• by Matt Straz , October 22, 2012

While at MEC, the global media agency, I ran the media business for retailer L.L. Bean. One of the most effective parts of our campaigns were the “retargeted” ad banners that we would serve to people who had previously been to the retailer’s web site. This was similar to sending more catalogs to frequent buyers -- a technique that L.L. Bean had mastered.

Back then, though, the scale of retargeting was limited -- you could only target those people who had been to your site. The process was also limited by the number of banners that could be created. It wasn’t feasible to manually create hundreds of different messages for such a small part of the buy.

Given these limitations, the recent rise of companies specializing in remarketing has been breathtaking. Last month, Criteo, the New York-based retargeter, raised $40 million at an $800 million valuation. Jason Kelly, the former Google and AdMeld executive, recently took the reigns of Sociomantic Labs, the Berlin-based retargeting firm that has grown so rapidly it hasn’t needed any venture funding at all.

So how have these firms overcome the limitations of retargeting? Part of the answer lies in the fact that the rest of the world has caught on to what pioneers like L.L. Bean have known for some time: retargeting works. Similar to what happened a decade ago with search engine advertising, marketers are dedicating an increasing portion of their online marketing budget to retargeting.

“Retargeting, at it’s most basic, is effective because it leverages consumer intent,” says Jason Kelly, CEO of Sociomantic Labs.

As a result, there are more retargeting firms serving many more markets. Companies like Criteo have built the U.S market and Sociomantic Labs has done the same in Europe. Other companies like Exact Drive are making good progress with mid-market companies ,and Site Scout has developed the small business market with an easy to use, self-serve platform.

Another factor fueling growth has been technology. Real-time bidding (RTB), combined with the power of retargeting, has made online ads less costly and more effective. The data from CRM systems has added a whole new dimension to retargeting campaigns. It is now possible to serve specialized messages to users based on their shopping habits.

Also, look-alike modeling has expanded the reach of retargeting campaigns, and new creative technologies are making them more effective. All these advancements have led to a booming industry.

Of course, the success of retargeting has also led to some consumers being bombarded by these ads. Poorly executed campaigns make ads stick to you like flypaper, following you everywhere you go, sometimes weeks after visiting a marketer’s Web site. While retargeting can create a lift in direct-response metrics, what is the long impact on branding from being relentlessly stalked like this? It’s a question that smart brands are considering carefully.

“Some users might end up seeing four of your ads on the same page, and that’s a big concern -- it’s always something we watch closely, as we want our users to have a positive experience with our brand, “ says Thomas Burton, director, online advertising at One Kings Lane, the online home goods marketplace.

Despite the risks, though, retargeting is still showing exponential growth. The technique has turned “dumb” banners into smart ads. Well-executed campaigns can sometimes surpass the effectiveness of search marketing, particularly as it relates to brand awareness. Never before have marketers had the ability to drive both direct response and brand metrics at such scale and precision using online advertising.

Clearly, retargeting is poised to scale to even greater heights as further advancements in buying, technology and analytics are made. The only question now is, how high will it go?