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InContext / An inside look at the business of digital content

Retail media: Friend, foe, or something in between?

August 31, 2023 | By Theresa Cramer – Independent Journalist @Cramerstrasse

Brands have paid for premium product placement in stores as long as there have been stores. Whether it’s book publishers paying to get their books turned face-out on the shelves or your favorite cookie company splurging for an end-cap display in the supermarket, companies are used to paying for placement. But now, like so much else, that trend has gone digital.

Retail media networks [RMNs] are not exactly new, but they are growing in popularity, especially with U.S. advertisers, where interest has traditionally lagged. As more shoppers move from brick-and-mortar stores to e-commerce, retailers are looking for new ways to engage buyers and advertisers on the web. That’s led to retailers becoming their own ad networks, charging advertisers to promote products on their sites — and this has the potential to impact revenue for media companies.

Sizing the retail media market

According to Bain & Company, “Retail media is expected to be a $61 billion business by 2024—double its 2021 numbers.” This increased spending is indicative of an overall shift toward digital ad spending, says Bain: “In 2019, about 50% of ad spending went to digital campaigns, and by the close of 2021, about two-thirds of US advertising was digital.” But that’s not the end of the story.

While digital ad spending in the U.S. has been on the rise for years, retail media has not traditionally been a big draw. In fact, historically, retail media advertising has been a much bigger player in China. Now, however, interest is growing stateside. Not only is it growing faster than China’s spending, but it’s got more room to grow, according to Insider Intelligence

There are a few factors at play here, says Li Lu, Research Director at Digiday Media. First, Lu says, retail media has become a more robust channel, and companies like Omnicom make it easier to get more information as retailers build out their networks. But they say there is another factor at work here: the loss of the third-party cookie.

Digital publishers know the story well: As third-party cookies go the way of the Dodo and the web becomes a more privacy-conscious place, first-party data is imperative. And RMNs have first-party data in spades. Retailers like Amazon, Walmart, and Target are close to the customer at the point of checkout and know the kinds of products an individual user is searching for and often what they may have bought in the past. This makes it easier for advertisers to target users based on their personal preferences and positions retailers as excellent partners when it comes to driving actual sales.

In fact, Lu says, the KPIs are really what’s driving a lot of this change. Retail media traffics in actual sales, while on social media, success is often measured in impressions or clicks. “You’re so close to the customer at their checkout point,” Lu says of retail media networks. People there are “shopping with a purpose in mind.” Naturally, they are further up the funnel and ready to make a purchase.

It’s also important to note that revenue from RMNs is a completely new and discrete income stream, not just a replacement for flagging in-store opportunities. McKinsey reports, “Our research suggests that more than 80 percent of spend flowing into retail media networks is incremental and comes from all sources, including net new spend and reinvestment of brand and performance budgets. So for retailers, RMNs provide an incremental source of high-margin revenue, and substitution for shopper or co-op marketing can be managed.”

Who is leading the retail media pack?

Of course, not all online retailers are created equal — and ad spend can tell us a lot about who the leaders are. Lu says that Digiday’s research found “Amazon was the most popular media retail partner.” A whopping 76% of respondents said they partnered with Amazon, and that Walmart and Target came in next, with more than 30% saying they partnered with these retail giants. Other research backs this up. 

Still, Amazon’s dominance is sure to wane eventually, according to Lu. As other retail media networks improve their search capabilities — search is currently one of Amazon’s biggest benefits over other options — and new competitors emerge, advertisers are bound to shift their spending priorities. In fact, delivery apps like Instacart are already becoming a destination for some brands — and are even driving some of the growth in a post-pandemic world where people have gotten used to shopping online, even for things like groceries.

Increasingly, price is also a problem. Lu says Digiday’s research revealed that the cost of retail media placements was a concern. From CPC models to actual conversions, they are all getting pricier. Lu says, “Advertisers may start diversifying if it gets too expensive and can’t scale.” 

Content and commerce is the way forward 

Publishers may have yet another competitor to deal with when it comes to vying for dwindling ad dollars, but hope is not lost. On top of the price concerns that Lu mentioned, ANA found that “A major concern expressed repeatedly throughout the study was that although [retail media networks] are being credited for driving brand sales, they have not yet convinced advertisers of their ability to drive brand growth. We found that 67 percent of our respondents cited ‘to drive conversion’ as their most important objective with RMNs, while only 7 percent cited ‘to drive awareness.’” This presents an opportunity for publishers.

While RMNs may have an advantage when it comes to down-funnel actions, publishers can still leverage their first-party data to help drive awareness. But publishers also have some potential to become a commerce-driven partner for brand advertisers as well. 

Last December, just after Black Friday and Cyber Monday, Digiday reported, “Hearst Magazines’ total product sales increased by 50% year-over-year” and “Foundry’s U.S.-based brands saw a 57% increase year-over-year in the total dollar amount they generated for retailers through sales.” 

Embracing commerce media may just be publishers’ best bet to help win some of those RMN dollars; while retailers may have an advantage for funneling consumers who are already close to purchasing toward advertisers, publishers may be able to reach people who are still contemplating a purchase. From review seekers to people looking for gift ideas to browsers who are open to discovering new products, media companies can compete if they are willing to embrace new, commerce-driven strategies.

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