Media Management

The rise of retail media – and what that means for brands and retailers

The Future Of Retail Media

“For retailers, the question is less whether there is a retail media opportunity for them. The challenge is getting the customer data right, and building out what is a complex media business – with lots of costly, complex technology and people”

“From Woolworths Group in Australia to Canada’s Loblaws, retailers in a range of global markets are with varying degrees of success positioning themselves as compelling ad venues for the world’s biggest consumer brands. “Brands have woken up to the fact that as a retailer. . . you have the ability to understand customer behaviour and personalise advertising based on that.”

Financial Times, Nov 2022

What is retail media?

Retail media is digital advertising within a retailer’s owned and operated assets – for example, their website or apps and instore screens – as well as on social networks and third-party publishers’ properties – all powered by the retailers first party data.  

Think of retail media as any communication and marketing techniques used on consumers’ purchase journeys online that can be packaged and sold to third parties such as brands to drive sales. 

Another way to think about retail media has been coined by Fidji Simo, the CEO of Instacart is this: ‘there’s an advertising product inside people’s eCommerce shopping cart…the holy grail in advertising.” 

If a retailer has shopper searching for a particular product, and can map media assets to that product, retailers are equipped with the capabilities to become media platforms.

To hear more from Colin Lewis speaking about Retail Media on 17 April in London, book your ticket to the Marketing Procurement iQ Conference (Europe) NOW!

The fastest growing channel ever

Few other technologies have scaled so fast from $1bn to $30bn. Andrew Lipsman of Media, Ads and Commerce point out that retail media has achieved in five years what search ads (i.e. mostly Google AdWords) took 14 years to do. Adoption has been rapid; the tools are getting more mature and the market is ready. 

One of the drivers for this retail media growth is Amazon Advertising. In 2012, Amazon launched its own retail media platform, now called Amazon Advertising. In 2023, Amazon reported US$46.9 billion in advertising revenue – a 24% increase percent in comparison to the previous year. Amazon’s advertising revenues were $37.7B in 2022 – and this is on the back of 58% growth in 2021 and 147% growth in 2020. 

The momentum behind so-called retail media is nevertheless so great that it has the potential to usher in a new era of digital advertising. According to estimates, Amazon accounted for 10.2% of total digital ad spending worldwide in 2023.

Retail media is getting some interest outside of marketing and advertising circles. The big investment banks and consulting firms are proclaiming it a panacea that will solve the issues of the costs of eCommerce. 

Goldman Sachs write in an investor report (“The Merchant-Media model: A new era for retailers as ad platforms”) that ‘In their belated push into eCommerce, retailers face significant investor concern over the rising cost to serve the customer…. investors are overlooking a compensating upside – the growth of a new revenue stream from retailer’s own media business. The new ‘merchant-media’ model presents a largely unappreciated offset to eCommerce costs with reverberations (often negative) up the value chain and into CPG manufacturers and their legacy media providers’.

Not to be left behind in the hyperbole stakes, Boston Consulting Group claim that Retail Media is a “$100 billion high-margin annual revenue media opportunity for retailers.  Dentsu claim that retail media will accelerate the fastest in 2024 with a 17.2% three-year compound annual growth rate. Group M say the Retail Media market will grow to an estimated $119.4 billion in spend in 2024.

Understanding retail media

Retail Media advertising formats are triggered by shoppers’ searches and are optimised to drive sales. They are ‘algorithmic’, which means that the platform chooses which ad gets placed based on their algorithm. The advertisements are biddable, which means that the top spots go to the highest bidder just like Google or Meta Advertising.

Retail Media have a variety of formats from search advertisements triggered by searches to display banners to ‘recommended’ advertisements at checkout.  The most common is sponsored products, also known as paid search or promoted listings that appear at the top of search results.

The creative formats tend to be native to the individual retailer’s eCommerce site, meaning that they have the same look and feel as the site they feature text, images, or both, and are usually dynamic or have a dynamic element such as sales pricing which is pulled in automatically. The advertisements direct shoppers to click on a product page or store within the site.

Retail Media opportunities can be controlled to target particular shopper groups, for instance those who have purchased product X, and limited to budget ‘Y’. Various different promotional tools and tactics are possible such as targeted media, coupons and even sampling. In addition, banner advertisements associated with search terms, for instance placing brands at the top of the search results when a key search term is entered by the shopper.

Why is retail media increasing in importance?

There are seven reasons why Retail Media is growing: 

1. Data: Retailers have a scale of digital attention that allows us to monetise data in a whole new way. Their combination of first-party data as well as SKU-level transactional data as their customers who sign-in to use their site or app is incredibly powerful/
2. Relationships: Retailers not only know everything a shopper browses and purchases, they have digital and physical relationships with their shoppers.
3. Privacy and Brand Safety: Retail media bypasses the issue of privacy as an issue as there is no reliance on third party cookies. There is little risk of brand safety issues.
4. ROI/ROAS Measures: Having a detailed measure on the impact on how advertising impacts a consumer’s online purchasing behaviour within a retailer is a compelling proposition for any brand.
5. Cookies: The deprecation of 3rd party browser cookies and mobile identifiers has created an opening for 1st party data. Retailers have 1st party data which allows them both to target particular demographics and to measure the effectiveness of their marketing efforts far more efficiently.
6. Attribution: Brands can connect demand creation to demand capture and attribute the money spent using Retailer Media with actual sales performance data to measure campaign effectiveness.
7. Retailer need the margins from a new line of business: The ability to reach a wide audience through advertising is helping retailers withstand pressure on sales during the cost-of-living squeeze, the expense and logistics required to build their eCommerce and delivery businesses.

