Retail Media’s Rise to Center Stage
What is driving the growth of retail media networks in advertising?
Research firm eMarketer says retail media is following in the footsteps of search and social as digital advertising’s third big wave.
“Built on a foundation of valuable first-party purchase data, contextually relevant ad experiences, and closed-loop reporting, retail media is seeing advertiser budgets quickly migrating in its direction,” the research firm said in a client note late last year. Group M estimated retailers will secure US$101 billion this year, representing 18% of all global digital advertising and 11% of all advertising.
Brands and retailers are searching for an improved ROAS (return on advertising spend), and a direct connection to the consumer, by serving ads closer to the point of sale. The explosive rise in retail commerce will have implications for media agencies, agency trading desks, creative agencies, and brands, and is already providing a boost to programmatic advertising technology companies.
If advertising is about boosting favorability, memorability, and purchase consideration, retail media networks, or retail marketplaces, are seen as a powerful contextual placement opportunity for advertising placement. Expect other retail media ad formats to mature, and attempt to take share from Amazon, which is estimated to have a giant lead over any competition, soaking up 76% share of the US digital retail media ad market.
No doubt other marketplaces will emerge and take share, including US retail giants Walmart, Target, and Home Depot, specialist retail commerce networks, programmatic exchanges, and other enablers of digital shopping advertising.
Hence, there will be a battle royale between the retailers and their closed marketplaces, and the digital advertising enablers that help advertisers get access to the consumer.
The Power of Retail Media
What exactly do retail media networks provide? Advertisers get access to a retailer’s first-party data, enabling them to personalise their advertising messages and enhance their audience targeting. Retailers are becoming media companies, and are aiming to sell their own ad space via a variety of their own platforms.
If you consider that global retail sales were projected to amount to around US$31.7 trillion U.S. dollars by 2025, up from approximately US$23.74 trillion in 2020, it was inevitable that retail and digital advertising would come closer together. Digital players want a share of that retail spend, just as they want to increase their share of TV advertising budgets.
Amazon, the runaway market leader in retail media, or commerce media, says a retail media platform can help brands advertise in places where consumers are already spending their time.
“Brands purchase these ads across these digital channels to help customers discover and learn about them as they shop. Think of retail media like a “digital shelf.” It can help brands further increase their visibility to shoppers, much like how in-aisle specials, promos, and deals can stand out to shoppers in physical stores,” Amazon said.
The Challenges to Retail Media Advertising
An uncomfortable reality is that retail media networks could lack scale and Amazon operates as a closed walled garden. Those restraints could hinder growth of the sector, or limit the number of players that extract growth. There is also a risk that retail marketplaces, or aggregators, provide less data and insight back to a retailer. This provides opportunities and growth for providers that enable open web investment.
For sure, Insider Intelligence’s Retail Media Perceptions Benchmark report, published in 2022, the three biggest factors driving adoption of RMNs (retail media networks) by advertisers are: traffic scale (reaching a large enough audience), traffic quality (reaching the right audience), and audience targeting capabilities (audience attributes/segmentation).
Another consideration is mobile commerce. Many consumers browse the mobile Internet to get information on new products and services. Mobile retail is often the first point of entry for many consumers, and in Asia, Tik Tok Shop has led the way, pouring resources into huge population countries in Southeast Asia, especially Indonesia and Vietnam. The Southeast Asia market is estimated to have 395 million consumers of e-commerce products, led by a youthful digital native audience, and this phenomena could outflank the growth of RMN’s in this part of the world.
Another concern for advertisers is rising costs of retail media investments, as outlined by Mutiny co-founder and chief executive Henry Innis, in a recent blog. Innis said because of market hype, everyone piles in, and the cost skyrockets often to unsustainable heights.
“Let me explain. Say you’re spending $1,000 on an ad and it’s generating a $3,000 return. That’s a 200% ROI. Pretty good, right? But suddenly… everyone cottons on to your strategy. Everyone realises that the asset generates returns! People start hyping it in the trade press. And before you know it, the asset costs $2,000,” Innis wrote.
Furthermore, in the future, advertisers may find there are simply too many retail media networks to manage, as retailers flood the market with their own offerings. This technology complexity and market saturation is already a key challenge for brands that are unsure how to best allocate their retail media spend. Reports suggest that at the moment brands can secure better ROAS from advertising on retail media networks compared to other media channels.
Brands are also paying attention to other metrics, such as ACOS (advertising cost of sales), as they look to better understand the price of customer acquisition, especially in the face of signal data loss, stemming from the phase-out of third-party cookies. The ACOS metric represents ad spend divided by e-commerce revenue. This metric, along with attention-based measurement tools, are likely to rise to the fore.
Wrapping Up
The ongoing success of retail media advertising will depend on the same drivers that have fueled open web programmatic advertising, and social and search: the ability to demonstrate to advertisers that the channel can deliver strong performance, a fair cost structure, accurate targeting, quality data, and the ability to reach consumers at scale.
