Filed under: Google (GOOG), Time Warner (TWX), Marketing and advertising, New York Times’A’ (NYT)

Display ads are hurting while online search ads remain strong, the New York Times reports today. Specifically, PubMatic, an advertising-technology company in Palo Alto, CA that runs an online-pricing index, found the prices paid for on the internet ads purchased through ad networks dropped 23% from March to April 2008.

This drop in pricing has injured some companies’ results:

• Time Warner Inc. (NYSE: TWX)’s AOL, parent of BloggingStocks, saw an 18% decline in display advertising revenue to $191 million.
• The New York Times‘ (NYSE: NYT) World wide web ad revenues increased 16%; a year earlier, though, they increased 20%.
• WebMD Health (NASDAQ: WBMD) revised down its 2008 revenue guidance to a range of $380 million to $395 million, from a range of $395 million to $415 million thanks to lower expected ad revenues.

The good news? Surprise! — Google Inc. (NASDAQ: GOOG). In the most recent quarter, Google had a profit of $1.31 billion on revenues of $5.19 billion. Its United States revenue was up 30%. The reason is that display ads don’t offer a tangible payoff to advertisers whereas search ads do.

Advertisers are simply trying to maximize their returns on the advertising investment (ROAI). If someone comes along and offers a higher ROAI than Google, advertisers will switch to that provider. Meanwhile, those stuck with display advertising will suffer at Google’s hands.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

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Filed under: Marketing and advertising, Coach Inc (COH), Gap Inc (GPS), Liz Claiborne (LIZ)

Shares of companies like Coach (NYSE: COH) were flying high when more people than ever were flocking to waste their money on stuff they couldn’t afford.

Right at the top of the market, predictably, all the lower-end retailers thought they’d get into the act. Gap (NYSE: GPS)’s Banana Republic introduced a high-end line, and so did Coldwater Creek (NASDAQ: CWTR), Cache (NASDAQ: CACH) and AnnTaylor (NYSE: ANN). According to the Wall Street Journal (subscription required), the economic downturn gave the companies a strong rebuke. Cache is closing some of its Cache Luxe stores and Coldwater Creek is giving up on its high-end aspirations.

But I don’t think it’s the economic downturn that doomed these product launches. Luxury clothing is in a tough spot, but it’s certainly fared a lot superior than upper-middle market companies like Liz Claiborne (NYSE: LIZ) and Coldwater Creek. Rather, I think companies are using a pretty familiar tactic: blame failed strategies on the economy and minimize the impact of tactical errors made by seven-figure executives.

Here’s why the strategy failed: taking a brand and raising the quality/price-point is extremely difficult. The reverse is easy, but trying to convince people to pay Coach-like prices for Banana Republic clothing — even if it’s of similar quality — is a strategy that’s destined to fail. Banana Republic has established itself at a certain price point and while people would be thrilled to get the brand at a lower price, most people willing to pay more will want a bona fide luxury label.

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