Spotlight US: Solving the puzzle of retail media

Gregory Grudzinski, Head of Content, WARC Digital Commerce, examines retail media’s past, present and future, as this-once nascent platform continues its development.

Retail media is not new. Amazon first offered retail media services back in 2012. But the Big Bang came ten years later in February 2022 when Amazon broke out its ad sales for the first time and revealed $31 billion in advertising revenue for the prior year.

It was a wakeup call to retailers – especially grocery retailers, who struggled with low single digit margins – that there was big profit to be made monetizing their digital real estate. And the biggest retailers (many of whom have grocery businesses) took notice:

“The Walmart Connect margins are helpful. They help us keep prices low for customers, and they help us deliver the operating income number percentage.”
Doug McMillon, CEO, Walmart

In this edition of the Spotlight US series, “Solving the puzzle of retail media,” we look at the broad landscape of retail media, a burgeoning channel that while promising, requires new learning and, in some cases, new team structures and skillsets for brands, who are quickly recognizing the opportunity.

The evidence is everywhere. Trade and media budgets were diverted to fund retail media investments, with three quarters of the dollars coming from media budgets and the balance from trade spend and shopper marketing budgets. Forrester Research reports retailers and marketplaces in the US are expected to sell $40 billion in retail advertising in 2022, a number that is expected to more than double to in the next four years reaching $85 billion by 2026.

Source: Merkle Report on Retail Media 2022

It was by no means irrational exuberance. But it was clear the rapid growth that was occurring outpaced the ability of all but the biggest brands to keep up. Consumer packaged goods (CPG) marketers had never really had access to the ‘closed loop’ attribution that retail marketing provided.

“App developers, Insurance, Telco, Automotive, and Direct-to-Consumer brands have long had closed-loop ecosystems since they sell directly to customers, enabling them to better manage both upper and lower funnel,” explains Patrick Miller, Co-Founder of WARC sister company Flywheel Digital, and also Co-President of Digital Commerce at Ascential.

CPG brands typically had no such closed loop. They could see the results of advertising and promotional activity, but not the level of which segment of consumers responded to which offer. Brands were forced to rely on complex analyses such as media mix modeling to determine the impact of each component in the media mix.

A world of challenges for brands

Brands welcomed the powerful targeting capabilities and the use of retailer shopper data. Paid search and product ads made it possible to identify shoppers by their intent and provided marketers with a means of attributing promotional spend to sales.

But there are challenges.

Brand marketers and digital commerce leaders speak different languages. Many marketers lack familiarity with the multitude of factors needed to win the digital shelf. And many ecommerce leaders prioritize “selling more cases tomorrow” than they do “building future demand.”

This challenge was only exacerbated by the proliferation of the networks. As Colin Lewis notes in part 1 of his two-part series for this Spotlight on retail media trends, while it seems as though every retailer now has their own media network, they are a series of walled gardens, and brands can’t buy across all of them. “Fragmentation means multiple dashboards for marketers to work with, different flavors of RMNs, and a myriad of different measures and attribution,” he writes.

The ramifications of this are numerous, among them that brands will have to work harder to get their own houses in order.

As an increasing number of retail media networks (RMNs) expand their offering to provide full-funnel coverage, the pressure is on brands to adapt traditional organizational structures – which often silo marketing and sales functions – to ones that are far more flexible and integrated from top to bottom of the marketing funnel.

An additional level of complexity is added by the fact that the core competency for grocery retailers is not selling media.

“This new ever-expanding and complex landscape can unfortunately be challenging to navigate, not least because it has converted retailers into accidental publishers,” explains Jacquelyn Baker, Chief Experience Office for VMLY&R, in the piece she has authored for this Spotlight.

Many of these retail properties lack the basic tenets of media best practices, according to Baker, such as viewability standards and safeguards for brand safety.

The retail media opportunity for challenger brands

The default in the marketing world is to always look at how new channels affect the biggest brands, but the fact is that RMNs create a unique opportunity for challenger brands, which are often natives to digital selling.

“These networks represent an excellent opportunity for challenger brands with smaller media budgets to tie digital exposure to online and offline sales without needing a bespoke third-party research study,” explains Red Comma’s Jena Pankratz in her Spotlight article on the challenger brand opportunity.

As she points out, most RMNs offer some type of metric that measures return on ad spend that “can be used to analyze and optimize campaign elements such as media mix, creative or audience targeting.”

Social commerce lives

While the pandemic helped retail media towards greater adoption, it also owes a debt to social media for getting it where it is today. As LUCKIE’s Seth Marquart points out in his article on social commerce, the two will continue to be intertwined. He asks: “…why is it that social media played (and will continue to play) any part in helping this industry grow?”

His answer is that social platforms, with their personalized targeting, have taught retail media players not only to invest in social media, but to attract consumers. “If retailers were able to utilize the data already being collected from their own e-commerce sites, what would prohibit them from doing similar types of ad buys and personalized campaigns on their own to compliment ad buys on social media platforms?” he writes. “And that’s exactly what they started to do.”

Predictions: Where it goes from here

Gartner predicts retail media will not be widely implemented and well-understood for at least five to ten years – a time frame I presume accounts for a significant amount of evolutions and mutations to occur. Over that time, I expect we’ll see great progress along a number of fronts, these being my top picks:

Broad-based re-orgs of retailer and brand teams. The teams in place today are inventing new ways of going to market. As most start-ups discover, the talent you need to write the playbook is not necessarily the same talent you need to implement and optimize operations.

Standardization of the metrics will be retailer-driven. The best way for retailers to effectively differentiate their offering from competitors will be to show performance differences in standardized metrics – not unlike what broadcast media did in its nascent stages.

Digital will level the playing field for brands big and small. Harnessing the complexity of retail media and digital marketing requires the mastery of dozens of variables. While the big brands have the retail relationships and financial resources, the smaller ones have focus and the agility that allows a fast-follower to build a winning brand.

Media agencies and consultancies will flourish. As brands seek the knowledge and expertise to win in the rapidly evolving digital commerce space – particularly in the area of analytics and operations – they will increasingly rely on the experience of outside parties for the knowledge and experience their teams lack.

Read the Spotlight with these possibilities in mind, as you prepare for a future, or wrestle with a present, where retail media is an increasingly important part of the media mix from the top of the funnel to the bottom.