• by Yoav Naveh , Op-Ed Contributor, November 7, 2013

Online retailing is tricky business. With decreasing margins in an increasingly competitive online sales environment, identifying new customers and marching them through the sales funnel has remained challenging for retailers large and small.

"Managing the profit margin is particular challenging in display advertising," said Samuel Friedman, director of online marketing at Adorama. One core challenge for retail display advertisers is placing advertising in front of them for high-profit items. Without the granular controls of search advertising, CPM-based advertising for low-margin items isn't worth the risk.

Attribution remains an ongoing challenge for retailers as well. With click-thru rates well below 1%, you've got 99% of your audience not responding the way you'd like them to. "View through attribution is a challenging element to manage," according to Friedman. "With so many other factors in the marketing mix, determining how much credit to give a view-thru impression is a tough call.

What can retailers do to test and ensure their display campaigns are working? Friedman focused on two key elements. First is working with partners you trust. Without a basic level of trust in both parties to deliver on what they promise and offer, nothing will work. Second, and more pragmatically, a basic A/B test with exposed and control groups, using roughly 10% of the impressions towards the control provides enough data and insight to determine if a campaign is working profitably. Having a control group to A/B test also enables retailers to establish seasonal benchmarks to measure performance and give you a true picture that is consistent with the ebb and flow of annual retail cycles.

So what can an online retailer do to survive and compete with their "big box" counterparts, Amazon and the like?  "Prospecting online produces a lot of useful data and insight," said Friedman. Technology companies are able to analyze data in ways that were unimaginable or inaccessible to anyone without a massive database and technology infrastructure only a few years ago. Retailers, especially smaller, niche retailers and even mom-and-pop shops know their products and their customers' needs. They shouldn’t have to be specialists in data management just to survive. According to Friedman, "Tech partners that are able to go beyond retargeting to help us understand what other attributes our customers exhibit and then go find more of them across the web are our most valuable."

What type of insight can a data company/tech partner extract and use to better target a retail audience and be more efficient/effective in their media buying? "Often a marketer isn't fully equipped to  interpret the data that a technology platform or partner spits out," said Michael Mamarella, a senior level executive in the digital media space. "It is critical, especially for smaller marketers, to be understand if they are overspending or underspending, and whether or not that spend is moving the needle against their business objectives."  

The importance of managing the risk of display advertising is critical as retailers face stiffer competition for slimmer margins. Enabling retailers to buy display media strictly on a performance basis can help them find new customers to add to the retargeting pools and convert more browsers to buyers, all while minimizing waste in the media spend. When retailers are able to generate positive ROI from their display campaigns beyond retargeting tactics, we will see a huge influx of new ad revenue into the ecosystem.