1. Internet Advertising:
How Online Ads Can Affect Offline Sales
apt Viewpoint
Author: Scott Setrakian
Managing Director
Jonathan Marek
Senior Vice President
San Francisco Washington, D.C. London
www.predictivetechnologies.com
2. abstract Abstract
A mother wants to buy a backpack for her
child who is starting first grade. She logs onto
an Internet search engine (such as Yahoo or
Google), and runs a search on the words “child’s
backpack. The search engine finds several
”
hundred thousand different web pages that
contain those words.
When the search results are presented, links to
several websites are displayed prominently at
the top of the page and along the right hand side.
These links lead to relevant websites that paid the
search engine for the right to appear prominently
in front of anyone who searched for certain
key words – they are advertising “sponsors. ”
The mom clicks through on one of the sponsor
websites, finds a backpack that suits her needs,
and buys it online.
This is the heart of Internet advertising. “Search”
and its cousin, “Banner” (display ads posted on
targeted websites, such as an ad for backpacks
on a website about child raising), represent about
7% of all ad spend today. Search and Banner are
widely believed to be rapidly stealing share from
more traditional advertising media.
Internet advertising is especially attractive to
advertisers because the economic proposition
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is clear for online sales. Click-throughs are
automatically recorded for each ad, and resulting
sales are directly captured. Calculating ROI
becomes a straightforward task, comparing the
3. cost of the ads to the profits from the online
sales that result.
Measuring the Offline
Impact of Online Ads
Internet advertisers who do business in both
the online and traditional brick-and-mortar store In a typical test, APT partners with a company
“Stores in test markets
channels have recently started to ask a new set to design and launch an online campaign to a with Search ads had a
subset of web users in carefully selected test
of questions: Do Search and Banner ads also
increase sales in the physical store network? Do markets, while leaving other control markets statistically significant lift
customers buy more at a brick-and-mortar store “dark. APT’s Test & Learn Management
” in sales overall, a result
after seeing Internet advertising? For example, System then tracks the differences in store
might the backpack-seeking mother visit a store sales between the test and control markets, that produced attractive
that she saw advertised online, having learned and performs sophisticated analyses to returns to the advertising
that the retailer had good candidates, to examine identify the impact that the online advertising
the backpack options herself and decide in has on sales in the store network overall. campaign. Sales of both
person which one to buy? Might she seek out a
APT also identifies differences in performance
the advertised product,
well-reviewed brand at a local store, so that she
doesn’t have to wait for delivery and can have it in that are correlated with different store and market as well as other, more
time for the first day of school? characteristics, and different ad elements. The
profit generated by the online advertising is
“impulse buy” items,
The implications of these questions are compared to its cost, creating a true read of increased significantly.”
important. If Internet advertising creates the ROI of online advertising offline sales.
even more value than the margins driven by
incremental online sales, it then represents The initial results are compelling:
a more attractive advertising medium than
previously thought, and for a larger pool of n Online advertising drives in-store revenue
potential advertisers. lift in all instances analyzed to date. For a
retailer or consumer goods company that
To better understand the offline impact of online sells in both online and offline channels,
advertising, Applied Predictive Technologies (APT) the value of Internet advertising is likely
is collaborating with selected leading retailers, greater than the value of online lift alone;
banks, and consumer goods companies on an
“online to offline” Test & LearnTM initiative. n The degree of in-store lift varies from case
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to case. In some examples, the in-store
lift drives attractive returns to the Internet
4. Case Study
APT worked with a US-based specialty retailer
advertising expense all by itself, without any
to analyze the impact of Search advertising
profits created by new online sales. This
on in-store sales. A Search campaign was
means that the Internet can be a profitable
implemented in selected markets, and the
advertising channel for retailers and consumer
change in performance of the stores in those
goods companies that sell predominantly
test markets was compared to the change
through brick-and-mortar networks, regardless
in performance of stores in control markets,
of the extent of their online presence;
where no Search advertising campaign was
implemented. The Search campaign was
n Advertising ROI often varies market
focused on key words relating to a specific
by market, leading to opportunities to
product line. The retailer was interested in
maximize Internet advertising returns
understanding what would happen to sales
through intelligent targeting;
in its stores overall, to sales of the advertised
product set, and to other product categories.
n Internet advertising ROI varied on the
basis of products advertised. These
This may sound like a simple analytical task.
differences are unique to each advertiser’s
However, measuring small changes in sales at
concept and merchandise mix;
a store is much more complex than measuring
changes in click-thrus on a web page. The
n Search and Display advertising behave
complication is rooted in the nature of store sales.
differently, and have different returns;
n With the results of carefully Fig. 1: Daily sales at a representative retail store:
designed tests, advertisers
can exploit opportunities
to maximize their Search and
Display ROI based on tailoring the
message, intensity and ad type.
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5. Daily sales vary by over 100% in any given week In the case of this specific test, the signal-
and by well over 400% seasonally. However, to-noise challenge was exacerbated by
a change of only 1.5% in daily store sales can Hurricane Ike, which brought significant
drive terrific returns to Internet advertising. winds and rainfall to the middle of the country
Accurately detecting a 1.5% change in sales in an during the course of the test, impacting
environment where sales change radically on a sales at many test and control stores.
daily basis, regardless of the Internet advertising,
requires highly specialized protocols of test APT applied sophisticated analytical approaches
design, control group selection, and analysis of to mitigate not just daily variations in sales but
results. This is known as the “signal-to-noise” also the impact of the weather anomaly, in
challenge. order to maximize accurate signal detection.
