In-store video ads a boon to retailers, a peril for traditional media

February 24, 2009

Video advertising in stores is a moneymaker for retailers, but a growing threat to already cash-strapped print and broadcast media, according to a new study co-written by a University of Illinois business professor.

Yunchuan "Frank" Liu says in-store marketing has surged in the last decade, fueled by on-the-spot commercials that have proven persuasive with shoppers and lower advertising rates that are popular with manufacturers.

Retailers have a pricing edge over traditional media outlets because stores profit from both advertising revenue and sales increases sparked by the ads, according to the study, which will appear in Marketing Science, a peer-reviewed journal.

"Commercial media only gains from advertising, with no direct stake in how much product is sold," Liu said. "Retailers have incentive to subsidize rates because the more manufacturers advertise, the more sales could increase."

The study, based on economic models, is the first to examine the impact of in-store advertising on the product-distribution chain, said Liu, who co-wrote the study with University of Southern California economist Anthony J. Dukes.

Liu says the findings are another dark cloud for newspapers, magazines and broadcasters already wrestling with audience and revenue declines in a market spread thin by the growth of online, cable and other options.

"In the future, we see more advertising available in stores, and more advertising shifting from commercial media to in-store media," said Liu, a professor of business administration.

He says print and broadcast media may have to adjust their sights, forgoing ads for food, cleaning supplies and other staple products and focusing instead on brand-awareness campaigns, services such as movies or health care and big-ticket items that consumers ponder before buying.

"Commercial media could become a high-quality platform for branding, long-range buying and services not available in stores," Liu said. "But for impulse purchases - cereal, razor blades and those kinds of retail products - in-store advertising will be really important."

The study says in-store advertising also provides social benefits, giving consumers product information as they shop - when they need it most.

"Retailers benefit, manufacturers benefit, and consumers benefit," Liu said. "With lower advertising rates, manufacturers advertise more, giving consumers more information about products that satisfy their wants and needs."

Up to 70 percent of consumers make brand decisions while they shop, and research shows that brand recall is 65 percent among Wal-Mart TV viewers compared with just 23 percent among in-home viewers, the study says.

Liu says Wal-Mart pioneered in-store advertising in 1999, launching 100,000 screens in more than 2,650 stores that reach 336 million shoppers every month. It has the fifth-largest reach of any network, trailing only ABC, CBS, NBC and Fox.

Other large retailers have since followed, including Best Buy, Costco, Macy's and Borders. With the surge, Liu said, about a quarter of Americans now go to at least one retailer every week that uses in-store advertising.

"In-store media is more likely to be profitable for retailers who are large and powerful enough to share a significant portion of the revenue with manufacturers through lower rates," he said. "It's not as effective for smaller retailers because start-up costs are high."

The study also found that retailers should discount advertising rates for manufacturers with large, well-known brands, while charging more for lesser-known brands that are still trying to carve a market niche.

"Well-known manufacturers know that customers will buy their product anyway, so they want a discount to advertise in stores," Liu said. "Lesser-known brands have more to gain, so retailers should charge them more."

He says in-store advertising will ultimately impact marketing strategy, providing another option that manufacturers can use to lure buyers.

"In-store media will likely focus on lower-cost brands that people buy frequently," he said. "Commercial media could be a good platform for branding and bigger-ticket items. Some manufacturers might want to do both, branding their product through conventional media, then using in-store media to lure customers as they shop."

Source: University of Illinois at Urbana-Champaign

Explore further: Positive comments on social media found to influence potential voters

Related Stories

YouTube creators looking elsewhere for money

July 23, 2015

When 29-year-old YouTube star Meghan Tonjes launched a podcast with crowd-funding site Patreon a year ago, it was one of dozens of things the singer-songwriter was doing to grind out a living online. Today, it's paying her ...

Wearable fitness devices carry security risks

August 5, 2015

During a 2014 competition among Netflix employees to create potential new features, one group hacked into a Fitbit and created a "Sleep Bookmark" function, automatically pausing Netflix as the wearer started to fall asleep.

Recommended for you

Ancient genome from Africa sequenced for the first time

October 8, 2015

The first ancient human genome from Africa to be sequenced has revealed that a wave of migration back into Africa from Western Eurasia around 3,000 years ago was up to twice as significant as previously thought, and affected ...

Rare braincase provides insight into dinosaur brain

October 8, 2015

Experts have described one of the most complete sauropod dinosaur braincases ever found in Europe. The find could help scientists uncover some of the mysteries of how dinosaur brains operated, including their intellectual ...

How much for that Nobel prize in the window?

October 3, 2015

No need to make peace in the Middle East, resolve one of science's great mysteries or pen a masterpiece: the easiest way to get yourself a Nobel prize may be to buy one.

The dark side of Nobel prizewinning research

October 4, 2015

Think of the Nobel prizes and you think of groundbreaking research bettering mankind, but the awards have also honoured some quite unhumanitarian inventions such as chemical weapons, DDT and lobotomies.


Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.