FEBRUARY 2005

Do you see digital media networks as primarily a marketing vehicle or are there other opportunities?

Jeff Weidauer: There are always other opportunities. Most are going down the marketing road today simply because there's a perception that there's some money out there to support that. But eventually you'll see it morph into something greater, and hopefully something that will benefit the customer over and above just marketing communications.

Ken Jerome: There's also the ability just to provide information, not necessarily just about a specific product and how it's used, but also get into why yours is better. That would edge into the marketing end of it, of course. But there's an opportunity to use digital video to inform the user, especially someone who's new to a concept, and who may not even realize they need something until they've been informed about it.

Stuart Armstrong: Other opportunities are in promotion and training, as well as in marketing. There's a huge opportunity in consumer education, where you may have products -- especially in consumer electronics -- that are changing faster than store personnel, or even the consumer, can keep up with them. The ability to deliver a promotional or marketing message while you're also educating the consumer on the benefits of the product is very strong.

Watts Wacker: There's a lot of opportunity for creative execution that really touches people in a different way -- that allows them to dial into a storyline, for example, and to interact with it. Some of the kinds of things currently being done on the internet -- like that Honda Rube Goldberg ad -- have potential at retail, too. Marketers need to break the grip of television's format, but keep the value of what television means. In effect, make it the electronic hearth, but the 21st century version.

What are the communications considerations within an in-store environment, and how are they different from traditional television?

Wacker: The tried-and-true 30-second commercial doesn't have enough traction at retail. If you tried to do that in-store, you would have no success at all. But if marketers or retailers are creative about how they think about the opportunity to connect with people, it will resonate. Retailers should think in terms of business-models that can't be done with traditional television.

For example, with radio frequency hangtags, eventually we're going to have not only smart clothing, but also smart packaging. So, you're going to be able to look at a garment in a clothing store and feed into the garment what you'd be willing to pay for it after so many days. If it is priced at $100 today, you'd say -- well, if it's still here in 40 days, I'd pay $30 for it.

Weidauer: The in-store media is going to need to differ because the audience is much more mobile, so your message is probably going to have to be shorter. It's going to have to be much more direct. Ambient noise inside the store certainly can be an obstacle. The question is, do you deal with that in terms of your creative and try to make sound less important? Or do you try to deal with that through the hardware and make the sound more effective?

You might work on things like directional sound. I think the visual medium is very powerful, but it is that much more so when you have the audio with it. The way I see it, we should be making the hardware work harder for us so that we do not have to dumb down the creative, if you will, to match the environment.

Armstrong: Let's look at the automotive channel, and dealerships, as an example. It can't be the old environment of a couple of cars sitting in the showroom and some sales people with desks. The dealers have got to create a store within a store. If you look at Honda, and the marketing of a car such as the Element for 18-24 year olds, Honda has to create an environment for those consumers. The transfer of that brand and those advertisements into that environment is very important.

"The ability to deliver a promotional or marketing message while you're also educating the consumer on the benefits of the product is very strong." -- Stuart Armstrong, DigitalView

But that's only a part of it because dealers, while very interested in taking that high production value media and bringing it into their environment, also need to make money on their services. So, the communication could be as pedestrian as promoting that they have an oil-and-lube special. Or they might want to communicate their sponsorship of the local little league, to show that they're involved in the community.

They need to mix those kinds of messages together and have some control over that media at the local level. Unlike mass media, with a very homogeneous message across consumers, you've got to have a very targeted message that's looking at the individual, regional and psychodemographic needs of the consumer. You also have to factor in the specific communications requirements of that retailer -- whether a dealership, a local grocery store or whatever. The in-store media has to create some localization of the communication message.

Jerome: With traditional, in-home advertising, you're in a passive mindset. You're sitting on a couch or in your favorite recliner. You're in the mood to take in information. You're willing to give someone 20 or 30 seconds -- maybe even a full minute -- to deliver their message to you. You're in that accepting frame of mind because you've placed yourself in front of the television on purpose.

In the store, people are there to get something done. So, the messages have to be far more succinct. The shopper is not going to be as willing to commit as much time. Also, the messages have to work in a format that may not include audio, simply because the environment may be too noisy and the shopper may not be able to hear what's being said. So, it has to be a lot more of a visual-based communication. I wouldn't say you couldn't lift creative from television.

What do you see as the main challenges to the execution and acceptance of digital media networks as a medium at retail?

Weidauer: The biggest hurdle is the same one you always have. Number one, it's new, and it's unproven, so it's going to be a matter of proving that this is a viable medium that's actually changing customer behavior. In addition, trying to get hardware of this scope in two or three thousand stores is a significant cost, up front. Supermarkets aren't going to pay for it -- none of the retailers would. That's where some of the third parties have figured out a model for this -- PRN, for instance, apparently has figured out a fairly viable model with Wal-Mart and Best Buy.

