovators, like Panache and my own company, Unicast. And that brings me to regulatory bodies and the monumental success the IAB has had (and will continue to have) rolling out its new VAST and VPAID standards for video player environments. These provide a framework to ensure interoperability between video platforms and ad servers so that advertisers don’t get bogged down in the technical details of each site’s particular video environment. With a robust adoption program in full voice–including major publishers committing to compliance this year–a problematic landscape characterized by fragmented and inefficient workflow, lack of standard publisher specs and ad hoc and inconsistent reporting, is yielding to a new liquid video environment where buyers can begin to leverage the economies of scale required for video advertising to make faster and more substantive inroads into television budgets.

Buyers Help Build Pre-Roll
Buyers have done their part, too, investing enough in pre-roll to help facilitate adoption of the IAB standards as well as to drive new format development. The best example of agency activism promoting pre-roll in 2009 is POOL, an initiative for finding the new workhorse formats for pre-roll. POOL truly exemplifies the power of collaboration across the ecosystem to further online advertising objectives. Headed by Starcom (partnering with Vivaki, also under the Publicis umbrella) and large video-content publishers and distributors like AOL and MSN, the initiative leverages new interactive pre-roll formats to ascertain how video advertising can scale across multiple platforms while providing users more control and more engaging interactive ad experiences.

The investment promise of the POOL initiative extends well beyond 2010, which further informs my optimism for pre-roll. Starcom surely will look to scale its pre-roll media spend beyond the scope of the first round of investment, or the “swim lane” as they call it, to include new web publishers, especially those with premium content inventory. Furthermore, Starcom already has committed to opening new swim lanes, which most likely will include mobile video, interactive television and social media. And the consumer research collected through the duration of the program surely will feed into strengthening IAB standards and their adoption. More heartening is the fact that other large agencies will feel pressure to match the efforts of Publicis, just as more web publishers will look to compete with the first adopters by supporting the new formats. The additive effect should bode well for the pre-roll bulls.

Commendations for Creative
Those responsible for utilizing the richness of the new pre-roll ad formats, the creative agencies, also must be commended, not only for effectively exploiting the creative potential of the new pre-roll formats, but also for contributing to their overall design and, in some cases, deployment. Take a look at the quality of creative content around Lost episodes within ABC’s full-episode player, for example. Here you’ll see excellent rich design, innovation (a lot of AS3 executions) and consumer engagement, particularly with games and other interactive features. Plus, in 2009 more and more video ad content was specifically produced for the web medium. This effort–though still finding its profitability legs–challenges the conventional wisdom that the most bang for the buck simply requires 15- and 30-second TV spots to be re-purposed for the web. While original content produced solely for the web might not rise from a niche pursuit, the scalable middle ground is probably a combination of re-purposed video within an interactive framework akin to full-episode products.

Together, these achievements in pre-roll advertising represent a compelling synergy of highly coordinated innovation, investment and industry standards that have begun to overcome the legendary bugbear of video advertising–lack of scale–and put to rest the criticism that pre-roll is dull, passive and annoying to users.

Challenges Remain
That’s not to say 2009 removed all hurdles to online video advertising. Remaining challenges include a recognized lack of premium video inventory, a static if not falling interest in advertising against short-form video, advertorial pre-roll of the same duration or even longer than short-form video (a common consumer frustration), a flawed and inefficient selling model that depresses prices for content as it syndicates across competing sites and the vexing question of how to monetize popular but seemingly unsellable user-generated-content video, just to name a few.

But thanks to a very successful 2009, we will be sure to see new technologies, research and investment set the stage for continued progress toward the type of monetization (and increased TV budgets) that only improved scale and user experience can bring.

Predictions for 2010
Look for formats that enable consumers to select the advertorial content they wish to see instead of being fed the same 30-second spot again and again. Expect to see dynamically enhanced video formats that improve relevance as well as formats using engaging 3D navigational elements and effects. In terms of pricing, I expect to see evolving models around consumer engagement, view durations and even conversions. Also look for new research and standards. But most notably, I predict a far better monetization of premium content throughout its distribution channels via better-structured syndication deals.

