Last summer, entrepreneur Scott Jordan was surprised by the advertisements that greeted him all across the Internet. Suddenly, every website he visited seemed to carry an advertisement for Bonobos, an online retailer of men's clothing. "I was perplexed -- and impressed," says Jordan. "I thought that they must have a gigantic ad budget." Jordan contacted Bonobos CEO Andy Dunn, whom he had previously met, and asked about the ads. As it turned out, Bonobos did not have a massive ad budget. Instead, Bonobos was using a behavioral advertising technique called retargeting.

The technology, which isn't entirely new, is designed to bring back customers who visited your company's website but left without completing a purchase. It works like this: When someone visits your site, a small piece of data called a cookie is automatically downloaded to the visitor's Web browser. That cookie prompts online advertising networks to display ads for your company whenever the person visits one of the millions of ad-supported websites. The technology is not without controversy -- privacy advocates have railed against the use of cookie tracking. In response, retargeting companies are beginning to increase transparency and offer ways for Internet users to opt out of being tracked. And as more companies begin to offer retargeting services -- including Google, which launched its service in March -- it is becoming a more affordable option for small and midsize businesses.

After talking with Dunn, Jordan decided to give retargeting a shot for his company, Scottevest, a Ketchum, Idaho, company that makes travel clothing with hidden pockets for electronic gadgets. Jordan signed up for a service from AdRoll, a San Francisco-based company. Its retargeting service, RoundTrip, allows businesses to set up and manage their own ad campaigns.

Since signing up with AdRoll in December, Jordan has gradually increased Scottevest's retargeting budget to $5,000 a month. He pays anywhere from 70 cents to $1 when someone clicks on one of the retargeted ads. A visitor to Scottevest.com who leaves without making a purchase will see six or more Scottevest ads on other websites as he or she peruses the Internet in the two days following the visit. A few more ads will follow over the next few weeks, unless the potential customer makes a purchase.

"Internet shoppers are fickle; they like to window-shop," says Aaron Bell, AdRoll's co-founder and CEO. "Business owners spend a lot of energy on search-engine marketing, but oftentimes the shoppers don't convert on that first visit. So retargeting is a way to drive people who have already expressed interest back to your website."

The retargeting results have surpassed Jordan's expectations, he says. In three months, Scottevest spent about $12,000 retargeting through AdRoll and tracked $38,000 in sales to those retargeted ads. In addition, a few Scottevest customers have written to Jordan, mentioning they had seen his giant advertising campaign. "People are getting the perception that we are gigantic," Jordan says. "And that kind of effect is immeasurable."

He says Scottevest's most effective use of retargeting so far was a series of ads that appeared in late February to advertise a three-day 40-percent-off sale in celebration of the company's ninth anniversary. The conversion rate of customers who came to the site during the sale from retargeted ads was 10 percent higher than the site's average conversion rate during the same period.

Scottevest is beginning to launch what AdRoll calls "channelized" ads, which target customers who have looked at a specific product online. For example, a Scottevest.com visitor who has spent time on the product page for the Soft Shell Jacket, a wind- and waterproof coat with 19 pockets, will see advertisements for that same jacket when he or she visits other websites.

The myriad retargeting options can put some strain on a small business, however; it takes time and manpower to create the ads. Scottevest, which employs just four full-time employees, has had to hire a freelance graphics designer to keep up with all the ads Jordan wants to create. Several retargeting companies offer ad design services, but those, too, come with a price tag.

Companies that participate in retargeting campaigns must walk the fine line between providing customers with more relevant ads and scaring them away for good by showing them advertisements too often. To allay possible concerns, Jordan posted a video on his site in which he explains retargeting in basic terms and how to disable cookies on your computer if you do not wish to see retargeted ads. Some companies that offer retargeting services, such as Fetchback, include links on the advertisements that take Web users to a page explaining the practice and offering a choice to opt out from retargeted ads.

Still, these steps toward transparency do not suffice for some privacy advocates, including Jeff Chester, founder of the Center for Digital Democracy. "If someone followed you on the street for 20 days and then at the end of it handed you a card that said, 'If you want to learn more about why I'm stalking you, go to this website,' that just wouldn't work," Chester says. "It's just not enough." The Federal Trade Commission recently investigated the practices of the online behavioral advertising industry, including retargeting. "We've called for improved transparency and meaningful consumer control," says Peder Magee, who contributed to the commission's 2009 report on the topic. "We leave that up to the industry to implement, and we've seen some positive steps."

Though Jordan admits the technology is not perfect, he believes it benefits more customers than it scares away. He isn't sure if any customers have disabled the cookies, but he hasn't received any complaints. "Even if I lose a potential customer here and there, I'm making up for it many times over," he says. "I just remember from my own experience that it was a bit weird, but not so weird as to be problematic."

For more on e-commerce, including tips for reducing shopping-cart abandonment, go to www.inc.com/keyword/may09.