Despite increased optimism about the economy, the social media landscape indicates that we are in a similar place to where we were this time last year when it comes to spending; buzz about Christmas and holiday shopping is down 3% year-over-year. This activity is in line with other research at Nielsen relative to retail expectations and consumers’ personal finances that indicate modest spending from a cautious consumer base.

However, consumers are still buzzing about the gifts they’ve already purchased or are planning to buy in the coming weeks. Notably, online discussion focuses largely on offline shopping.

While online shopping has been rising over the last few years, we’re also finding that consumers are using the internet to find the best deals at retail outlets, toy stores and more. So what happens online, doesn’t always stay online in the new economy where deal hunting is driving buzz.

As consumers count down the days to the holiday season, we see two key trends emerging:

1. Parents are actively buzzing about the must-haves of the season within online communities
2. Buzz about gift cards is on the rise, largely in response to retailers’ use of gift cards as purchase incentives

Games that buzz
When analyzing the product categories shoppers most frequently discuss online, Nielsen found that kid-friendly video games generated more buzz than even the most buzzed-about toys, largely driven by highly engaged gamers. The November 15 release date for New Super Mario Bros is highly anticipated, catapulting this video game to the head of the pack in terms of buzz. Additional buzz in the gaming world has come from price drop and new model announcements for Playstation 3 and XBOX.

Zhu Zhu the next Tickle Me Elmo?
Buzz supports Toys “R” Us’ “Fabulous 15″ predictions for the 2009 holiday season, with Zhu Zhu Pets, Bakugan Brawlers and Transformers Revenge of the Fallen figurines topping the list of the most frequently buzzed about toys.

Shoppers deem Zhu Zhu Pets the hot toy of the season as parents swap stories of empty shelves and elevated prices at retailers. An emerging Zhu Zhu market has also sprung up on eBay. Strong buzz on LeapFrog’s educational toys are a holdover from the 2008 holiday season; parents are especially interested in the Leapster and Tag Reader product lines this season.

Gift Cards buzz is on the rise, buoyed by incentive programs
A growing proportion of online conversation focuses on gift cards—including gift cards awarded as purchase incentives (15% growth in buzz year-over-year, September 2008 vs. September 09). Amazon.com and Toys “R” Us have experienced the largest year-over-year growth in buzz about gift cards of the retailers and brands measured.

This increased interest in gift cards is largely driven by retailers bundling gift cards with purchase incentives. Gift card bundles essentially provide shoppers with two sets of gifts: the original purchase and the gift card which can either be given as a gift or used to buy more holiday presents. These incentives tend to generate a sizable amount of discussion online—especially when tied to the gaming category. For example, Amazon.com recently coupled a price break on Wii with a $25 gift card, generating a surge in online conversation about Amazon.

Retailers who do not currently use gift cards to encourage purchases may want to consider taking advantage of this growing opportunity during the holiday season.

Related: Watch Nielsen’s Ken Cassar Discuss Online Holiday Sales CNBC

Recently, a client and I were discussing online advertising metrics, with topics ranging from engagement to awareness to intent, and of course, Return on Investment. It wasn’t until after the meeting when it struck me that not once did click through rates enter into the conversation. My hope is that this, and other similar conversations, is a signal that the online ad world is moving beyond its longtime fascination with the click through — the low-hanging (and sometimes over-ripe) fruit of online ad metrics.

Toward the goal of helping the industry move beyond the click through myopia that had historically characterized online ad measurement, I pulled together some analysis that is pretty interesting.

At Nielsen, we’ve done extensive work, particularly in the consumer packaged goods and retail industries, to help advertisers quantify the effect that online display advertising has on offline purchases. The results are quite positive. Looking at more than 300 campaigns over a span of about 5 years, using the basic formula below, we find the average ROI is a positive 157 percent.

What’s the bottom line for those watching their bottom line? Display advertising — particularly targeted advertising — works.

OK, But What About Those Clicks?
In an effort to measure the relationship between click through rates and ROI, we ran an analysis across 200 of those campaigns. The table below summarizes our findings. On the X-axis we’ve plotted ROI percent percent and on the Y- axis we’ve plotted click through rate.