When we launched our first pre-roll product in 2003 at Unicast, we had confidence–as did everyone else contributing to the video market at that time–that we would see a critical mass of publishers and advertisers propel pre-roll and video advertising into the top echelon of online advertising formats. While that has not yet happened fully, 2009 ensured that pre-roll advertising is well on its way to taking its promised place in online media spends. In 2010, it’s going to continue to grow.

Caleb Hill is SVP of product at Unicast, a leading rich media and video ad server and service provider. He can be reached at chill@unicast.com.

January 2010 – Feature: An Eye Toward Performance

Pay-Per-Performance Models Represent the Next Wave in Online Advertising

By David Szetela

The online advertising industry is undergoing the same kind of evolution and maturation one sees in every new industry. But change is happening at Internet-speed, and those companies who don’t understand and can’t adapt to these changes risk being marginalized.

Companies of all sizes have rushed to the online advertising space, spurred on by the measurably superior ROI of paid search advertising. The recession has only hastened the flow of ad dollars away from difficult-to-measure, low-ROI media like TV, radio and print. While advertiser understanding of online advertising best practices and techniques has grown proportionately, the relative complexity of conducting, measuring and optimizing online ad campaigns is a murky black box for many. This is especially true for advertisers and agencies who have become accustomed (some might say mollified) by the relative simplicity of “placing ad media” and paying (or collecting) based on a percentage of ad spend and cost per thousand ad impressions.

The leading seller and beneficiary of PPC advertising is the sudden behemoth Google, whose self-service advertising platform brought the ability to target and reach customers to nearly anyone who can operate a personal computer. But Google has raced ahead–and stayed ahead–of its nearest competitors Yahoo and Microsoft by maintaining a dizzying schedule of new advertising features, reporting capabilities and tools for testing and optimizing ad campaigns. In one week last November, Google rolled out no fewer than three new search ad formats that provide advertisers with greater opportunities to reach customers with graphic-rich images and messages.

Some technically savvy advertisers and agencies quickly learn how to exploit new features to reach more customers more profitably. But many advertisers are finding it increasingly difficult to assimilate each new change, falling behind in the “feature wars” at the same time that competition is driving up advertising costs. This is driving changes in advertiser and agency behavior, especially related to the online media mix and agency compensation models.

Let’s look in closer detail at some of the changes that have occurred in PPC advertising over the past few years, and how this has shaped the advertising landscape.

Increased Competition Means Increasing Click Costs
During the first few years in which PPC advertising gained in popularity, advertisers could expect to pay pennies for clicks on ads that were displayed based on even the most popular search terms. Companies in competitive industries like personal finance, travel and legal services could pay as little as $.15 to $.50 for clicks on ads triggered by search terms like “mortgage refinance,” “Hawaii vacation” and “injury lawsuit.” Resultant traffic to sites was cheap and plentiful, and profits were sky-high.

Those boom days ended around 2005, when advertisers and affiliates starting stampeding to Google with their ad dollars. In recent years, click prices have risen to dizzying levels. It’s common for advertisers in competitive spaces to be paying $5 to $10 per click to ensure their ads appear in prominent positions on search results pages. The most expensive clicks, paid by advertisers of high-priced legal services like medical malpractice, can cost close to $100.

Whether the top bidders in the search click auctions are actually seeing a reasonable return on their advertising investments is anyone’s guess. But there’s no doubt that the average cost per click has risen steadily over the past few years, and already some advertisers are finding themselves priced completely out of the game.

Increasing Complexity
As mentioned, the search engines (led by Google) have, over time, provided advertisers and agencies with a bigger and bigger set of technical tools for creating, managing, testing and optimizing online ad campaigns. This is really good news for those with a solid understanding of the fundamentals of direct-response advertising and with a sophisticated capability to quickly learn how to master new software and reports.

