A MARTECH RECORD EGUIDE: get to know a new player in the market
Surely one of the most significant media developments over the last several years has been the ascendance of "retail media networks." Do a Google search for retail media networks, and you'll see results full of press release announcements and Ad Age articles from major retailers. This post summarizes retail media networks, their advantages and disadvantages, how advertisers use them, and how they affect the partner/affiliate space. We hope you find it valuable.
What Are Retail Media Networks?
Retail media networks are media offerings developed and delivered by top merchants. A merchant incorporates ad placements and sponsored listings to its web pages, app pages, social presences, and other owned venues with a retail media network. Brand partners buy those advertisements to drive sales with the merchant.
Retail media networks provide a new revenue stream for merchants, leveraging their massive traffic, first-party customer data, and market power to entice advertisers - especially but not exclusively their brand suppliers - to deliver ads in their commerce environments. Further, the margins on advertising can be north of 80%, while typical margins for goods sold in stores are 15-20%. Especially for traditional retailers, those dollars can be a huge boon to financial health in an overstored country.
BCG estimates retail media platform ad spending is a $100B opportunity for retailers - ¾ of which is likely to go to merchants other than Amazon Advertising. Many also predict that other sectors like travel have similar opportunities because of the depth and richness of their data. eMarketer reports that 12.5% of total digital ad spend (i.e., not including Search and Social) will pass through retail media networks in 2021, up almost 28% versus a year ago. The categories where marketer investment in retail networks has been most significant include CPG companies, electronics, and home improvement.
Amazon was the first significant mover in this space, but a growing number of prominent merchants are now offering advertising platforms to advertisers. Pure-play digital retailers and brick-and-click giants play in the retailer media network arena. Top retail media networks include:
Some of these shopper engagement networks can be purchased directly from the merchant, while others book sales primarily through platform companies like Criteo and CitrusAd. COVID dramatically accelerated interest in retail media networks because digital became - overnight - a much more significant share of total retail sales in many categories. That makes retail media network advertising an increasingly popular form of in-store marketing for brands trying to drive trial, sales, and market share. For CPG brands as well as other categories.
The assortment of ad products varies a little by network, but the most common offerings are
Sponsored product search results (like Google PPC but for on-site and in-app searches)
Related topics search results
Pay for placement on category pages
Brand store pages that showcase all offerings from a brand
Integrated media + online shopping vouchers and coupons programs
Many (but not all) retail marketing platform opportunities are available via CPC. Some networks now offer offsite consumer retargeting, in which brands can deliver messages to target audience members on thousands of additional sites. Finally, a few providers provide custom content marketing programs tailored to specific client objectives.
Retail networks are growing because of the profound customer and media market changes.
First, e-commerce sales in most categories have been increasing over the past decade. Even for consumer packaged goods brands, the e-commerce component of total grocery sales was growing. Then COVID happened, and commerce sales spiked in every industry. According to McKinsey, e-commerce grew as much in Q2 of 2020 as in the previous ten years. This means that brands must more carefully consider how they drive sales through the online channel. Brands that were aggressively pursuing in-store marketing in the 20-teens now needed to consider digital sales in addition to shopping aisles.
Second, retailers have seen Amazon drive significant high margin revenue through its retail media network. While Amazon is fast becoming more of a logistics company than a merchant, no major retailer could see the massive income Amazon was driving from digital media and not want a piece. Pressure on retail profits helped drive additional urgency; retail media networks are a high-margin growth area in an industry that hasn't exactly been inundated with good news lately.
Cookie-geddon is also a major contributing factor because retailer data access is based on first-party versus third-party consumer relationships. Advertisers interested in leveraging rich customer information must find new ways to gather that information as third-party cookies are sunsetted. Additionally, as interest in personalization continues to climb, retailer data will be even more valuable for one-to-one marketing than for broad-based audience targeting.
The Picture for Retailers
Retail media networks provide a new revenue stream for advertisers, leveraging their massive traffic, first-party customer data, and market power to entice advertisers. Further, the margins on advertising can be north of 80%, while typical margins for goods sold in stores are 15-20%. In-store media have long been an important revenue source for some merchants, particularly Grocery, Drug, and Mass Merchandisers. And fundamentally, retail media networks are in-store advertising for the digital channel because they empower ad campaigns adjacent to the customer journey.
On the other hand, Kearney says that retailers may cannibalize their other revenue streams from manufacturers. Many brands, especially in CPG, would love to shift more dollars from trade and in-store shopper marketing programs and into programs with at least some branding impact. Then, retailers will also have to bear some new types of costs. While the first dollars for retail media networks came easily, over time, we can expect advertisers to Merchants to invest in technology, sales, and account management services to effectively compete for media spending.
The Picture for Advertisers
Influencing consumer behavior in a purchase mindset can be very lucrative for brands. While retail networks can be used for top-of-funnel awareness and brand building, they are most popular as bottom-of-the-funnel direct sales drivers.
Additionally, retailer customer data can help fill the gap as third-party-cookie-based media sunset. Many retailers have extensive insights into their customers by dint of their first-party relationships and tracking. Advertisers need that information to facilitate better targeting and personalization. In addition to contextual placements, advertisers can leverage the extensive troves of first-party customer data that retailers control due to their customer and shopper relationships.
Finally, many brands view retail media networks as a hedge against the growing dominance of Facebook, Google, and Amazon in the share of digital marketing spend. No savvy person wants two or three companies to control their customer access.
Implications for Affiliate Marketers
Affiliate marketers on both the publisher and brand sides need to be conscious of the growth of retail media networks. Any media trend this immense and fast-growing will have at least an indirect impact on our industry. Historically, affiliate and media buying have operated as related but separate disciplines. Retail media networks help the media team within a brand advertiser more effectively compete for resources.
Here are some of the ways that our industry may be affected.
1. Greater competition for performance media dollars. As retail media networks penetrate categories important to the affiliate industry, they increase the competition for performance media dollars. Because dollars spent on retail media networks are likely to be more accountable than other types of tra-digital media, it may also mean that we need to be conscious of the ROI that this new media category can deliver. Whenever an advertiser can move dollars from high-quality CPM media to high-quality CPC or CPA, they will probably want to do it. All that said, the ROI of affiliate is so strong that our industry should be more than able to hold its own.
2. More competition for content site inventory. As the top retail media networks start to sell off-site retargeting, premium publishers will have more options for selling their inventory. More potential buyers for performance media should help content partners earn more for their placements.
3. Increased affiliate investment from retailers. Since traffic will be worth more to merchants than simply the direct merchandise sales and profit-driven, they may invest more in affiliate and arbitrage affiliate costs against potential media+merchandise revenue.
4. Potentially larger bounties from retailers. When an advertiser can monetize their site traffic in additional ways, the value of traffic rises. That may provide upward pressure on commission rates for retailer affiliate programs. After all, if retailers are making more money, so should their partners driving store traffic.
5. Increased cashback offers from retailers. Again, the key here is that retailers will drive more revenue and profit from larger audiences and traffic. This may increase cashback payment offers to ensure they win more customer traffic.
The advent of retail media networks is a watershed moment for digital advertising and audiences. While its impacts will naturally be greater on Facebook, Google, and Amazon, the many retail network media offerings will likely affect affiliate growth and profitability at least secondarily. It is essential to stay informed about this and other trends in the larger media buying universe to prepare for market forces affecting our fortunes.
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