Retail media in action

Retail Media platform are being built by major retailers and marketplaces. These retailers all offer advertising self-serve tools to manage campaigns directly. They are supported by advertising technology vendors, such as Criteo and CitrusAd who have created Retail Media capabilities for retailers to monetise their eCommerce websites and apps. 

Source: IAB US

The IAB US Guide to Retail Media explains all the various Retail Media types as follows:

• Sponsored Search / Products: Onsite retail media includes as ads triggered by shopper searches. These appear on search result pages, product pages, and category pages. These ads can be highly targeted based on the customer’s search history and purchase behaviour, making them more likely to convert.
• Sponsored Display: Onsite retail media includes as ads triggered by shopper searches. These appear on search result pages, product pages, and category pages
• Offsite display retail media involves displaying ads on third-party websites and apps, (i.e. Google Display Network, or on Programmatic), which are used to increase brand awareness and drive traffic. 
• Social Media driven retail media means social media platforms like Instagram, Facebook, and Pinterest to promote products and drive sales using the Retailers 1st party data. Retailers can create shoppable posts and ads that allow customers to purchase products directly from the platform.
• CTV Retail Media involves displaying ads on streaming TV services like Roku, ITVx or Amazon Fire TV. CTV offers retailers the opportunity to reach shoppers who are increasingly shifting away from traditional cable TV and towards streaming services.
• In-store retail media involves displaying ads and promotional content within a physical store, for example, digital screens and signage. In-store retail media can help increase product awareness, promote new products, and drive sales.

Most brands start their Retail Media advertising journey with a Sponsored Product/Search campaign and then move to Sponsored Display.

Retail media metrics

Retail Media has an extensive set of advertising reports that show impressions, clicks and return on ad spend metrics. 

• Clicks: the number of times advertisements were clicked. Amazon adjusts its report for invalid clicks, such as accidental clicks.
• Impressions: how many times the ad was displayed to a customer on Amazon.
• Spend: how much a brand has spent per campaign. 
• Sales: the total amount of product sales generated within one week of clicks on the ads.
• Return on Ad Spend (ROAS): ROAS is the inverse of ACoS. To calculate it, divide the revenue attributed to advertising by the spend. For example, a ROAS of 5 means for every £1 spent on ads, the campaign delivered £5 in revenue.
• Advertising Cost of Sales (ACoS): Amazon use ACoS as one of their key metrics. It measures the efficiency of the advertising campaign and represents the percentage of ad-generated sales spent through advertising. ACoS is the total amount of money spent on advertising divided by the revenue generated. 

For the retail media sceptics

There are lots of retail media sceptics. Why is this? In many respects, one can argue that retail media is a virtual cousin to end-of-aisle or in-store point-of-sale promotions in a bricks-and-mortar store. The second criticism of retail media is that it is purely a bottom of funnel a conversion mechanism and it does not contribute to brand building. 

Google was the first to unlock advertising spend by providing exact detail to brands on their return on invested. Meta then drove the rise of social ad spending. Amazon Advertising put Google ads capability on steroids by showing sponsored search ads to shoppers with an intent to purchase.

Retail Media is more compelling than a typical trade marketing ‘end-of-aisle’ promotion, Google or Meta Advertising: given that retailer’s first-party data allows them to identify shoppers who make a purchase after seeing an advertisement on retailer’s owned and operated assets, retail media is a much compelling advertising channel for brands.

Considerations for retailers with retail media

Retailers are supposed to be good at one thing: retailing. Selling media built on technology is a completely different proposition. To sell media, retailers need people who understand media, as well as a technology infrastructure and processes to capture retail data, and package this in the form of a one-stop capability for building and launching campaigns.

As Michael Islip of Grace and Co point out, ‘retailers should not underestimate the challenges of setting up a Retail Media Network. Aside from building a sophisticated advertising tech stack that can deliver both onsite and offsite, they also need to see themselves as a media business – which has a completely different dynamic to a retail business.”   

What next for retail media?

Even though it’s still in its infancy, retail media is already capturing a lot of attention. While Google, Facebook and other publisher networks are huge, they do not have access to the level of first-party transactional data of that Tesco, Sainsburys, Walmart or Amazon. The future opportunity for retail media is huge as it now encompasses onsite, offsite display, social media, CTV, and in-store digital advertising.

For brands, the most obvious advantage is that they can tie attribute advertising spend directly to results. Arguably, retail media gives added power to big brands as they have the brand recognition, penetration, budgets and wide distribution across multiple channels to entrench their position. In a cookie-less future world, brands are more comfortable shifting to Retail Media given the information they can glean about their shoppers, and this is much more valuable to marketers than other forms of digital ads

For retailers, the question is less whether there is a retail media opportunity for them. The challenge is getting the customer data right, and building out what is a complex media business – with lots of costly, complex technology and people. The complexity and different strategy requirements mean that retail media business are likely to be for the largest retailers in the near future. But with Amazon’s success, a new revenue stream with high margins will continue to make a compelling business case – if the retailer can master the competencies.

About the author: Contact Colin Lewis

Interested in this article? We have much more on this topic and more at our next Marketing Procurement iQ Conference (Europe) on 16th & 17th April, Kia Oval, London. Click here to book now!