The intent is to turn a store, or a chain of stores, into a fairly powerful electronic medium. When you've got a store base the size of Albertson's, you've got a customer base -- viewership -- that rivals a lot of television networks, at least the cable networks. By comparison to television networks, retail networks have a customer who is open to buying -- we know that 70 percent of purchase decisions are made at the store.

"I like to say that retailing is the re-telling of a tale. So, obviously, I think the idea of using digital video at retail has a lot of legs." -- Watts Wacker, FirstMatter

If somebody can prove to a CPG manufacturer that they can get an increase in sales by running their ad in three or four supermarket chains nationally, rather than putting it on the television networks, they're going to put the dollars where they are seeing them work. That will cause some backlash from the television networks. At some point they're going to see this loss of funding going over to the supermarkets and figure out some way to fight back.

Jerome: I see cost as being a big barrier, although price is coming down. No doubt that the technology keeps getting cheaper and cheaper. However, it's going to take some of the early adopters and some of the big boys to really jump on it. Then, once the price point reaches a certain level, we'll see a lot more of it happening.

There's an issue with clutter, although if it's well executed, clutter can be limited quite a bit. How it's displayed, how it's arranged, where it's placed into the display itself, and exactly what kinds of images you're showing -- you can do away with a lot of clutter if it's well executed.

This is also a new area in terms of what it takes to keep it up and functioning with fresh messages. There's a certain degree of acceptance of the maintenance that's going to be involved. However, the costs not only involve upfront hardware, but also an ongoing maintenance of new production costs for new messages. And then there are the issues related to the lines of responsibility for scheduling and delivering the media, following up to make sure it got to the device, was played, and so forth. Finally, it's kind of a hard medium to get an ROI out of. It can be difficult to know whether it influenced someone's purchase or not.

Armstrong: Clearly, cost consideration is one of the challenges. However, the cost of the medium, with the decreasing cost of LCD panels, the solid state player technology that's available now, the compact flash storage devices -- they're all coming down and very rapidly. We're seeing 20-30 percent decreases in those costs over the last couple of years.

The cost of the media, and the value it delivers, especially in categories like consumer electronics, and major appliances -- where you have products that are higher cost and more complex, the cost of the media is fairly easily justified. An even more important consideration is the production of the communication of the media. It's usually not the technology that fails, it's that the message is not properly produced to really attract the consumer and resonate in that environment.

Wacker: It's no different than it is with anything else. It is important to remember that there's nothing more dangerous to plan, nor difficult to manage, nor more uncertain of success, than the creation of a new order of things, for the initiator has the enmity of all those who would prosper from the preservation of established institution, and merely lukewarm defenders from those who would benefit from the new one. That's truer today than it was when Machiavelli wrote that, 500 years ago.

That is why the number-one job in Washington today is job retention. And the way you get job retention is to not change anything. It is also why I just flip out over the whole relationship between advertisers and ad agencies. They all know it's broken, and yet no one will pull the trigger to do it differently. Digital media at retail looks to me like a very promising, fertile opportunity, to retain enough of the past, and add enough spice from the future to actually move that needle a little bit.

What do you see as the most outstanding opportunities?

Wacker: I like to say that retailing is the re-telling of a tale. So, obviously, I think the idea of using digital video at retail has a lot of legs. One possibility is to use digital media as "tribal media" -- or media that tells you, in your specific group, what to make of "mass media" stories.

"In the not-too-distant future, you're going to see digital media inset into the shelving units. It's really in its infancy, and it's an exciting time." -- Jeff Weidauer, Albertson's

For example, when Gainni Versace was killed there was a cover story about it in Biker Life magazine. Why would bikers care about Gianni Versace? The point was, like everyone else, they couldn't escape the story because it was all over the mass media. So bikers went to their tribal media to identify what they were supposed to think about it.

I think retailers have great potential to make really powerful "tribal" connections of that kind. The final step would be for retailers to create "personal media" -- like a blog, for example. It's become pretty simple to put up your own homepage. If retailers can push into that -- and I haven't figured out how they would do it -- that would make sense.

Jerome: Anywhere you have a captive audience -- where you are trying to reduce the perception of "wait" time is an opportunity. The banking industry was once notorious for the number of lines it took to get up to a teller. Waiting for your prescriptions to be filled, in the doctor's office itself -- and also in the exam room, are opportunities for digital media.

Having a 15-inch LCD screen on the wall telling me something -- anything -- would at least make the perceived wait time less. It would give the drug companies a chance to put something into my head, whether about their products or just educational material.

