Dec. 18 (Bloomberg) -- J.C. Penney Co. took the viral online marketing it was using to target teenagers, hired an Emmy-winning director and turned out a clip designed to sell diamonds. It’s getting hundreds of thousands of YouTube hits a week.

The third-largest U.S. department-store company is among a handful of retailers broadening their online ad campaigns to include videos meant to be e-mailed by viewers, said Debra Aho Williamson, an analyst at marketing research firm EMarketer. That extends the impact at a time when consumers grappling with higher unemployment and sinking home values cut back on purchases of non-essential items.

The growing popularity of Google Inc.’s YouTube video- sharing site and social networking Web sites like Facebook.com is helping J.C. Penney attract viewers for its 4 1/2-minute “Beware of the Doghouse” video ad and may lead to jewelry purchases. Since Blendtec ran its first online video two years ago, sales of its $400 higher-powered food blenders have surged eightfold.

“It’s a very, very powerful way to build a brand and an identity,” George Wright, the creator of Blendtec’s “Will it Blend?” campaign, said in a telephone interview. “It has more credibility than if I buy an ad and talk about my product.”

The Orem, Utah-based company’s campaign features founder Tom Dickson blending a variety of items including a Chuck Norris action figure and an Apple Inc. iPhone. Nike Inc. paid about $10,000 to have a sneaker shredded in a clip, said Wright.

Pulverized iPhone

The YouTube clip in which an iPhone is pulverized using the blender’s “smoothie” setting has been viewed more than 6 million times.

Internet ad spending will rise 18 percent next year as Web videos counter slower growth in banner ads, according to ZenithOptimedia, a London-based unit of Publicis Groupe which advises companies on ad purchases. Other forecasters are calling for slower growth as companies scale back overall spending.

Target Corp., the second-largest U.S. discount retailer, set up a Facebook page in July 2007. It includes video downloads featuring Olympic gold-medal snowboarder Shaun White and pop star Christina Aguilera.

Advertisers must tread carefully, Jordan Bitterman, senior vice president of media and content at ad agency Digitas, said in a telephone interview. If the video “just smells of marketing,” people won’t forward it to friends, he said.

Real or Fake?

Nike Inc.’s 2005 viral video of Brazilian soccer player Ronaldinho, a classic which still draws viewers and comments, has had more than 26 million views on YouTube. The ad’s popularity, which showcases Nike’s soccer cleats, was fueled by debate about whether the stunts shown were faked.

Unilever NV’s 2006 Dove “Evolution” video, which shows a model being made up and then airbrushed to perfection, has gotten more than 10 million hits.

In J.C. Penney’s first online viral marketing campaign to promote jewelry, a man who buys his wife a vacuum cleaner for a wedding anniversary lands in the doghouse.

Literally. In the video released last month he’s banished to a purgatory where men who have made bad gift choices are forced to eat quiche from dog bowls and fold laundry.

“It gets at the fundamental fact of life that men don’t know crap about getting gifts for women,” said Josh Bernoff, an advertising-industry analyst at Forrester Research Inc. in Cambridge, Massachusetts.

J.C. Penney fell 75 cents, or 3.5 percent, to $20.74 at 4:01 p.m. in New York Stock Exchange composite trading. The shares have dropped 53 percent this year.

‘Pretty Good Number’

The doghouse video, created by advertising agency Saatchi & Saatchi and shot by Emmy-winner Bryan Buckley, highlights a diamond necklace only at the end of the ad.

The clip has been watched at least 1.4 million times on YouTube in the past three weeks.

The retailer is working to prop up sales in what the National Retail Federation predicts will be the worst holiday shopping season in at least six years. J.C. Penney’s sales at stores open at least a year dropped 12 percent in November.

The chain has used online viral marketing campaigns for three years to target teens and tech-savvy shoppers in the back- to-school season, said Quinton Crenshaw, a spokesman for Plano, Texas-based J.C. Penney.

He declined to specify how much J.C. Penney paid for the Doghouse ad or how many times the video had been downloaded from the retailer’s own Web site.

“Selling luxury items can be challenging during times like this,” Crenshaw said in an e-mail. “The campaign, which is targeted to women, allows us to engage with a younger consumer on their terms.”

To contact the reporter on this story: James Callan in New York at jcallan2@bloomberg.net.

Last Updated: December 18, 2008 16:13 EST