In 2012, Amazon, a CGF member, launched its retail media network (RMN). Ever since, retailers large and small have followed suit, from giants like CGF members Walmart and Target to specialty retailers such as Sephora and even app-based delivery services like Instacart. According to Forrester Research, global retail media spend will grow to $50 billion in 2022 – and the reason for this growth is quite straightforward.
“For a retailer running their core business on a 2 to 4% percent margin, the prospect of setting up a retail media business that could run at 40% margin is pretty appealing,” Dunnhumby’s Julie Jeancolas told Videoweek. Due to the high margins offered by media versus the core retail business, this could add 10 to 15% of a company’s EBIT from retail media. Although RMN began most prevalently in the U.S. and China, European and Latin American retailers are currently seeing consistent growth, with Tesco, Douglas, Bol.com, Mercado Libre and Falabella as excellent examples.
Defining Retail Media
Retail media can be understood differently by different people, so let’s start with a simple definition. Retail media is a vehicle for marketing to customers at the point of purchase or point of choice. This concept is not new – think of traditional marketing activities such as product sampling, in-store displays or advertisements in sexy catalogues sent to customers’ homes.
Retail media in the digital world is quite similar. Brands pay to have their products displayed at or near the point of sale, increasing the likelihood that the customer will buy. This leads to a broader definition of a retail media network, which is an advertising platform maintained by a single retail entity and established across its owned channels and digital properties, both online and in-store. Retailers therefore use retail media networks to manage advertising inventory and control the placement of ads at various points in the shopping journey.
Core pieces of RMNs are a self-serve advertising portal that allows brand advertisers to place their media buys, a range of retail media advertising types and formats to choose from, a method for campaign managers upload and store ad creatives, as well as manage product details like description and price and a campaign reporting module to monitor performance of active media promotions.
RMNs are Getting Sophisticated
Moving up the learning curve, retailers are getting better at the digital advertising game. Consequently, retail media networks are gaining in sophistication. Even in “stand-alone” RMN models, retailers often partner with one or more ad tech service providers for development and sometimes advertising demand needs to accelerate their progress and better meet the demands of brands.
RMNs can also incorporate vast amounts of first-party customer data, including shopping habits and buying patterns, all sourced from the retailer’s brick-and-mortar and digital ecosystems. They can do search, pay-per-click, display and more ad tricks, just like the big media players – with the advantage of not relying on cookies, just as privacy concerns have shifted the nature of how platforms and publishers interact with users and readers.
The growth of the RMN is not only due to its exciting margin relief for retailers; the value for brands is also undeniable. With the cataclysm of the cookie world, brands are looking to RMN and its associated retailer first-party data as weapons to compensate for the advertising gap left by cookies at the lower funnel, engage customers at the digital shelf moment and improve ROI analysis on advertising investments.
Though many brands are expanding their direct-to-consumer scope, they still can’t compete with retailers when it comes to first-party data. Best Buy, who launched its RMN early this year, claims to have three billion customer interactions a year and is able to generate a deep level of insight into those transactions, not just from the point of view of the purchase but also from the research people do before they buy, the installation or the after-sales service. In the case of Walmart, 240 million customers visit Walmart-owned properties every week, either in-store or online.
How Can RMNs Evolve Successfully?
Undoubtedly, there are some dark clouds on the RMN horizon. For retail media networks to evolve successfully in the coming years, retailers will need to orchestrate actions at two levels:
- Evolve RMN models to ensure clear returns on brands investment.
- Move away from “tax” models, where using RMN is a mandatory part of the business relationship between retailers and brands.
- Expand to in-store ad possibilities. According to the Quarterly Retail E-Commerce Sales 4th Quarter 2021 report, e-commerce accounted for only 13.2% of all retail sales in 2021 in the United States. To scale, retail media networks need to reach the huge number of consumers who shop brick-and-mortar. RMNs need to sell ad inventory on mobile phones and in-store digital screens as well as they do on e-commerce sites.
- Provide clear metrics on return on ad spend (ROAS) to see the impact on in-store purchases and across longer decision cycles to truly understand the value of the ads.
- Include targeting and audience segmentation components leveraging first-party data. Retailers need to demonstrate that this data is more effective than readily available third-party data.
- Incorporate real-time optimisation. Artificial intelligence algorithms run thousands of marketing experiments, adjusting creative and audience targeting in real time to quickly arrive at the most effective advertising.
- Protect and support RMN business with strong data capabilities.
- Make sure first-party data is of quality. To create a proper basis for audience segmentation and accurate targeting, retailers must ensure a comprehensive and consistent framework for the governance and quality of customer, product and location data. Processing millions of customer transactions, calls and searches is of absolute value as long as the basic data is up-to-date and correct, avoiding errors, duplications and non-updated information.
- Incorporate RMNs into an existing open data architecture where the pieces are connected, enabling real-time integration and massively scalable data consumption, ensuring the right capacity is in place to capture user information and provide it to buyers who want granular targeting and detailed campaign performance reporting.
RMN will continue to grow in volume and bring welcome relief to retailer profitability as long as brands perceive and quantify the value that comes from the retailer’s intelligent use of first one customer data – and customer data from loyalty programmes – in an ecosystem where digital and physical interactions are increasingly interconnected and customer data protection regulation is advancing across most geographies.