238 ENTREPRENEURSHIP
ability to serve customers and make a profit. If you can’t do the latter, the former
will disappear.- The Internet does change everything (despite #1). It does not change the old indus-
trial order, but it does change the way that order does business.
Checking the Clicks
When is a loss leader a real loser?
Retailers often promote one product at a
special low price in order to lure customers to
their stores or Web sites. The merchant
decides, in effect, to make less profit on this
“loss leader” in exchange for increasing cus-
tomer traffic and upping the sales of other
items.
Online and catalog jewelry retailer
Limoges Jewelry (www.limoges.com), howev-
er, found that the $19 cubic zirconia ring they
had listed on comparison Web sites like
Shopzilla.comand Shopping.comwas not
producing the expected results. Shoppers
were clicking on the ring at the comparison
sites, costing Limoges 40 to 65 cents per
click, but few were actually buying the ring.
So the retailer enlisted the services of
Mercent Corp. to help spend its marketing
dollars more effectively.
Mercent, an e-commerce service and
technology provider founded by former
employees of Amazon.com, sells software
that allows retailers to analyze every item list-
ed on a comparison site, track the number of
clicks on that item, and tally the total dollar
value and cost of any sales. This information
lets e-tailers eliminate items or sites that
aren’t cost effective. After using the Mercent
software for four months, Limoges found that
its costs were down 10 percent and its sales
for the same period were up 47 percent.
Analysts estimate that marketing costs for
Web-based retailers have risen from 6 per-
cent of sales in 2004 to 18 percent of sales in- Vehicles like search ads (the advertis-
ing that appears when a shopper types a
request into a search engine) appeal to some
e-tailers, but many find them expensive and
have difficulty measuring their effectiveness.
Scott Buck, owner of a new Web site for
high-end garden tools and accessories, can-
celled his search advertising because of the
strain on his advertising budget and the
uncertainty of its results; he said it gave him
a “Russian roulette mentality.” Switching to
product placement on comparison-shopping
sites increased his sales (www.gardenhard-
ware.com) but the fees ate up half of his pro-
ceeds. “You really do need pieces of technol-
ogy to make [marketing] profitable,” Buck
observes.
Even experienced Internet advertisers use
diagnostic tools to guide their advertising.
Companies actually bid to place the small
text ads that appear on search engine Web
sites, and auction site eBay is one of the
highest bidders. The firm now uses a soft-
ware system called Triton to determine how
much they should bid for various search key-
words. A specific search term like “Nike
Shoe” may be a good buy because fewer e-
tailers will bid for that keyword than for the
generic term “shoes.” Plus, clicks on a specif-
ic term are more likely to generate sales. The
company reports that the average cost per
keyword bid has dropped 74 percent, a sig-
nificant savings for a company with a portfolio
of more than 15 million terms.
SOURCE:Adapted from Mylene Mangalindan, “Ad
Vantage,” The Wall Street Journal, June 19, 2006.
Retrieved from the Web June 19, 2006,
http://online.wsj.com/article_print/SB1 15048693396382653
.html, http://www.limoges.com, http://www.mercent.com, and
http://www.gardenhardware.com.STREET STORY 6.4