But the number of experts who can push and pull the increasing number of technical levers has not kept pace with the rate of innovation. Ad agencies and in-house marketing departments didn’t anticipate the need for workers with technical proficiency and analytical capabilities. Just 10 years ago, a typical agency employee spent his or her day calling media properties and haggling over the prices of “ad space.” Today’s advertising expert requires the skillset of an amalgamation of David Ogilvy and Albert Einstein.

Changes
Faced with increasing competition and complexity, PPC advertisers and agencies are facing hard choices. Some advertisers are pulling back from PPC advertising and funneling dollars to other online marketing channels like e-mail and affiliate programs.

Other advertisers are moving to the PPC content networks, directing their ads to appear on sites whose visitors comprise their target markets. As described in my book Customers Now, these networks are available to all advertisers currently using Google, Yahoo and Microsoft PPC platforms. The available number of impressions and clicks is growing faster on the engines’ content networks than on their search networks.

Traditionally, advertisers have shied away from content network advertising since response rates and ROI were proportionately much lower than the results obtainable through the search networks. As described in Customers Now, obtaining acceptable ROI is simply a matter of employing best practices in site targeting and ad copywriting and design. In fact, many advertisers are getting better ROI from content networks since competition has not yet driven up click bids and prices.

Pay-Per-Performance
Ad agencies are finding it even more difficult to contend with the changes in the PPC landscape. Clients are demanding closer attention to the fact that sales volumes and margins are dropping. Agencies are increasingly under the gun to work harder and longer to learn and to exploit new PPC features and functionality.

However, their traditional compensation models may be working in the opposite direction. Most online and offline ad agencies are compensated as a percentage of advertising spend. This is an anachronism based on the fact that for many years, advertising effectiveness could only be measured in the number of eyeballs reached–hence CPM charges from the media to the agencies. Spending more money meant that more people were being reached via ad dollars, so it made sense to reward this way.

While that model made sense in a world where measuring return on advertising spend was difficult to impossible, it may not work as well for online advertising, where ROI of every action can be tracked to the penny. Advertisers and clients are becoming reluctant to turn ad budgets over to agencies whose main motivation is to maintain or grow the size of that budget. Often, this is in direct opposition to the objectives of the advertiser, who wants to minimize ad spend to improve ROI.

For these reasons, agencies including my own have pioneered a new compensation method often called “Pay-per-Performance,” usually abbreviated “PPP.” Under PPP models, agencies charge clients based on the performance of the PPC campaigns under agency management. Typically, this means the agency is paid a percentage of the profit generated by the campaigns, or in the case of campaigns where submitted forms or leads are the success metric, a value per conversion.

The PPP model keeps client and agency aligned and working together toward common goals–usually an increase in sales volume while keeping costs under control. For this reason, there has been an increase in support by leading-edge U.S. advertising agencies–such as Clix Marketing, Location3 Media and Semvironment–to promote a PPP campaign partnership. These agencies are now motivated to take the time to learn and employ new search engine features and functionality for the purposes of continually optimizing PPC ad campaigns–using new targeting techniques to reach more and more potential customers, while using reporting and bid-management techniques to minimize advertising expenses.

Every month, more customers and advertising agencies are exploring the PPP model to forge partnerships that are mutually equitable and allow both parties to achieve their goals. These agencies recognize that the biggest benefit of practicing PPP is shifting the focus from ad spend to the outcome of the ad spend within the contract itself. It is a relationship centered at the core on the organization’s profitability.

The agency-client relationship is quite different under the PPP model. There is much closer and frequent interaction during the planning and execution of well-managed PPC campaigns, e.g., in the designing process and the testing of PPC landing pages. Both parties need to feel assured that site analytics are accurately reporting visitor and sales data.

The extra work is certainly worthwhile for the agency and the advertiser/client. In our experience, clients have enjoyed regular double-digit sales growth while keeping costs tightly under rein. The upside potential for agencies is higher than under percentage-of-spend models. Clients are very happy to spend more on advertising when profitable sales are growing proportionately–and that’s good news for everybody.

David Szetela is the CEO and founder of Clix Marketing, an online marketing firm specializing in paid search. He can be reached at david@clixmarketing.com.

