• by Laurie Sullivan  @lauriesullivan, August 13, 2008

Retail marketers are expected to spend one-third of the approximate $8.2 billion that all interactive marketers will invest this year.

Retailers are expected to increase investments at a compound annual growth rate (CAGR) of 25%, to $18.8 billion, between 2007 and 2012. Many will continue to refine existing programs that increase online sales, and experiment with new media and richer display ads that boost brand awareness and engage consumers. But their overall percentage will decline slightly as other sectors increase investments, according to a recent report from Forrester Research.

Today, retail accounts for 34% of all interactive marketing spend. The sector comes in second behind travel, the largest spender on interactive marketing. By 2012, however, retail will account for only 31%, as other industries like financial services increase their integrated marketing efforts, taking a larger share of the overall pie.

Forrester Research Principal Analyst Shar VanBoskirk doesn't see retailers decreasing spending for integrated marketing. "The decline is in retailers' percentage of share for the overall pie," she says. "This is declining as other industries share increases."

Marketers tell Forrester that interactive tools are most effective at driving online sales. So with consumer online spending at $175 billion today, 6% of all retail sales, and set to reach $204 billion by the end of this year, retailers will continue to invest in interactive marketing that push consumers to spend more online.

The increase is not a result of more retailers adopting interactive tools like email and search. About 92% email a house list and 90% buy paid search ads. Forrester expects that retailers will continue spending to get more out of existing programs by expanding on size, improving analytics, or automating repeatable processes.

VanBoskirk, for example, writes in the report that after three years of fine search marketing results, Pottery Barn boosted natural search results between 1,000% and 9,800% across its sites by investing in GravityStream, a technology sold through its search agency to automate SEO work.

In fact, VanBoskirk recommends buying into Web analytics that track on-site behavior, or marketing analytics to gain insight into the profitability of campaigns to get the most out of investments in tough economic times. While the tools can assess how media dollars perform, analytics help discern the data that matters most when measuring progress.

VanBoskirk also suggests marketers should spend on display ads. It may appear to be somewhat counterintuitive advice because most marketers claim they cut display media first when budgets get tight or when other experimental media proves worthy.

There is more to customer relationships than driving a sale. She says well-targeted display ads can being more profit than cost-per-clicks based on too-popular keywords.