Even as the airline industry squirmed through the pandemic, airline loyalty programs commanded eye-popping valuations, often more than the valuation of the parent itself. Banks and credit card companies cherish shopper data; the curated lists of flyer profiles and their behavior were as important as the operations of flying. Retailers are discovering a new pot of gold: Setting up ad platforms that brands can use to reach out to ‘in-market’ shoppers.

Nothing quite new in retailers monetizing their audiences via advertisements. Cooperative advertising has been in vogue since the early 20th century, with retailers sharing advertising costs with their brand partners. In the wholesale-retail model, the retailer buys an ad (such as in a newspaper) and wholesale brands pay for a portion of the advertisement in exchange for being featured in the ad. Slotting fees, merchandising accrual funds, shop-in-shops, shopper marketing and trade advertising have all been tried and tested tactics to monetize shopper access. ‘Retail Media Network’ is the latest chicanery to borrow a leaf from this book, providing insights into online brand placement and how they affect purchasing decisions – both online and in-store.

A Retail Media Network (RMN) is essentially an advertising business set up by a retailer. It allows advertisers to buy advertising space across the retailer’s online properties, using shopper data to connect with consumers across the entire buyer journey. Amazon may be the leading RMN by market share and advertiser usage, but 80 percent of advertisers currently use at least one Retail Media Network, besides Amazon. Dick’s Sporting Goods to Dollar General to The Home Depot, Marriott to Macy’s to Michael’s, scores of retailers besides Amazon, Albertson’s, Walmart and Walgreens are activating their own retail media, closing the loop on sales by connecting marketing activities and consumer purchases. 

A few trends coalesce (proud to be remembering this word. I still had to google the spelling. One baby step at a time!) as we go into 2023.

‍High Intent Shoppers 

Privacy of online shopping is a growing concern, from boomers to Gen X. Accessing first-party data in a brand safe and privacy-compliant manner will endear RMN’s big time to marketers and consumers in the coming times. Apple dragged Meta to the cleaners. So everyone needs a better way to advertise and RMN is the knight in shining armor. Now re-read the italicized sentence for the ‘comms’-approved version that RMN’s will put out.

‍Rumble in the digital adscape 

Advertising in the US, as a share of GDP, has shrunk by about a third (figure below). Print is on a rapid decline and TV is declining too. There has been no safe-haven social media for advertisers in a long time. Instagram has a tentative relationship with commerce. Meta wants brands to come to Metaverse. Brands are going to RMNs instead. Why aren’t Meta buying Shopify already? Anyway, that’s a rant for another essay. TikTok has slashed its 2022 revenue target citing poor performance from eCommerce and ad sales. Twitter is still busy experimenting with 30 shades of gray color badges for the government twitter handles.

In a three-fold increase from 2021, 74% of brands today have a separate retail media budget. Expect greater reallocation of in-store budgets towards RMN’s, in the coming year. Retail Media Networks are the adults in the digital advertising room.

‍Omnichannel in a (big) box

For every dollar spent through eCommerce, five dollars are spent at the store. Today, RMNs hold the promise of helping brands meet the shoppers online and offline through the shopping journey.

Digital channel reliance (especially on Meta) has come to bite many brands. The realization of omnichannel advertising as a priority has never been stronger, among leading brands. The omnichannel advertising story will play out over the years but the need for consolidation of spend to few RMNs and the ability to ‘self-serve’ are immediate priorities.

The more things change, the more they remain the same. Retailers are not tech companies and every pixel in their ad platform will remind brands about that fact. Now multiply that experience with the number of such RMNs that brands would work with.

Source: McKinsey & Company

In this gold rush, the winners will be the tools that optimize retail media ad spends for the brands.

‍Sathish Rangarajan, Industry Analyst, PipeCandy contributed to this newsletter.

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