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Internet persuasion: Web marketing gains strength

By Monica Soto Ouchi
Seattle Times technology reporter

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In early December, Avenue A introduced its newest product — a method to gauge the impact of online advertising — with little fanfare. It appeared to be just one more tool to measure and weigh the online consumer.

But industry observers say the online ad agency's new tool has pushed the envelope a bit further.

The company, a subsidiary of Seattle-based aQuantive, an online marketing and technology company, has developed a way to track the impact online advertisements have on "offline" purchases — without ever personally identifying the consumer. It means a retailer can track whether a customer saw an ad online and later purchased a product in a physical store.

"My impression is: It's a pretty important breakthrough," said respected marketing expert Rex Briggs, principal of Marketing Evolution. "A lot of retailers understand (that) the Internet conceptually has an impact on in-store sales. Most have stopped there."

Introduction of the product comes at a time when online advertising has picked up steam — revenue rose roughly 15 percent in 2003 — and the industry has shifted its focus to the multi-channel consumer, or those that purchase on the Internet, from catalogs, by phone and in stores.

Clark Kokich, president of Avenue A, said the biggest barrier to developing these associations has been respecting the privacy of consumers. The company had its processes reviewed by independent analysts.

"You need to drive that link without violating any privacy rule," Kokich said. "We can't have private information combined with Web-surfing behavior."

Here's how it works:

Retail chains today often ask consumers to register online for information on new products, special discounts and upcoming sales. When customers subscribe via e-mail, that retailer assigns them a customer ID, a common industry practice.

Avenue A uses its technology to grab customer IDs — but no personally identifiable information — from the retailer's server, and attaches a cookie to each ID. A cookie is a piece of data that identifies and keeps track of a user's preferences. The cookie becomes a persistent, anonymous identifier that helps aQuantive track which, and how many, ads a customer has viewed from a particular store.
 
When a customer views an online ad and subsequently purchases an item with a credit card in that marketer's physical store, the store can associate that purchase back to a customer ID.

The store passes that information back to aQuantive, which updates each profile. This assures Avenue A never sees any personally identifiable information. It then can parse the data to determine how particular ads affect in-store sales.

"It changes their (return-on-investment) analysis," Kokich said. "In the past, they were spending $1 in advertising to generate $3 in online sales, ignoring the offline impact. If you add the offline impact, the (return-on-investment) has dramatically increased."

Starting small

Avenue A so far has three customers, none of which wants to be identified because each deems it "a competitive advantage," but each has changed its view of online advertising as a result of the product.

One client, for instance, found that for every $1 it spent on Internet ads, it generated $4 of revenue offline. In another instance, a client found that its customers responded to higher-end products. Before that, it positioned itself as a more mid-range provider.

Lee Sherman, vice president of Avenue A's client-insight group, said this product is not for all retailers. It works best for those that generate 25,000 or more transactions a month and sell directly to consumers. "If you sell through distribution, this is not for you," he said.

Others are attempting to close the gap between the Internet and offline sales, albeit in much different ways.

Nielsen/NetRatings and ACNielsen also are developing ways to correlate what consumers view and purchase online and what they buy in physical stores.

For years, ACNielsen's HomeScan has tracked the purchasing patterns of American households. The firm's 60,000 panelists use scanners to track items they purchase, from milk to shoes.

Charlie Buchwalter, Nielsen/NetRatings vice president of client analytics, said the service will equip a subset of those households with a PC meter to determine the link between Web sites those households visit and what they buy offline.

They plan to aggregate the data by age and income to get a deeper understanding of a slice of the U.S. economy.

"Since we're dealing with the same families, we can do a lot of cool analysis," Buchwalter said. "For this client that went to Gap or bought a Snickers at Safeway, we know what Web sites they went to, what ads they saw, and draw the correlation. We can compare them to people that didn't."

Meanwhile, New York-based DoubleClick, a direct-marketing technology company, introduced a product two years ago that measures the efficacy of an ad campaign across channels, whether they be catalogs, physical stores or the Internet.

The product, ChannelView, takes a list of consumers contacted by a marketer and matches them against a list of those who actually bought an item, to "close the loop" on a marketing campaign. Matching the two lists can show what impact a piece of advertising had across all channels.

Casey Carey, DoubleClick's marketing vice president, said the product has 35 clients, but he's a bit puzzled about why more direct marketers don't use it. "Historically, we expected it to be a bigger issue and a bit more of a burning desire to address this business problem," he said. "It hasn't been as significant as we thought it would be."

Lag time

Forrester analyst Charlene Li said marketers today aren't yet focused on using the Internet for branding or driving offline sales. And in the case of aQuantive, she said adoption might take time.

"It's a little bit early because the discipline of marketers isn't there," she said. "But it's absolutely where they're headed, and aQuantive needs to be there."

Indeed, while online advertising is growing, it still represents a small percentage of total retail commerce: Nielsen/NetRatings said 3.5 percent of all retail sales in November and December were transacted online.

Avenue A said it would take time to educate clients and overcome the perceived barriers.

"We always suspected that 99 percent of people coming to the Web site that don't buy probably buy in-store, but we never had any proof," Kokich said. "Online advertising draws more sales to stores: It's a pretty powerful realization, a big impact on overall advertising.

"Do you buy anything over $100 where you don't do research online?"

Monica Soto Ouchi: 206-515-5632 or msoto@seattletimes.com

Copyright © 2004 The Seattle Times Company