If there were a relationship between the two metrics, we’d expect to see a grouping of red dots with an up/rightward inclination (the more clicks, the better the ROI). Instead, what we see is something more like a blob or a swarm. For you quantitative thinkers, the correlation between the two metrics is a negative .07, meaning that there is no relationship whatsoever between the two metrics. More to the point: across the campaigns measured, click through rate was in no way predictive of a campaigns’ overall effectiveness.

Beyond the obvious finding that advertisers should not be overly focused on click through rates, the big idea here is that advertisers should be including online display advertising in their overall marketing mix, increasingly taking advantage of flash/video ad units to reach the consumer, without the hope that the person exposed to the ad will be one of the few that actually click on ads.

Does this mean that display advertising works as well as it could? No, it does not. The online advertising medium is still immature. Great Don Draper-like story- tellers have not yet had their Kodak Carousel moments. While metrics don’t make great creative, in the long run, a focus on the right metrics will ensure that the creative that we consider great creative actually makes money for advertisers.

“Click through” to the comments to add your thoughts.

I was very interested to hear the news yesterday that Amazon had acquired Zappos for $847 million in cash and stock. Since Zappos founder Tony Hsieh asked and answered some of his own questions about the deal in a letter to employees so I thought it’d be useful to engage in a Q&A with myself about the deal.

1. Why did Amazon buy Zappos?
A: Two numbers answer that succinctly: About 5 percent of Amazon’s sales are apparel/footwear sales, compared with 97 percent of Zappos’ sales (according to June 2009 data from our retail tracking service). Simply put, Amazon has not dominated apparel sales as it has most other categories online. While Zappos isn’t biggest seller of apparel/footwear on the Web, it is the largest of Internet pure play retailers. More importantly, Zappos has developed a reputation for customer service (Amazon’s priority one according to founder Jeff Bezos) that will only improve Amazon’s already strong standing amongst online shoppers. More than 1 million people follow Zappos on Twitter (a cornerstone of their customer service), far beyond any Twitter account managed by Amazon.

2: Did Amazon pay too much?
A: I’m not a financial analyst, but the online apparel category is the largest online merchandise category, expected to grow to $41.8 by 2012. For Amazon not be a formidable player in this space is nearly unthinkable for the company that sees itself as the World’s Biggest Store. Amazon has tried to answer Zappos with the launch of shoe and handbag site Endless.com, but was never able to materially chip away at Zappos’ dominant position. Endless.com registered about one fourth the traffic that Zappos did in June 2009.

3: Why didn’t a company like Wal-Mart or Target buy Zappos?
A: Wow, another great question, Ken! I’m sure that this notion was entertained by the big brick-and-mortar retailers, but the reality is that companies like Wal-Mart and Target have their best online opportunities run through their stores. The fact that they have thousands of stores throughout the country is a huge asset to their online businesses that a big pure play purchase such as Zappos might be distracting to their longer term success. I do wonder, though, if Amazon’s decision to buy Zappos could have been at least partly driven by a fear that this might happen.

4: Beyond merchandise sales, how do Amazon and Zappos fit together?
A: Amazon and Zappos have relatively similar customer bases, although Amazons’ is substantially larger (60M uniques per month vs. 4.1M uniques for Zappos in June 2009). Zappos’ customer base does skew a bit more female (69% compared with Amazon’s 55%) and a little younger, largely a function of the merchandise offered by Zappos. The most telling statistic is that in June of 2009, 77 percent of Zappos shoppers also shopped at Amazon.

5: Amazon has said that it will run Zappos as a separate brand. Is this smart? What do you think that Amazon should do in the longer term?
A: Zappos elicits more passion from its customers than any other brand that I can think of, online or offline, something my colleague Pete Blackshaw has documented for some time. Amazon would have been insane to scuttle the brand. In the long run, it becomes more interesting. I think that Amazon will benefit from the Zappos halo, and vice versa. Amazon can learn from Zappos’ innovation around customer service and marketing. Zappos can learn from Amazon’s technology and database marketing. In five years, I’d say that it’s even money that Amazon looks more like Zappos than the other way around. As to how they brand it, I’m not willing to lay odds either way.