January 2010 – Cover Story: Rabbi, Professor, Online Marketing Guru

Ice.com’’s Pinny Gniwisch on Digital Marketing Booms and Busts, Emerging Opportunities in Social Media and the Future of E-commerce

By Tom Dellner

Spend a few moments with Pinny Gniwisch–either one-on-one or by attending one of his popular presentations at an industry event–and you”ll never forget him. Warm, blunt, self-deprecating and disarmingly funny, Gniwisch is also one of the industry’’s great thinkers and speakers, and one of its foremost experts in social media.

Gniwisch–together with his three brothers, all rabbis–founded Ice.com (originally buyjewel.com) and is the company’’s executive vice president of marketing. He has led the business to 30 percent year-over-year growth for nearly a decade. A sought-after speaker, Gniwisch has appeared at every industry event worth attending and has been quoted frequently in The Wall Street Journal, The New York Times, Forbes, Fortune and many other business and financial publications. A consultant to companies like BestBuy, Target and Victoria’’s Secret, Gniwisch is also a professor of e-commerce at Canada’’s renowned McGill University.

Online Strategies recently sat down with Gniwisch for a fascinating–and far-too-short–discussion about e-commerce and social media.

Online Strategies: What initially attracted you to e-commerce? Do those same characteristics of the industry still motivate you today, or have they changed as the online marketing world has evolved?

Pinny Gniwisch: Good question. What initially attracted me to e-commerce was the feeling that we were spearheading the Internet. It was the Wild West and nobody knew where to go or what to do, so we had the freedom to test and experiment and to be on the forefront of history, in a way.

And coming from rabbinical school, to find an opportunity in marketing and in entrepreneurship would have ordinarily been very difficult, given my educational background. But starting in a totally new industry where I was on par with everyone else, I had an opportunity to get in there and see what worked and become as good as–or maybe even better than–many of the people out there.

And these characteristics of the industry are still there for me today. There’’s so much innovation. The industry changes every single day. There are new technologies coming out all the time, and if we can stay on the cusp of these technologies, we can continue to succeed.

OS: You”re a veteran of e-commerce and a keen historian on the topic. From your unique perspective, what are the most significant, watershed moments in digital commerce that have allowed the industry to thrive and that have shaped it into what we see today?

PG: There was a period early on when the industry was out of whack–getting eyeballs to your site was considered important, but little emphasis was placed on conversions. The bursting of the bubble associated with that era was crucial to the growth of the industry; it was a painful, but absolutely necessary lesson that had to be learned.

In Biblical terms, we went from the seven fat years to a period of famine–from doing deals with AOL for $32 million for exclusivity to AOL giving you CPA deals the next week. But it was a correction the industry needed. We had to be reminded that yes, we have to make money, conversions are important and we need to have a viable business model in place.

Another key moment occurred when social media began to play a big part in our business; we went from marketing “one to many” to marketing “many to many.” In other words, we learned the power of harnessing our customer base to spread our message via word of mouth. People have always purchased products based on others” recommendations, but on the web, you can actively listen to the conversation and take steps to enable its growth, to influence it to an extent and to begin to truly harness its power at scale.

OS: Some online marketing platforms emerge out of nowhere and catch fire. Others are discussed at conferences for years, with brilliant experts in the field touting their benefits, yet never really take off or are forgotten as new ones emerge. Can you give us a few examples of online marketing platforms that have surprised you for either reason (unexpected success or failure)?

PG: I am surprised that companies have taken to product reviews to the extent that they have and are now using them to further their business models. A few years ago, one would think that companies might take a closed-door approach to reviews, rather than embracing them. Companies like BazaarVoice have emerged as leaders in this field and have hundreds of clients, which I never would have expected. It’’s all a result of companies realizing and understanding that transparency is a requirement of today’’s marketplace–and that’’s a beautiful surprise.

Second Life’’s failure to take off caught a lot of people by surprise, although that is something that I expected. It had been touted for quite a while and many companies jumped on board. But all the companies that went there are not there any more. There were millions of virtual “dollars” being spent on Second Life to purchase virtual goods, and the thinking was that this would somehow wash over to the real world, but people simply didn”t take that step.

