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Retailers will increase ad spend in their mobile apps at the shelf

Written by Ed Anderson | May 27, 2014 9:39:00 PM

 

In a prior post, we asked the question: Is the mobile ad spend among retailers too low?

The traditional staples of retailer advertising are freestanding inserts and paper coupons. As the following chart shows, however, newspapers are in a steep decline in terms of revenues. Classified advertising left printed newspapers years ago and now we see a continued decline in 2013 print advertising below the 1950 spending level:

 

 

It is axiomatic that retailers have a short list of primary objectives to achieve through advertising:

  • Create awareness and favorable consumer attitudes
  • Drive traffic into the stores
  • Convert the traffic once inside the store to buyers
The rise of Internet advertising has resulted in large share shifts in advertising out of traditional printed newspaper advertising:

 

The decline in newsprint advertising negatively impacted sales

While conversion has been dramatically increasing in on-line shopping, the retail industry's shift away from retail newsprint advertising has negatively impacted traffic and sales conversion in brick-and-mortar stores. This is because Broadcast TV and Cable TV have the ability to improve awareness and attitudes, whereas traditional newspaper advertising was more effective at improving traffic and conversion. The decline in newspaper advertising has thus negatively affected sales.

Yes, a second, and important factor has been the rise of e-commerce with its benefits of superior personalization. Today, however, emerging mobile platforms uniquely offer the possibility of solving both personalization and conversion. Mobile is on the verge of becoming the fourth tectonic shift in advertising over the last 60 years:

 

 

Adding to the challenge of optimal advertising allocation is the dominance of mobile apps over mobile web:

 

 

 

We should be on the verge of an explosion of advertising in the brick-and-mortar store delivered by mobile apps, right? Despite the logic in this, it hasn’t happened nearly to extent that one would think. Why?

Inhibitors to increased mobile ad spend

Because until now there hasn’t been a proven delivery mechanism in the physical store, on the retailer's mobile app, even as many retailers' mobile app acceptance and usage are growing at  explosive rates.

The widespread availability of inexpensive iBeacons or Bluetooth Low Energy sensors as they are sometimes called, will present an opportunity to crush the obstacle of reallocating ad spend to where retail customer eyeballs are focused - mobile. We are in agreement with those who say many retailers will begin pilot testing in 2014 to identify the most productive way to capitalize on personalization and smart phones.

McKinsey makes a strong case for highly personalized marketing in retailing: "Ads are shifting not just towards digitization, but also personalization, powered by increasingly sophisticated algorithms and predictive models that analyze transaction data and digital media trends...Already, 35 percent of what consumers purchase on Amazon and 75 percent of what they watch on Netflix come from product recommendations based on such algorithms."

Kurt Salmon confirms the importance of 1:1 personalization: "One to one marketing has really paid off on line: the conversion rate of traffic on line without personalization hovers at 2% to 3.5%, but give that customer personalized recommendations based on their personal history and products he or she is browsing and watch those conversion rates climb tenfold, according to comScore...Retailers will provide pervasive personalized experiences which...will boost customer engagement, traffic, conversion rates, basket size and long term loyalty." 

However, the caution light is on for using iBeacons and smart phones in bricks-and-mortar stores because, to date, no proven way has emerged to convert shoppers to buyers for brick-and-mortar stores. 

Pilot Test Several Different Approaches

The trick in succeeding with this strategy may be to test more than one option to convert shoppers to buyers. At a conference we attended, Peter Drucker was asked, “What singular piece of advice would you offer to America’s business leaders?" He responded, “I would tell them to pilot test major change before committing to a rollout: it can save money and lead you to a way with a higher chance of success.” 

In our next Blog post, we’ll propose different ways that you can pilot test the best way of using mobile apps and iBeacons to convert shoppers to buyers, in the store, at the shelf, in the moment of the buying decision.