For our March 11 webinar, “Retail Recession Realities,” I’ll be recommending coping strategies for retailers dealing with the ongoing economic crisis. The news has gone from bad to worse in the past six months, but there are approaches retailers can take to survive the lean times and even come out ahead when (dare I say it?) the economy recovers.

The Web offers opportunities for growth like no other channel. Quick case in point – readership of traditional offline newspapers has declined significantly of late, and with it, the consumption of newspaper circulars. Meanwhile, visitors to online coupon sites increased 42 percent from December 2007 to December 2008. And while an increase in visitors usually leads to a decrease in average time per person, in this case time spent is also up by 28 percent year-over-year, indicating that visitors are more thoroughly engaged.

Learn more and register for the webinar at Nielsen Online.

I’ve been preparing for our upcoming Webinar on Retail Coping Strategies, where we will provide constructive advice to retailers on how they can best cope with the challenging retail environment that we’re in. This has led me to think about companies that are holding up well through the recession.

There are three companies that I’m particularly interested in: Walmart, Amazon, and Hyundai. Walmart’s US sales grew by 6.7 percent, profits by 11 percent in the fourth quarter of 2008. Amazon just announced that Q4 2008 sales were up 19 percent relative to the same quarter in 2007, with profits (yes, profits) higher than expected. While sales at competitors fell by as much as 55 percent in January, Hyundai’s US sales grew by 14 percent. There are two things that these three companies have in common:

• They are all brands that are closely associated with value.
• They all offer selling propositions that allay consumers’ non-price related perceptions of risk.

My working hypothesis is that what consumers are looking for, above all else in this economy, is alleviation of risk. I should be clear that a critical component of this alleviation of risk is reduction of household debt, which is causing consumers to hold off on purchases and seek lower prices. But I think that it’s bigger than that alone. When consumers are buying, they’re looking for sellers that offer a risk-free proposition.

Walmart, as the largest retailer in the world, carries with it a high degree of comfort. You don’t worry about whether you’ll have problems returning the digital camera bought at Walmart. They’re too big to sweat it. You don’t worry whether orders placed with Amazon will arrive in the expected timeframe. Hyundai’s comprehensive warranty and buyback programs mitigate the risks that you will be saddled with unexpected repairs, or with a lease payment that you can’t afford if you lose your job.

The thing that really impressed me about the financial results returned by Walmart and Amazon (I wasn’t able to find Hyundai financial data) for the 4^th quarter is that both companies, in the most difficult economic circumstances that I’ve ever seen, grew both sales and profits.

The lesson that every brand should take away from this is not to be myopically focused on low prices. Low prices are important, but must be considered in the broader context of consumer risk management. Brands should be asking themselves how they can help consumers alleviate a broad portfolio of risks that they’re feeling, not just the need to pay less for each purchase that they’re making.

Join me on March 11th for the Webinar to discuss this idea in more detail.

A lot of folks have seen the Black Friday and Cyber Monday releases that we’ve put out, but we’ve also been tracking Web traffic on a daily basis – in total, by category, and by retailer since the Monday before Thanksgiving. Let me share a little bit more data:

Traffic was up by 10 percent on both of the high profile days, where consumers expected that they would be able to find deals. This is certainly better than some might have feared given the state of the economy. When we look at the other days of the week, however, the story is a bit more mixed. Traffic was down a bit on the Saturday and Sunday following Thanksgiving, was down three percent the Tuesday following Cyber Monday, and was up five percent the following Wednesday (December 3rd). If we took a simple average of the year over year growth rates for the Monday before Thanksgiving through Wednesday, December 3rd, the average daily growth rate, relative to 2007 is four percent.

Where it gets interesting, in case you’re not sitting on the edges of your seats already, is when we dig in by category. The chart below looks at average daily growth, by category.

