Retail media used to be a lot more straightforward. Traditional strategies like shelf barkers, gondola ends, and floor stickers focused on a broad shopper base over precise targeting. Now, retailers have far more in the armory to target shoppers and monetize their owned assets, leverage customer data, and meet the demands of their brand partners. Retail Media Networks (RMNs) have exploded as a key buzzword, dominating headlines, with retail media ad revenue forecasted to exceed global TV revenue by 2028. So, how have we got here, and what do you need to navigate this constantly evolving landscape?
Innovation across the globe
Across the industry and the world, we are seeing retailers partnering with agencies or creating their own solutions to rival traditional media companies, leveraging their unique audience data to generate significant ROI. Retail Media Networks have evolved significantly in recent years, transforming how retailers interact with their customer base and create new revenue streams.
The idea of rewarding customer loyalty to incentivize repeat purchases is not a new one. In 1958, Green Stamps were brought over to the UK as an early retail loyalty program that had existed since 1896 in the US. Over time, loyalty cards and schemes have grown exponentially, particularly in the 90s, and are now a key cornerstone of the modern shopping experience—with 91% of the surveyed UK public stating they are actively involved in loyalty programs. Leading retailers have market penetration into 75% of UK households, and their Retail Media Network activity does not stop there. The industry has seen the establishment of sophisticated data-driven media insight platforms wholly owned by retailers and strategic partnerships formed with members of the Big Four agency groups, creating highly successful closed-loop marketing platforms.
Comparatively, US retailers have long led the way in growing retail media juggernauts. The largest retailers have hundreds of millions of combined loyalty members and unique visitors. They have generated billions in revenue from their media networks alone, with projected retail media ad spending to exceed $100bn by 2027.
The rest of Europe has had a slower uptake in Retail Media Networks, with a recent report by IAB Europe highlighting that only 50% of media buyers have partnered with a retailer for more than one year. However, larger retailers are creating joint ventures with leading advertising companies to grow their offerings, and there are over 120 RMNs now operating in EMEA, so there is a clear trend toward further adoption.
So, what is the value of retail media?
Consumers have always stated a preference for personalized shopping experiences, with 91% stating they are more likely to spend on brands with relevant offers. However, significant data access changes through GDPR legislation, the death of third-party cookies, and Apple’s changes to its iOS14 system in 2021 have shut out the ability of brands to track user behavior, making a retailer’s first-party data a gold mine for brands if they can access it. Retail Media Networks have traditionally offered a unique proposition of closed-loop measurements at the point of purchase built using shopper behavioral habits such as customer loyalty data. In an age where red tape is increasing and data is more and more privatized, accessible first-party data provides the valuable insights that brands are after to connect with their consumers and measure the impact of their digital advertising campaigns.
How has it grown so quickly?
The pandemic accelerated industry trends toward e-commerce, reflecting consumer spending patterns shifts. Combined with tech advancements such as the rise of programmatic digital advertising platforms, there has also been a lower barrier of entry for retailers to manage and monetize their available data and inventory. The value of media sales to retailers is also clear—typical retail profit margins sit in single digits, yet advertising profit margins can reach up to 80%. Top e-commerce retailers have seen their advertising earnings make a significant contribution to overall revenue, with some making up to $50bn a year from ad sales alone.
Today, retailers are racing to build Retail Media Networks. Retail media is expected to represent over 15% of total advertising revenue by 2028 and is the third fastest-growing media channel. The key question is whether this is sustainable and how brands and retailers can make the most of this opportunity.
What challenges do network owners face?
Market Saturation
In 2022, there were 90 global RMNs; today, there are over 215. With weekly announcements of more retailers joining the mobilization race, 65% of US retailer executives are planning to implement their own RMN by the end of 2024. Other industries are also launching their networks to leverage customer data, from banks to hospitality and transportation companies. The decision for brands is now about streamlining their partnerships to focus budgets, while for retailers, it is about tailoring their strategy to ensure sustainable growth.
Building Skillsets
Selling omnichannel advertising is vastly different from selling in-store products, and retailers have to make decisions to invest in internal teams or outsource functionality to agency partners to support growth and build knowledge capabilities. Brands also face challenges of allocating an appropriate budget to retail media, which can no longer be considered an ‘experimental’ channel, and growing similar in-house retail media teams.
Tech Investment
Building a successful Retail Media Network needs a robust, integrated tech stack. Ninety-five percent of advertisers stated they would pay a 10% premium for extra features to make better, real-time, informed decisions, so the clear differentiating point will be data quality and post-campaign analysis for retailers. First-party data is more complex than third-party data, and retailers need to be able to transparently present insights from campaign performances across the entire marketing funnel to their customers. Not only do retailers face challenges of scaling investment in ad tech, but also ensuring they have skilled workforces capable of using it.
Data Management
Brands demand the same from retailers as traditional expert media agencies operating in this space. In a recent survey, 74% of respondents cited data security and privacy as a top concern regarding adopting RMNs. Retailers need to ensure they have clear policies and practices with rigorous governance frameworks, as there is no set ‘go-to-market’ playbook to be followed.
Where can procurement help?
We have seen procurement category teams be kept at arm’s length from central business decisions relating to RMNs. With the speed at which retail media has been growing, it is no longer an ‘experimental channel’ and requires a robust, cross-functional strategy involving Marketing, IT, Procurement, and Finance. Procurement needs to expand its remit to support the business on these revenue-driving ventures beyond business-as-usual support—building an ecosystem of suppliers and agencies, establishing robust contractual performance-related terms and metrics, managing risk on data processes, and driving continuous improvement. These are all elements that sit firmly in procurement’s wheelhouse and are critical to the success of retail media programs.
Early involvement of procurement teams can help retailers and brands choose the right resourcing mix for their business, review fundamental make vs. buy decisions, and ensure that the right long-term, sustainable strategy is in place, as opposed to reactive solutions, to try and stay ahead of the competition.
A guide to the terminology used in this article:
- Retail Media Network (RMN): digital and in-store spaces for retailers to sell directly to brands, leveraging their own first-party data through agency partnerships or building their platforms.
- First-party data: Data collected from your own audience/customer base through your own channels. An example is purchase history captured through point-of-sale software.
- Third-Party data: Data gathered by sources not directly linked to your own organization. An example is a bundle of survey responses conducted by a third-party aggregator.
- Closed loop measurements: Real-time feedback to track the exact impact of a campaign and its influence on a consumer decision, tying generated revenue to specific activities.
- Omni-channel: Customer-focused marketing that covers all touch points across the marketing funnel- from in-app advertising to social media targeting.
For more information on how our procurement consultants can help your business transform its procurement function, get in touch now.
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