APT’s Test & Learn process (Figure 2), brings The results of the test were important for this
highly specialized techniques to bear on the retailer. Stores in test markets with Search
problem of reducing noise and finding the ads had a statistically significant lift in sales
true attributable impact – the “signal” – of the overall, a result that produced attractive returns
activity under examination. to the advertising campaign. Sales of both
the advertised product, as well as other, more
“impulse buy” items, increased significantly.
Fig. 2: APT’s Test & Learn Process
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6. Ongoing Work
The return profile improved dramatically with detailed evaluation of
APT is working with a number of retailers to understand
differential performance by store. APT identified certain market attributes
the impact of online advertising on offline sales.
that were associated with proportionately greater sales lifts than the
Additional research addresses such questions as:
overall average, including trade area per capita income (Figure 3).
n Can online advertising replace or enhance weekly
newspaper inserts (also known as Free Standing
Fig. 3: Inserts (FSI), Weekly Supplements, etc.)? How
does Internet advertising ROI compare to FSI
ROI - overall, by market, and by week?
To address this issue, APT is working with large
Sales Lift Index
retailers who use FSI to investigate the relative
effectiveness of Internet advertising under a
variety of combinations of FSI / Internet use;
n How does Internet advertising fit into the
larger framework of ad media alternatives,
including TV, radio and print?
To address this issue, APT has collaborated with
In other words, stores in trade areas with average per capita income
several retail and consumer goods companies to
greater than $33,000 saw sales increase 4% when Internet advertising
design and execute experiments that evaluate
was underway. The Test & Learn approach provided the retailer with a
Internet advertising as one component of a
means of targeting its ongoing search campaigns, investing only in those
strategy that incorporates traditional advertising
markets that would perform best. As a result, the retailer was able to
media, in order to determine which combination
scale back advertising costs in low impact markets, while maintaining
is most effective. Results to date show that
a large majority of the lift, and thus significantly improving ROI.
Internet advertising plays a meaningful role in
an optimal media plan, when results include
Continuing Test & Learn evaluation can continue to build on these findings
lift accomplished at the store level.
and drive a refined, highly profitable Internet advertising program.
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7. Concluding Thoughts Scott Setrakian,
Managing Director
Jonathan Marek,
Senior Vice President
The emergence and continuing growth of online Mr. Scott Setrakian is Managing Director
and co-founder of Applied Predictive Jonathan Marek, a Senior Vice
advertising media offers consumer-facing advertisers
Technologies (“APT”). Mr. Setrakian President with Applied Predictive
the opportunity to improve sales and margins cost- Technologies (APT), leads
effectively. The online channel drives sales and profits has over 20 years experience advising
many of the world’s largest and most engagements with casual dining,
not just for online stores, but for brick-and-mortar quick service restaurant, specialty
successful companies. His work focuses
locations as well. retail, big box retail, and banking
on the development and implementation
of strategies and processes that lead to clients. He has helped clients improve
Through intelligent testing, marketers can understand significant improvements in profitability performance through better capital
the ROI of online advertising across all sales channels. and corporate value. He has led the work strategy, new concept development,
Expertly done, testing can also help target online of hundreds of management consultants media optimization, store labor
advertising to the best alternative (e.g., search vs. in engagements in over 20 countries on six planning, site selection, and store-
banner), the best products, and the best frequency, to continents. based goal setting.
maximize the effectiveness of ad spend.
Prior to co-founding APT, Mr. Setrakian sat Mr. Marek has ten years of experience
For insight into how Internet advertising can drive on the Board of Directors of Oliver Wyman applying quantitative techniques
sales for your company, or to learn more about this (formerly Mercer Management Consulting), to critical business issues. Prior to
one of the world’s largest general joining APT, he was a Principal at
groundbreaking research, please contact APT at
management consulting firms. He led the Oliver Wyman (formerly Mercer
703-875-7700 or info@predictivetechnologies.com.
firm’s consulting activities in the Energy and Management Consulting), where he
Process Industries around the world. advised multi-unit retailers on new
business strategy, network planning,
About Applied Predictive He currently sits on the Boards of Directors and operational process issues. At
Technologies of APT, The Buena Vista Funds, University Mercer, he drove several field-based
change efforts with Fortune 500
Games, the San Francisco Zoo and the
Saroyan Foundation. companies. He has led engagements
Applied Predictive Technologies (APT) is the industry
across North America, Latin America,
leader in helping large-scale consumer-focused and Europe.
Mr. Setrakian holds a MBA from the
companies institutionalize a world-class Test & LearnTM
Stanford Graduate School of Business.
capability. Through the combination of APT’s proprietary Mr. Marek holds a B.S. in
He received an AB in Human Biology
software and capability-building consulting support, mathematics (with Honors and
from Stanford University, where he also
APT has helped some of the world’s largest and most Distinction) and an A.B. in philosophy
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completed the requirements for a degree in
successful companies achieve significant bottom- from Stanford University, where he
Psychology.
line improvement. graduated Phi Beta Kappa.