An interesting technology on which the jury is still out is Twitter. Industry experts are touting the technology from a marketing or customer service perspective, but there are still very few success stories (Dell and Pizza Hut are two examples)–certainly not enough yet, in my opinion, to convince me that this platform is truly viable.

OS: How would you counsel a marketer that understands the importance of embracing new technologies (and taking a leadership position in these areas), but who is wary of chasing every new shiny object and wasting money on sexy-sounding new technologies and platforms that may eventually fizzle?

PG: Some new platforms simply can”t be ignored. When you think about Facebook, for example, no one has really figured out exactly how to make money on Facebook. But they have figured out that Facebook fans click through and convert three times better than those on your e-mail list. And when you consider that it’’s at 350 million people and growing every day, this is a platform that can”t be dismissed as a fad. You need to find a way that your company can play in that ballpark.

Gniwisch’’s Ice.com enjoyed 30 percent year-over-year growth for almost a decade.

At Ice.com, we look at the data until we”re confident that if you work a particular platform correctly, you”ll succeed. Then we take away lessons from those who”ve done it correctly, and apply them to our business model. For example, Ford blogs incessantly about green issues and it’’s working for them. The broader lesson is that blogs are an interesting way to help your SEO efforts and to show a different angle of your company. So we created a blog more appropriate for our business model–celebrity fashion was our angle, and we match the jewelry the celebrities wear to products we offer. We”re now getting 30,000 uniques a day, a big boost to our rankings, and we”ve done a few hundred thousand dollars in sales.

It’’s a matter of observing trends, learning from those who are doing it right, and applying the technologies and best practices in a way that’’s appropriate to your particular business model.

OS: On a one-to-10 scale, how mature do you think social media is right now?

PG: I would think that today we are at a three. When you listen to the futurists talk about social media and its potential, you realize that we”re really just crawling right now.

OS: How do you see social media evolving in the next three to five years–and what are the implications for online marketers?

PG: Regarding companies that embrace social media, the organic make-up of their websites and of their businesses as a whole will be far more integrated with social media. People will be going to Facebook and shopping with their friends in real time, on retailers” sites that will exist on Facebook.

Technologies like Google’’s Sidewiki–which allows people to make comments regarding websites and products that subsequent shoppers can read and react to–will continue to develop. So we”re all going to be working as one, so to speak, in our shopping environments. People will be increasingly posting about what they like and what they”ve bought, as they do on Facebook Connect.

But imagine using Facebook Connect and being able to navigate to a retail site and having the ability to purchase a product, all within Facebook Connect. And then while you”re shopping, your shopping-related searches can come up on your Facebook page in real time so that your mother or sister can participate and collaborate. The potential of this sort of social shopping is nearly limitless.

OS: While you”re looking into your crystal ball, are there other developments you envision outside of the area of social media?

PG: I think you”ll see CRM software make big improvements. Little glitches like the one where you type in your order number and then call a company and the first thing they ask you for is your order number–all of these will quickly disappear. Site search and collaborative filtering techniques will continue to improve, as well.

Mobile commerce will certainly undergo dramatic developments–the ability to shop via your smartphone will be greatly enhanced as more and more companies follow industry leaders like Pizza Hut and 1-800-Flowers into m-commerce. Companies that jump into this arena, experiment, test and optimize will be well ahead of the curve when this shift in purchase behavior occurs.

OS: In your opinion, what are a few emerging areas of opportunity for intelligent, enterprising online marketers?

PG: For the last five years, if you were an online entrepreneur and you wanted to make money, you opened up a search agency. I think that field is now covered. I believe social media companies–made up of smart people who are listening carefully to conversations that are occurring online–will emerge, helping brands begin to participate in, and ultimately monetize these conversations. I think that will clearly be an area where we”ll see a lot of action over the next three to four years–agencies looking to connect social media with commerce.

OS: You”re an e-commerce executive, an in-demand speaker and now a professor at an acclaimed university–where do you think you will focus your energies in the coming years?

