Marketing Technology: Coming to a TV Set Near You

For the nation’s more than 100 million TV-viewing households, interactive television (iTV) may mean ordering pizza, instantly accessing a digital video version of Dr. No through video on demand (VoD), and voting online for the best Bond girl, all by remote control. For direct marketers — particularly consumer catalogers — the possibilities of iTV are no less promising. • While the number of U.S. digital-cable subscribers was 7.7 million in 2000, research firm The Yankee Group expects that figure to reach 27 million by 2005. And while The Yankee Group estimates that only 1.4 million U.S. households had iTV last year, it forecasts that 24 million households will in 2004. Meanwhile, approximately 10 million people worldwide currently use iTV.

The expansion of high-speed broadband networks — projected to reach nearly 50 million households by 2005, according to Forrester Research — will propel the maturation of this fledgling technology. At the same time, targeted iTV advertising and television-based shopping (t-commerce) — based on each user’s unique profile and preferences — will emerge as critical extensions of traditional catalog marketing tactics.

Indeed, U.S. t-commerce is currently nominal: an estimated $300 million in sales last year, according to Forrester. But by 2004, Forrester predicts it will explode into a $5.7 billion industry.

Driving the changes

Interactive television bears two defining characteristics that could prove potent for next-generation catalogers: two-way communication, and addressability — the unique digital identifier that marks every iTV-enabled set-top box and is used together viewer preferences.

The most significant driver of iTV direct marketing will be increasing public broadband access via upgraded cable networks and direct satellite services. Consumers can obtain residential broadband access in three ways: cable modem, DSL (digital subscriber line), and DBS (digital broadcast satellite). Of these options, cable is widely acknowledged as the most popular choice among residential consumers.

In the traditional television model, a network simultaneously transmits the same body of content “downstream,” or one way, to many viewers. Customers typically respond to TV ads by visiting the store or calling to order a product or request a catalog. In contrast, iTV technologies, including picture-in-picture Web surfing, multiplayer gaming, and t-commerce applications, allow subscribers to tailor their programming and its presentation to their own preferences and profile.

Providers of user-level applications and catalog marketers will converge in the fulfillment of these objectives: development of iTV user profiles, offer delivery, and refinement of targeted advertising, and t-commerce.

Sharpening the target

With addressability, a digital identifier (similar to an IP address of a computer, which makes it possible to track the Websites a user has visited) uniquely tags each iTV household, registering each remote-control click as a viewer navigates interactive content or makes an onscreen purchase. The viewer cannot disable this digital identifier, and once user-viewing preferences are captured, the sum of this click-stream data outlines a unique profile of each iTV subscriber. Marketers can then use this information to target a consumer according to his buying preferences.

For example, a profile of a given iTV subscriber, made up of compiled click-stream data, might say, “iTV subscriber number 2350 visited the Acme Snacks Website 20 times last month while watching pro football.” Acme Snacks could then customize a relevant promotion for that subscriber, one that differs from the promotion created for subscriber number 2351, who visited its Website just twice and very late at night.

Such precise information about individual viewers, rather than sample data extrapolated from panel households (such as that gathered by television research giant A.C. Nielsen), will permit catalogers to tailor precision offers to highly targeted households, via either iTV or traditional direct marketing efforts.

Through set-top box addressability, providers of digital ad insertion and assessment technologies can compile general profiles based on demographic data or specific household profiles compiled from addressable digital data. Following the encryption and storage of sensitive personal information, including name, address, e-mail address, or credit-card numbers (undoubtedly gathered with some kind of notice to the consumer), these companies can collaborate with advertisers, using the profiles to refine the content and presentation of their interactive campaigns.

This will foster higher consumer response rates and, if iTV is the order channel, a complete and closed response analysis loop. By compiling and leveraging databases of addressable viewer information in combination with their house files and circulation data, catalogers using iTV will eventually be able to deliver different targeted messages to neighbors watching the same program.

Currently, iTV content producer Wink is collaborating with large national advertisers such as Coca-Cola to add limited elements of interactivity. Viewers with systems that are not Wink-enabled would not see the interactivity, while viewers with iTV may see icons, such as a pop-up window that they can click on to receive a free offer or buy a product. With iTV, a small percentage of any potential sale would go to the cable operator. (But so, far interactive advertisements have offered only free samples.)

ITV technologies that will be instrumental for the responsible aggregation of user data include VoD, interactive program guides (IPGs), and those that allow users to e-mail, chat, and surf the Internet through the television. Naturally, this phenomenon has numerous privacy implications, which remain to be seen as iTV is rolled out to a larger number of viewers.

Immediate gratification

Interactive addressability enables iTV viewers to instantly respond to offerings by remote control. The rapid, virtually effortless nature of this response channel will increase viewer propensity for impulse buying while providing multichannel marketers with the viewer feedback to assess and refine their interactive advertising campaigns with a novel degree of responsiveness.

Already, direct-response television shopping on channels such as QVC, Home Shopping Network, and ValueVision, as well as via infomercials, represent a familiar form of television-based commerce. T-commerce enablers include Canal+ Technologies, RespondTV, and Wink Communications, companies that can take a regular television commercial and work with the advertiser to enhance it with elements of interactivity that can be seen by iTV viewers.

To position themselves in the iTV industry, catalogers should begin to embrace iTV as a component of their multichannel marketing programs. Well-capitalized catalogers that already use broadcast marketing and e-commerce channels should explore partnerships with iTV content producers and t-commerce enablers. For instance, Wink is now collaborating with Lands’ End.

The shopping landscape is poised for change once again. Just as the Internet took the direct marketing world by storm just a few years ago, iTV will soon be a dominant force in the landscape.

Pinki Mishra is a research analyst at Winterberry Group, a direct marketing industry research and consulting company based in New York.

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