Retail advertising can be divided into local and national advertising. Local merchants who own a single location in a single market or trade area engage in local retail advertising, using local media to reach customers living and working near their establishments. Retail companies that have expanded their store operations to multiple markets across the country engage in national retail advertising. These multistore retailers use broad-reaching national or international media to efficiently communicate with their customers.
Retail advertising is distinct from and can be contrasted with national brand advertising based on its appeal. The retail advertiser focuses on bringing customers into the store for their shopping needs, while the message appeal of brand advertisers attempts to build demand for a specific brand that may be available at a number of retail outlets.
Another characteristic that makes retail advertising unique is immediacy. Unlike national brand advertising, which typically is designed to increase awareness and general interest for a brand or product over time, retail advertising is meant to drive store traffic and increase sales immediately.
Products advertised in retail ads are intended to be purchased that day. Sales results can be seen at the cash register within hours after the advertising hits the media, and effectiveness can be evaluated within days rather than the weeks or months that national brand advertisers must wait.
The advertising management structure for retailers is as varied as the stores and the products they carry. Small-store owners typically handle the advertising function themselves. Local media and the manufacturers of products to be advertised frequently assist a store owner in creating and placing advertising. Local newspaper and radio stations may create layouts or write spots based on information provided by the store owner. Pre-made ads may be provided and partially paid for by the manufacturer, requiring only the addition of the store name and address.
Larger chain stores typically coordinate their advertising through an advertising department made up of ad professionals who work for the retailer. The ad department of a large chain may be organized according to a centralized or decentralized advertising management system.
A centralized system operates with one corporate ad department, usually located at the company's headquarters. The decentralized ad management system allows for an ad department covering a region of the total marketing area or, in some cases, in each store location. Because a decentralized system has flexibility as far as items advertised and is physically close to store management and customers, it often can be more effective.
Small and intermediate retail organizations often do not use the services of outside advertising agencies but instead utilize in-house advertising agencies. In-house agencies not only create advertising but also place media directly on behalf of a retailer. In-house agencies sometimes handle large budgets and operate separately in order to obtain agency discounts from the media on national buys. (Local buys are usually not subject to agency commissions and so discounts do no apply.)
Large chain retailers?such as Sears, Roebuck & Co. and Wal-Mart Stores?often use both an in-house ad department and an outside, full-service agency. The in-house unit handles overall ad budgeting and planning, while the outside advertising shop handles the overall ad campaign and brand image; produces national advertising, particularly TV spots; places national media buys; assists in research and strategic planning; and provides specialized creative services.
The advertising message
There are generally two types of retail advertising messages: promotional and institutional. The promotional ad message features a particular product or group of products at a special or discounted price. Promotional advertising can be readily measured by analyzing overall store customer counts, product movement, discounts taken and overall sales. Because the effects of promotional advertising can be seen immediately, the retailer tends to depend heavily and sometimes exclusively on that type of advertising.
Institutional advertising is designed to create a positive brand image for the store. Institutional ads do not focus on particular products and prices, but instead attempt to position the store in the minds of consumers and leave a favorable impression.
In today's retailing environment, most stores favor promotional ads for their ability to create measurable sales spikes in the short term. Some retailers try to compromise, using national media such as network TV or national consumer magazines to run institutional advertising and local media such as newspapers or radio for promotional advertising. Another compromise strategy is the creation of ads that serve both purposes, such as an image-building institutional commercial tagged with a featured sale item and price.
Retail advertising budgets
Although many retailers are small local operations, retail advertising is big business. Research shows that on average retailers spend 3% of net sales on advertising. Most retailers forecast sales at the beginning of the year and from that forecast derive an ad budget. As a retailer adds more locations in a market, the percentage spent on advertising may decrease because media efficiency is realized by adding retail locations to a single media market.
The cost of advertising a single location in a market in most media is the same as the cost of advertising several locations. In other words, a local TV spot costs the same regardless of the number of retail outlets in that market. As the number of store locations increases and advertising costs remain relatively constant, the percent of sales spent on advertising decreases. As a result, most large chain stores spend much less than 3% of sales on advertising.
The advertising efficiency realized by multiple store locations in a single media market, among other factors, makes franchise ownership attractive to retailers. Franchise chains are groups of retail locations that carry the same name, store design, product lines, trade practices and advertising message but are owned individually by franchisees.
Many retail chains are franchised, including fast-food restaurants, auto parts stores, quick copy and printing shops, quick-lube service centers, postal and mailbox service stores and motels. Franchise ownership of specialty clothing, department stores and discount or mass merchandise chains is less common. Franchisees pay into an advertising fund managed by the franchisor with input from an advertising committee comprised of franchisees.
By pooling their advertising funds, franchise owners can take advantage of economies of scale in ad production and media buys. It is, for example, much less expensive for a franchise retail chain to buy network TV than to buy individual TV spots in the more than 200 TV markets across the country.
Many retailers also include cooperative advertising funds as part of their budgets. Cooperative advertising is the sharing of advertising costs by a retailer and a manufacturer. Manufacturers provide "co-op" ad money to retailers that carry their brands. The ads typically feature the manufacturer's brand along with the retail store name and location.
Retail ad media
Most retail advertising spending comes from owners of small shops in hundreds of communities. It is because of retail advertising that newspapers remain the leading medium in terms of advertising revenues (in 2001, newspapers drew the most ad dollars at $20.7 billion, followed by network TV at $18.6 billion).
Newspapers provide retail advertisers a geographically targeted, immediate, flexible vehicle in which to promote their merchandise. Newspapers allow for the timely promotions and quick changes in ad copy essential to the retail advertiser. Because a newspaper is a medium with which customers spend time and keep as a reference, it's the ideal place for retailers to feature ads containing a variety of items, prices and details.
Radio, like newspaper advertising, is geographically targeted, has short lead times and is extremely adaptable to changing copy needs. In addition, radio spots are often heard when customers are already in their cars or out shopping and can prompt them to visit a certain store almost immediately.
Another medium frequently used by retailers is outdoor advertising. Outdoor billboards and posters often feature unique or specialty items and direct customers to specific locations. Outdoor is particularly useful in providing directions for motorists who may be speeding by retail locations on highways and expressways.
TV advertising is used primarily by large chain stores because of its cost and broad geographic reach. Retailers such as Wal-Mart, Sears, Kmart, Home Depot and Best Buy are major TV advertisers. Sears is estimated to have spent $419 million in TV advertising in 2002, and Wal-Mart, $352 million. Fast-food restaurants rely almost exclusively on TV to reach a large, geographically dispersed, active, young audience with simple messages about their food products.
Point-of-purchase material is widely used in retail promotion. This category includes posters, counter cards, product displays, window banners, danglers, register toppers, shelf talkers, menu-board posters, illuminated displays, neon signs and any other visual item that promotes products at the retailer's location. POP is an in-store reinforcement of the ad message appearing in the mass media, and has been shown to increase sales of specific items 400% over broadcast advertising for those items.
The Internet is growing in importance for most retailers, both as a sales channel and as a branding vehicle. Most retailers now have online stores and some, such as Circuit City, allow online shoppers to pick up their purchases at the local store, rather than incur shipping charges.