PG: I would like to write down my ideas regarding the future of e-commerce. As an industry veteran and someone recognized as having a somewhat unique voice, I would like to think that that voice should be heard. So my hope and dream is to write a marketing book on social media and e-commerce over the next six months or so.

It astounds me that e-commerce hasn’t melded into the traditional business world more than it has. For example, the MBA program at McGill–where I am a professor–has just instituted an e-commerce course. It’’s crazy, when you think about it, that an educated marketing person from an outstanding university might not have had an understanding of one of the most crucial aspects of marketing, where the lion’’s share of dollars are going to be spent in the future. The traditional marketer needs to know about the potential of this world and not be so apprehensive about it.

As evidenced by this image, Gniwisch’’s speaking engagements are quite colorful.

OS: As a professor of e-commerce, what are two or three of the most important lessons you hope to convey to aspiring e-commerce professionals?

PG: Transparency will be the mantra of the marketing director. Understanding that is essential to future success. “Target markets,” “hit projections” and other terminology will have to change, and the consumer needs to be on an even playing field with you, as a marketer, in order to create products that they will want to pull, rather than ones you will need to push.

Also, I encourage people to fully utilize the tools that are out there that enable you to test and optimize your online marketing efforts. This will help you understand the levers that really drive your company’’s success, and the crucial data you need to know in order to correctly manipulate these levers.

Finally, I think it’’s crucial to use the valleys in your business’’s performance to develop the techniques and technologies that will propel you at the peaks. And when you”re at a peak, don”t stop testing new ideas.

November 2009 – Online Insights: Strategy

E-Commerce for the New Economy

By Jeff Zisk

Savvy e-commerce companies have become a bright beacon in today’s economy, experiencing stability and–in many cases–significant growth. It should come as no surprise that, as interest has skyrocketed among retailers and manufacturers, this burgeoning market is becoming increasingly competitive. Never has it been more important to differentiate oneself in the crowded, fast-paced e-commerce marketplace and to establish a forward-thinking strategic plan that positions a company for a profitable future. This relatively young industry has already undergone many changes, truly morphing into the next frontier for smart, enterprising companies willing to shift their mindsets and be open to a new business paradigm. The best will rise to this challenge by reevaluating the key factors that will impact their e-commerce success.

Today, solutions must be flexible, immediately responsive, scalable, customizable and most importantly, cost effective. As budgets are tightened, all investments will be closely evaluated and must consistently provide a high ROI. This shift has relegated many of the “old economy” solutions obsolete and has changed the dynamics of how to build and manage an e-commerce business.

Strategies for Future E-Commerce Success
An Effective Merchant-Driven E-Commerce Team – As the Internet playing field has become more competitive, and as website tools and operations have grown to be both stable and sophisticated, it is paramount that retailers build competent internal e-commerce teams. To be successful, these teams must be able to focus on merchandising, product development, marketing and branding, which are areas that are critical to sales growth. The right product mix, product availability and the development of Internet-only products will begin to separate retailers into groups of market leaders–and distant followers.

There is a strong indication that these teams will be driven by merchants and planners. This is a natural evolution, as the operational aspects of the site can more easily be managed due to the maturity of the platforms and the performance levels of fulfillment and customer-care providers.

Online merchandising will also play an important role in driving store traffic. Customers will visit multiple sites and make comparisons before visiting traditional stores. E-commerce sites led by sharp, merchandise-driven teams will consistently attract these online lookers/in-store customers.

Platform Evolution – Today, flexible, highly customizable and scalable solution platforms are available at significantly lower costs. Platforms are no longer “black magic.” They are technologically sophisticated backends with a wealth of front-end content-management tools.

Aligning platform development and hosting with fulfillment and customer-care operations, through a third-party outsourced provider, also provides an opportunity for greater cost savings without sacrificing quality, functionality or scalability. Outsourced providers greatly minimize up-front costs, spreading them over the term of the agreement, aligning their fees with your revenue.

Outsourced Operational Areas – Outsourcing operational areas such as web development, fulfillment, call centers and interactive marketing can be critical for the future growth of e-commerce retailers by minimizing activities that distract from their core competencies.