Armstrong: Companies like Procter & Gamble are spending just as much as they were 10 or 15 years ago -- 10 or 11 percent of their sales -- toward advertising or marketing dollars. Now they're getting four times the return on that. Why? Because their spending is more targeted, and it's really resonating with consumers in environments where they can begin to measure that return on their marketing dollars more than they have been before. A natural outcropping of all this is being able to take that brand message, identity and essence and bring it to the point of decision, to the retail environment.

Being able to educate consumers is certainly a key area. The other side of that coin is the need to educate and train the sales associates on the floor. With retail experiencing fairly high turnover rates of employees and with new products coming out that are becoming more complex and being launched at an ever-increasing rate, the need to be able to train those employees -- or sales associates -- is critical to the success not only of the various brands at retail, but also to the retailer itself.

If you look at the quick serve restaurant, for example, the speed at which orders are filled is directly proportionate to the profitability of that operator. They need to be able to turn an order around within about thirty seconds. So, it's important to have the ability to do just-in-time training through a visual media -- how to grill burgers or make a milkshake or an order of fries, for example. That training right at the machine can give the type of training that is going to positively affect the QSR's bottom-line profitability.

Weidauer: The opportunity, obviously, is to generate increased sales, which is what everybody wants. But I think you're also going to see a much easier correlation between running some sort of content in-store and seeing a lift in the associated product. That's unlike what you can accomplish on television. If you run something on network television, that's more of a brand-building thing. It's tough to get an overall read on how effective that was. If you run advertising in store, you'll not only get a greater lift more quickly, but you'll have greater opportunity to measure it.

"I think there's something to be said for using digital media to create an environment and an experience and not so much to stimulate a purchasing decision, per se" -- Ken Jerome, DVC

I don't think we've even begun to scratch the surface of how in-store digital media is going to be used, even in terms of where the dollars are going to come from, what the content is going to be, or for that matter, where the screens will appear. Today you see digital media hanging from the ceilings, or at the checkstand. In the not-too-distant future, you're going to see digital media inset into the shelving units. It's really in its infancy, and it's an exciting time.

As people get out there and use digital media, and more people are trying to make it work for them -- and as customers become accustomed to it and start expecting it -- the whole process is going to explode. It will be used ten years from now in ways that we haven't even thought of.

Which brands are doing the best job of using in-store media and why?

Armstrong: Bed Bath & Beyond comes to mind, and so does Canadian Tire. They both have had a long history of using video to instruct and promote products within their categories. It supplements the in-store personnel, both in terms of delivering a promotional message and educating the consumer in ways that an in-store person might not be able to. Digital media don't take breaks, they don't get tired, and they don't take vacations. They deliver a consistent message all the time and they're cost effective.

Additionally, some retailers are taking the same commitment to in-store education. They are using video in-store and then evolving that to a more digital environment where they can update the content remotely. They can also monitor the integrity of the network, knowing which screens are down and how they're operating. Importantly, that takes the onus off the in-store personnel.

Jerome: I think the paint industry is doing a pretty decent job. Some of their ways of selecting complementary colors and showing you how to tape off, and so forth, have been effective. I've actually seen some very nice interactive kiosks used in stores like Home Depot and Lowes.

Wal-Mart is one of the biggest in digital media, but their monitors are always hung up very high at the ceiling, and most people miss it because they have it hanging so high up. In some instances, I feel it's a solution in search of a problem. If you go to Tokyo, for example, it's overkill. It's just one videoscreen after another. After a while you just tune it all out.

I also think there's something to be said for using digital media to create an environment and an experience and not so much to stimulate a purchasing decision, per se. I'm thinking in terms of the automotive industry -- the higher end automotive stores where you basically have running footage of high-end vehicles like Jaguar careening down beautiful, curvy roads by the ocean. Just to give that feel and that look.

Weidauer: I think the best one is probably Wal-Mart, because they've got a pretty solid network. I know they're not paying a nickel for it. In fact, they're more than likely deriving strong revenues from it. The fact that they have run it through all of their stores is evidence enough for me that they're seeing a payoff from it. They're consistent, and the messaging is all about Wal-Mart and the products.

Nordstrom has done a good job with this for many years, long before anybody else even thought about it. As long as 15 or 20 years ago, they were running music videos and having fashion shows. I don't know if they used it to its fullest extent -- and I haven't been in a Nordstrom lately -- but they really were pioneers in this. They were using the medium in a way no one else had thought of.

Wacker: I don't know who's doing it well, but the first place it more than likely will be done well is Best Buy. I think they're a very progressive thinking company and they're just wild enough to do good stuff.

You might have live eBay in the store, on particular items. Or even take it back to the Price is Right. So, while you're in Best Buy, you could actually be a contestant in the game while you're in the store. That would take media into a personal dimension. There are so many things you could do. I'm really bullish on the whole idea of digital media at retail.