As you can see, category Web traffic is all over the place. Beauty, Computer Hardware/Software, Books/Music/Video, General Retail (companies like Wal-Mart.com, Amazon, eBay, etc…) and Apparel are all up, while Toys/Videogames, Comparison Shopping, Jewelry, Flowers & Gifts, and Consumer Electronics are down. It is important to note that this is a retailer-based classification, not a product based classification, so book traffic to Amazon falls under ‘general retail’ rather than under ‘books/music/video’.

The early prediction: My instinct is that we will see online sales growth this holiday season, but it will be modest. If I were forced to hazard a guess, it would probably be in the low single digits (2-4 percent) relative to last year. I fear that because traffic is up on ‘promotional days,’ it might be an indication of a poor margin holiday season. The next week and a half are going to be important, but the push by retailers between December 15 and 17th is going to be key. Those are the days that will likely be the biggest of the year, despite the fact that there’s no catchy name.

Retailers might want to think about a catchy name.

Unique visitors to the sites included in the Index reached 35.9 million, a 13% increase over this year’s Black Friday Web traffic.

Many of the top online retail destinations on Cyber Monday were the same as those on Black Friday. eBay drew the largest unique audience (10.6 million), while Amazon and Wal-Mart claimed second and third places, with 9 million and 5.2 million unique visitors, respectively.

Among the top 10 online retailers, Sears’ site saw the fastest growth (+58%, year over year).

Beauty was the fastest growing product category on Monday, increasing 151% over the previous Monday, November 24, 2008.

Toys/Videogames ranked second, growing 112% Monday over Monday, while Apparel rounded out the top three with an increase of 58%.

“The growth in traffic to online retail sites on Cyber Monday was better than many people expected, making retailers hopeful that this growth will carry through the holiday shopping season and drive sales,” Ken Cassar, vice president, industry insights, Nielsen Online, noted.  “It remains to be seen if people have done the majority of their shopping on these two big shopping days to save time, or if they are holding out for additional sales and promotions. If history is any indication, we expect that Monday, Dec. 15th will be the peak day for online shopping traffic.”

View the full press release.

Read coverage of Nielsen’s findings by the Associated Press and Bloomberg, as well as in The Wall Street Journal, the Financial Times, Investor’s Business Daily, Ad Age, PC World, the Orlando Sentinel, ClickZ.com, and InternetRetailer.com.

I found myself at our client meetings last week in San Francisco, Seattle and LA, repeatedly making the point that CPGs had been increasing their online ad spend. This was based upon conversations that I’d been having with folks in the CPG space and the intense interest that we’ve been seeing lately from CPGs in online advertising. As I had a few spare minutes today, I checked AdRelevance to make sure that I was right about this. I was relieved to see that online ad impressions among Food and Drug and Personal Care categories had indeed increased by 32 percent over the past 12 months (Oct 06 – Sep 07 compared with Oct 07 – Sep 08). Interestingly, there is a big difference in the growth between the two big subcategories within CPG. In the most recent 12 months, impressions did not grow relative to the same period in the previous 12 months in the food and beverage category. In personal care, on the other hand, impressions grew by 87 percent.

What happened? Well, when we dig into the data, we see that it’s mostly a story about a few big advertisers significantly curtailing their online ad budgets with many others showing modest increases. During the two periods that we measured, Coca Cola’s ad impressions dropped from 276 million impressions to 50 million. Miller Brewing’s impressions dropped from 184 million to 52 million. On the personal care side, though, we saw the big advertisers generally keeping their impressions up.

Is this about personal care, or about food and beverage? I don’t think so. I think that it’s mostly about the immaturity of the media in tough economic times. As one big advertiser pulls back, we’ll see many others plodding along with modest increases in the online ad budgets, reflecting even greater increases in the allocation of ad dollars to the Internet. Given the tough economic climate that many advertisers are going to be operating in, I think that this is the story that we’re going to be seeing for another year or two. Some big advertisers will scale back significantly, a rare advertiser will dramatically shift dollars to the Web, and many others will continue to execute a modest shift of dollars from traditional vehicles to Internet.