In order to sustain growth, e-commerce managers must focus on merchandising, marketing and branding and remove themselves from the daily focus of the more operational aspects of the business (web development and the order and shipping processes). An experienced outsourced provider can leverage a much larger, internally sustained enterprise to drive a high level of performance and benefit a client’s business. The division of “core competencies” allows all parties to do what they do best. Since customers now expect superlative shipping and online services, lack of performance in operational details becomes highly detrimental to business. E-commerce has matured to the point that customers expect a very high level of performance. Disappointed customers do not return.

E-commerce retailers must seek out providers with core competencies that complement their own and that assist in building areas of differentiation. This type of outsourced provider invests their own capital in warehouse management system updates, call center switch updates and base e-commerce platform updates. These investments will provide clients with key functionality and services at significantly lower costs. In an outsourced environment, clients benefit from the evolution of the provider’s services and best practices.

Another key advantage of outsourcing is flexibility. Partnering with a leading outsourced organization is a very effective way of addressing the challenges of scaling, growth and seasonality. Large outsourced providers leverage scale and seasonality over their entire client base, making it transparent to the customer and providing the same support and service levels–no matter the seasonality or individual volume rates. Whether it’s available bandwidth or server capacity, warehouse space for products or available trained call center agents, the outsourced provider is responsible for managing fluctuation. The client charge is based on actual transactions. The cost savings realized by this type of operation is significant since clients only pay for peak levels as they are utilized.

Move Beyond the Brick-and-Mortar Paradigm -With the success of e-commerce sales and merchant-led e-commerce teams, websites have the potential to go beyond existing merchandise assortments available in the stores. Web merchandise assortments will increasingly become more dynamic.

Merchants will be adding both web-only products to existing categories as well as entirely web-only product lines. The website becomes a perfect “testing ground” for potential new products, for both in-store and online selection. Website assortments will also include special sizes, colors and characteristics that do not make economic sense to carry in all stores, but that do make sense online–and complete the merchandise assortment.

Beyond merchandise, websites will add relevant, demographically suited content that complements the merchandise mix. This content will be provided through partnerships with non-competing retailers, restaurants, the music and film industries and other viable marketing partners. This content will create a new dialog with customers, expanding the existing shopping relationship into new areas of interest. This enhanced dialog will boost customer loyalty, attract new viewers and shoppers and turn tacit websites into dynamic destinations.

Never Underestimate Your E-commerce Potential
It’s a fact that many e-commerce businesses are posting notable growth in an overall retail climate that is experiencing decline. Even retailers who are citing overall losses are showing gains in their e-commerce divisions. Understandably, this has attracted great attention from executive management–especially from those who previously considered the brick-and-mortar model to be the primary driver of their companies.

This most senior level of management is keying in on the far-reaching potential of e-commerce and beginning to reevaluate their future growth strategies and partner alignments. The next generation of leaders will demand new, e-commerce-driven ideas, even better results and strategic plans that begin to tap the potential the Internet offers. No longer will e-commerce be considered an incremental piece of the business, but rather an instrumental part of the corporation’s vision.

Jeff Zisk is president and CEO of Speed FC, a leading provider of fulfillment, technology and customer-care services. He can be reached at jzisk@speedfc.com.

November 2009 – Column: Editor’s Perspective

Customer Experience and Conversion

Last month in this column, I highlighted an educational session on customer service and usability that I had the pleasure of attending at the eTail East conference in Baltimore late last summer. Delivered by Megan Burns, a senior analyst from Forrester Research, the presentation emphasized that focusing on and improving the customer experience is anything but an altruistic act on the part of the marketer. Rather, enhancing the customer experience is one of the quickest, simplest and most impactful ways to improve conversion rates and build customer lifetime value. Often, the results are immediate, tangible and trackable.

Burns provided 10 simple ways to enhance the customer experience and drive conversion. Last issue, I focused on the first five–giving customers all the content they need to move forward toward purchase, removing your site of unnecessary content, eliminating “no results” site-search responses, using your customers’ language and removing unnecessary steps in the task flow while providing a progress bar to let customers know where they are in the process.

