Kristen Crofoot is every television advertiser's nightmare.
Since getting her digital video recorder a year ago, the 25-year-old press secretary skips commercials every chance she gets. "I want to watch the show, not the commercial," she says.
TV viewers like Ms. Crofoot are becoming increasingly common. Only 5% of U.S. households own digital video recorders right now, but that will probably rise to 22% by 2008, said Boston-based market research firm Yankee Group. Meanwhile, 90% of DVR users "always or usually" skip commercials, a new study by MPG, a division of ad agency Havas, has found.
To overcome this distaste for commercials, advertisers are starting to use new technologies that allow for precise targeting. They hope that by pitching the right products to the right people, the Kristen Crofoots of the world will be less tempted to fast-forward.
Rather than making a 27-year-old bachelor sit through a commercial about the wonders of Swiffer pads, for example, advertisers could pitch him more relevant products like an iPod, potato chips, or plane tickets to Las Vegas. Advertisers are also exploring interactive technologies that let interested viewers take specific action with the click of a button.
The new technology promises huge upheavals for the advertising industry. "I've sat across from marketing executives who say they hope they retire before all this stuff happens," said Eric Schmitt, senior analyst at technology research firm Forrester Research.
DVRs are just the latest blow to the $50 billion TV-advertising market. For years, cable networks such as HBO, Bravo and others have stolen viewership from the traditional broadcast networks, dicing the audience into ever-smaller fragments. Meanwhile, ad rates have climbed, yielding diminishing returns for those who continue advertising on TV. Other media, such as online advertising, have also competed with TV commercials for ad money.
Personalization and interactivity will force advertisers to retool their strategies, which haven't changed much in decades. It will force companies to think about presenting relevant information rather than a "bland, all-encompassing ad," said Jeff Swystun, global director at branding consultant Interbrand.
Comcast Corp.'s advertising business, Comcast Spotlight, allows advertisers to target individual cable systems with customized ads. Cable systems typically serve 40,000 to 50,000 households, with large markets such as Los Angeles or New York consisting of numerous systems.
UAL Corp.'s United Airlines' new discount airline, Ted, recently launched an ad campaign to two million homes in the Chicago area. Ads addressed each suburb by name and made reference to the area's cold weather to pitch tickets to Florida.
Comcast Spotlight also offers detailed data on auto buying trends from Polk Automotive, a market data company. This allows car makers to figure out which model car sells best in which ZIP Code, then market accordingly.
Using current targeting technology, Comcast Spotlight, working with 1-800-Flowers.com Inc., was able to launch a series of targeted ads that played to 3.4 million homes in Los Angeles. Ads running in affluent neighborhoods emphasized the company's wide array of products and pitched flower arrangements that cost $100 and up. Those of more modest means were shown $20 arrangements.
Running different regional versions of the same ad isn't new, but creating a separate ad for each area used to be a laborious process. New technology makes it easier and cheaper. Software can mix together the various ingredients of the commercial -- graphics, music, narration -- on the fly, varying them to suit the time of day, targeted demographic and other factors. To create the targeted 1-800-Flowers ads, Comcast worked with Visible World, a closely held New York City software company.
Targeted TV ads promise to make commercials more like direct mail, which for years has aimed very specific offers at individual consumers. The tool that made this possible? Detailed credit and spending data from credit companies such as Experian. Claudio Marcus, executive vice president of Visible World, says the company is in talks with Experian.
To get to this next level of targeting, Visible World and several major cable operators are testing set-top box technology that can address individual households. Visible World's household-targeting pilots will cover more than one million homes later this year, Mr. Marcus said.
Charlie Thurston, president of Comcast Spotlight, says it has tests of the set-top box technology under way in Denver, with another trial set to run in Miami this year.
Though household targeting technology is available, widespread use may still be a few years away, industry observers say. Advertisers want to see digital TV reach critical mass before really committing to these new ways of reaching consumers.
But once they do, they'll be offered new ways to interact with prospective customers. TiVo Inc., for example, is creating a series of "tags" that let users take a specific action during a commercial. After watching a travel ad TiVo users can click their remotes to get a travel brochure mailed to their homes. Comcast and Cox Communications Inc. are developing similar offerings.
"Once you have digital and two-way addressability, you can send and make requests for ordering catalogs, coupons ... all kinds of capabilities. We're just dipping our toes in that right now," said Comcast's Mr. Thurston.
Of course, there is a cost to all this customization.
Visible World's Mr. Marcus admits that a customized ad campaign that requires different voiceovers or extensive video changes can drive up the cost of the creative budget. But creative and production costs are generally only a small fraction of the cost of an ad campaign, he said.
Advertisers aren't so sure. "Producing 30 different versions in 20 markets creates a burden," said Sean Carton, partner at Baltimore-based ad agency Carton Donofrio and dean of the School of Design and Communications at Philadelphia University.
"Ads targeting women versus men need completely different creatives," Mr. Carton said, questioning the effectiveness of an ad campaign that simply slaps on the name of a viewer's town.
Ellen Sheng, The Wall Street Journal. October 27, 2004.
Copyright © 2004 Dow Jones & Company Inc.. All rights reserved.