NEW YORK: For online retailers, the sale of advertising can deliver far higher margins than any of the products in their stores and help them offset costs elsewhere in the business.
David Pourjahan, director/strategic sales and partnerships at Rakuten, explained to Advertising Age that "we have relatively thin margins, so we look for ways to augment that and ads are almost pure margin".
The difference was highlighted by Brian Quinn, chief revenue and innovation officer at Triad Retail Media, which advises retailers on how they can become publishers, who pointed out that the margin on products was 3% or less while that on advertising could be as high as 70%.
Advertising is, he said, "exponentially the highest-margin thing" that retailers sell.
That additional revenue stream can allow them to, for example, offer free shipping, an area that typically annoys consumers who can see any online savings eaten up in the costs of getting their purchase to them.
The move into advertising is not a new trend. Back in 2012, it was clear that Amazon was set on becoming an advertising destination, as early examples of its approach with Universal Pictures and Huggies demonstrated.
But it is getting bigger, according to Jared Belsky, president of digital agency 360i. "Amazon has the power to be an absolutely large competitor to Google in vertical search and retail search," he said.
For brands, there is the particular appeal of the data that these partners can provide. "It's insight into the purchase path and consideration, down to return on ad spend," said Ginny McCormick, vp/media and promotions at toymaker Hasbro.
"It's not a traditional media model on impressions or performance," she added. "They're talking about how this will drive sales. It's definitely something we're investing in more."
That level of data has also enabled ecommerce businesses to move beyond simply selling banner ads. It's now about "thoughtful one-to-one delivery of ads to consumers," Belsky said.
Data sourced from Advertising Age; additional content by Warc staff