New york During its annual network marketing summit at its headquarters in Bentonville, Ark. last week, Wal-Mart revealed that, over the next 12 to 14 months, it will completely overhaul what is already the country's largest in-store advertising network to make it more nimble, more targeted, and even less easy to avoid.
Until now, most of Wal-Mart's ads appeared in a single loop that ran throughout the stores, meaning all shoppers saw the same ads at the same time, regardless of where they were. But the new system will enable the distribution of ads tailored not just to each deparment, but individual aisles throughout the roughly 1,200 stores and 100,000 TV screens. The new, more segmented approach allows the network, operated by Premiere Retail Networks, to sell more ads and promote products within arm's reach of every shopper.
"The store is our number one media channel," Wal-Mart CMO John Fleming told the assembled group. "The network of the future will allow us to take full advantage of it," he said, commenting on the planned changes.
The enhanced targetability will be achieved by shifting the network from a traditional broadcast satellite TV platform to Internet Protocol Television (IPTV), company officials said. The rollout will be phased in over 2007 and completed by early 2008.
The decision to proceed with the revamp followed a 20-store test this summer (dubbed Project Mustang) where 10 stores used the new targeted IPTV ads to promote certain products and 10 stores used the existing network. Product sales in the IPTV-equipped stores were at least 10 percent higher, said Michael Quinn, svp, marketing and research at PRN.
For Pfizer, which tested a new pre-brush oral rinse, the sales results using the new ad model were close to double the 10-store control group, said Kaki Hinton, vp, advertising, Pfizer Consumer Health Care. "The fact that your executions will air only in the aisle where your product is sold makes all the sense in the world," she said. "It's relevant, targeted and eliminates waste."
Wal-Mart also disclosed several other changes to the more than 400 marketers and media buyers gathered to hear the company discuss its upcoming in-store promotion initiatives. In-store monitors are being replaced with flat-screen panels, which will be at eye level in aisles and other key locations, instead of hanging several feet overhead. Testing shows that awareness levels for ads are "significantly higher" when screens are at eye level, said Mike Hiatt, director of internal media networks at Wal-Mart.
In addition, so-called "endcap" displaysstand-alone exhibits at the end of aisles that are considered prime in-store real estate—will, for the first time, contain video displays. Advertisers that buy endcaps will also be encouraged to buy ads on Wal-Mart TV. Some sources at the meeting came away with the impression it would be required, but Hiatt said that wasn't the case. "Endcap advertisers will need to be the right partner for a variety of reasons. And though it most definitely will not hurt their cause if they are also department TV advertisers, we will not set a hard rule" mandating it, he said.
Hiatt confirmed that the reconfigured network would result in shorter ad flights and higher prices on a cost-per-thousand basis. "Cycles will also be shortened due to the higher frequency of the message," he said. "We want to mitigate message fatigue as much as possible."
The company claims that 84 percent of Americans shop at Wal-Mart and approximately 130,000 million do so each week.
Reaction from media shops was generally favorable, although sources said some advertisers might have concerns about the smaller number of overall impressions they receive with the switch from store-wide ads. Hiatt's response: "The conflict between our goals and the gross-impression model is that [the latter] is based on interrupting as many people as possible. We are trying to enhance the shopping experience, not interrupt it. I ask those advertisers to start thinking about context and relevancy."
If endcap display sponsors have to shell out extra for the TV network, "that could put a strain on the budgets of some advertisers," said Connie Garrido, founder and director of the WOW Factory, a specialist media unit of WPP's MindShare. That said, Garrido also believes Wal-Mart will succeed with the strategy because clients view endcaps as must-have displays. And overall, she said, the more targeted ads are, the better. "Everything is becoming more targeted and that's good for advertisers because consumers are getting messages when they want to see them," she said.
The company wouldn't disclose annual ad sales for the network, but sources placed it close to $100 million. Nationwide, ad volume for in-store TV networks is projected to grow to $1 billion by 2008, by some industry estimates, a small fraction of the roughly $66 billion in projected TV spending for 2006. Forester Research estimates that 90 percent of retail outlets will have in-store media by 2011.
Wal-Mart executives see an opportunity to grab a bigger share of traditional TV dollars as more marketers increase their in-store ad budgets. "With the continued trend of media fragmentation and the growth of DVRs, we believe that many dollars which have historically gone to TV buys will end up in the in-store media space," said Hiatt.