New in-store digital ads are using the latest technology to target messages to individual buyers, boosting sales and even helping to manage inventory.

When you order a morning coffee at a cafe owned by Israel-based Aroma Espresso Bars, an image of a croissant may suddenly appear on a digital display next to the cash register. Stop by for a sandwich or salad later in the day, and the display could flash a picture of a suggested beverage.

Aroma Espresso says sales of desserts and beverages featured on the screens have increased as much as 68% in outlets where it has installed the display systems, starting about a year ago. The company has about 100 cafe's in Israel, the U.S., Canada, and Romania. Besides boosting sales, the system aids inventory control—for example, by encouraging customers to buy Danish sweet rolls when muffins are running low.

Welcome to the future of point-of-sale retailing. In-store digital ad displays have been around for a few years already. But stores and restaurants are now starting to use the technology for real-time promotions, instantly tailoring their sales pitches to match individual customers' selections or variations in product availability.
Scanning Shoppers

Some retailers are starting to experiment with even more advanced tools. Merchants can now, for instance, install tiny cameras that scan shoppers' faces to determine their sex, race, and approximate age, and then flash appropriately targeted ads. YCD Multimedia, an Israeli company that sells digital-display systems, is already integrating such technology in some of its systems and is discreetly testing them in some U.S. retail outlets, though it won't say where.

In-store digital displays are set to become "the most effective media channel" for advertisers, mirroring the success of targeted online ads, predicts YCD Chief Executive Barry Salzman, a former president of DoubleClick's global media business.

These new capabilities are attracting not only retailers, but also consumer-goods makers seeking more bang for their marketing buck. Spending on in-store digital ads will grow as much as eightfold over the next four to five years, to $3.5 billion annually in the U.S. and $600 million in Britain, predicts Foluso Laguda, a senior consultant at Frost & Sullivan.

It's no secret why: Even as major TV networks and other traditional media outlets suffer a decline in audience share, the retail business is consolidating, with more and more people shopping in big chain stores. Some 140 million Americans shop at a Wal-Mart (WMT) store each week, compared with the average 23 million who watch American Idol or the 80 million who tune into the Super Bowl once a year.
Buying Decisions

"All of my clients are looking at what digital in-store advertising means to them and how it can affect the brand relationship with consumers," says John Paulson, the New York-based president of G2 Interactive, a digital marketing arm of ad giant WPP Group (WPPGY), whose clients include Coca-Cola (KO), Heineken (HEIN.AS), Kodak (EK), Kraft (KFT), Pfizer (PFE), and Procter & Gamble (PG). "It is certainly on everybody's agenda."

Moreover, marketing experts say it's more effective to target customers inside stores than in their living rooms. "Some 70% of [purchase] decisions are made in-store. You can have a huge impact," says Peter Hoyt, executive director and founder of the In-Store Marketing Institute, an industry association based in Skokie, Ill.

YCD Multimedia, whose clients include Aroma Espresso Bars, British fast-food chain Wimpy's, and European clothing retailer New Look, is among several companies supplying technology for in-store digital ads. Another is the Salt Lake City-based In-Store Broadcasting Network, which counts Kroger (KR) grocery stores and the Duane Reade drug store chain among its clients.

The first in-store digital ads, introduced about four years ago, were sometimes ineffective. But advertisers are getting better at grabbing shoppers' attention. For example, they're now making shorter ads, after discovering that most people stopped watching anything that ran longer than about 7 seconds. They're also targeting locations where shoppers are more likely to pay attention. New Look, for instance, has put digital-ad screens in the waiting areas outside dressing rooms at some of its stores in Britain and France.

As advertisers get savvier at using this new technology, they may give a whole new meaning to the term impulse buying.

by Jennifer L. Schenker