Now for the Last Five
Perhaps you’ve heard this one before, but it bears repeating: do not require a customer to register in order to complete a purchase. This might be an effective way to learn more about your customer and build an e-mail database, but it’s an even more effective roadblock to purchase: a full 25 percent of customers abandon when faced with forced registration. Burns “did the math” to illustrate what sort of impact this can have on a retailer’s bottom line. It varies greatly with volume and pricepoint, but it can easily get into the tens of millions annually.

Always test the location and appearance of buttons. Some of the lessons you’ll learn may have you scratching your head (”why does green work on this page when red works on another?”), but the results are real and it’s a simple exercise. Burns pointed to a recent example she came across where the button copy “please submit e-mail” boosted conversion 6.5 percent over “submit e-mail.” It pays to be polite, I suppose.

Err on the side of providing your customers with too much feedback, especially during multi-step processes or when your site is processing a request. Your customers want to know where they are in the task flow.

Help users recover from mistakes. Write your error messages in easy-to-understand, plain English; you might want to take the error message copywriting task away from the IT staff. Also, integrate the error or help message into the page so that it remains there. Many use a pop-up window or drop-down bar that goes away when the user attempts to implement the fix–forcing your customer to try to remember what the help message was. If they forget, chances are they’ll not try a second time.

Finally, don’t make your order review page look like an order confirmation page. It’s a problem that’s more common than you might expect and causes customers to bail, thinking the transaction is complete when there is actually one additional step.

Easy changes to implement, all, and each with the potential to ratchet up your conversion rate a precious few points. And in aggregate, the results could be a true game-changer.

October 2009 – Column: Editor’s Perspective

Don’t Mess it Up!

While attending the eTail East conference in Baltimore this past summer, I had the pleasure of listening to a presentation by Megan Burns, a senior analyst from Forrester Research specializing in, among other things, the customer experience and usability–your know, those things we always promise ourselves to focus on, before getting distracted by something else.

The presentation underscored something very important: improving the customer experience shouldn’t be viewed as some sort of altruistic favor you’re doing for your customers. It’s a strategic, measurable investment undertaken to improve conversion and to keep those customers from jumping from your site to a competitor’s. Burns summarized the concept with a few lines from the Will Smith movie, “Hitch”: “Just remember, she’s already out with you. That means she said yes when she could have said no. It’s no longer your job to make her like you. It’s your job not to mess it up!”

Burns then went on to describe in detail 10 simple ways to improve the customer experience and drive conversions. The strategies are so commonsensical, so effective and–importantly–so cost-effective, that I have decided to share some of them with you here.

Give potential buyers all the content they need to move forward toward purchase. Some examples of information customers want up front? The full price with the applicable sales tax calculated and included, privacy policies and return policies. Surprises well into the check-out process mean abandoned carts, not to mention frustrated customers.

The foregoing notwithstanding, get rid of unnecessary content. Don’t make your customers slog through unwanted information to get to where they want to go.

Prevent “no results” site-search responses from occurring. (It’s surprising how few e-commerce sites prioritize this important strategy.) Account for common misspellings and remember that people often search for important items that aren’t products, such as return polices. Be sure to provide results for these searches, as well.

Use language your customers understand. Burns referred to a job-training site that enjoyed a 1,500-percent lift simply by changing the name of a program from “technician training” to “mechanic training.” Another example that generated dramatic results: changing the term “shipping conditions” to “shipping options.” To learn the language your customers use, Burns suggests reviewing the forums and networking and online review sites your customers frequent, in addition to paying attention to the terms they use on your site-search function.

Remove unnecessary steps in the task flow and let your customers know where they are in the process. Location cues or a progress bar that lets them know what step they are currently engaged in and how many more are left to complete the particular task typically result in an increase in conversion of 20 percent.

Be sure to tune in next issue for the remaining five tips and to learn the usability mistake that cost one online retailer more than $20,000,000 in annual sales.