CPG starts Thinking Outside the Box.

Virtual shelves, real customers.

After decades of relying on television and print advertising, US consumer packaged goods (CPG) marketers are finally moving a larger proportion of their marketing budgets online.

This year, eMarketer projects that CPG companies will spend $920 million on all forms of Internet advertising, up 33% over 2006.

By 2011, CPG advertising online will hit $1.8 billion, for a compound annual growth rate of 20.9%.

“Although the increases are impressive, they have been years in the making,” says Lisa Phillips, eMarketer Senior Analyst and author of the new report CPG Online: Health & Beauty Go Interactive. “Of course, consumer behavior is the driving force behind the spending changes.”

Consumers are going online to search for and research CPG products and then discussing them on blogs and social networks.

“But consumers are not just browsing for promotional offers and coupons,” Ms. Phillips adds. “They are buying CPG products online.”

To take the health and beauty category as an example, Forrester Research expects online sales of health and beauty products to reach 14% of total revenues in 2010, versus 5.6% in 2006.

“The CPG industry as a whole is suddenly bullish on the Internet,” Ms. Phillips says.

In the first half of 2007, eMarketer estimates Internet advertising by CPG companies grew 39.5% to $430 million, compared with just $310 million in the same period in 2006.

That follows a year in which CPG Internet advertising shot up 117%, to $700 million—far higher than the $470 million eMarketer had predicted.

“Media-channel spending shifts in CPG mirror the changes taking place in many other industries,” Mr. Phillips says. “Automotive, financial services and pharmaceutical advertisers are all cutting ad budgets for traditional channels in favor of digital communications with consumers.”

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