For a long time, AdTech has been devoid of fresh talk. After search and social, nothing new came up – until Retail Media Networks came and caught everyone’s fancy.

The ‘path to purchase’ is very clear in retail media. At the same time, the ‘path to purchase’ is unclear in social. It’s been well-documented. But search is going through its own crisis moment. What will happen of search when queries and results are replaced by questions and answers? How will that model be monetized?

Retail Media Networks shine because high-intent audiences can be effectively targeted better than social and may be even search, in the years to come.

There is no one kingdom

Facebook is to social; Google is to search; and Amazon is to retail media. But Amazon is not nearly as dominant as the other two, in its kingdom. Every top retailer has its own retail media network. Amazon has a leg up. Amazon’s retail media revenue is xx times bigger than Walmart’s, which is the second dominant player.

But Amazon does not have the offsite might that traditional retailers have.  

Advantage Off-site

The birthplace of RMNs is a retailer’s website - the on-site. Anything but the retailer’s website is off-site: Connected TV (Netflix, Prime, etc), Social commerce, in-store marketing etc. Saturation of on-site avenues (sponsored search, display ads, promoted listings ...) drives retailers to off-site opportunities.  

At NRF 2022, Nordstorm disclosed that 60% of its media revenue is generated from off-site engagements.  Collaborations and integrations such as Lowes/Yahoo, Albertsons/Pinterest/LiveRamp, Walmart/TikTok/Roku/Snap and Kroger/Magnite are all betting on the off-site offensive that has been shown to generate a 150% positive difference in sales performance.  

Interestingly, the cost of acquisition of the users/visitors for retailers is reflected in their retail business margins. The store visitors and online visitors are subsidized by retail and offered to the retail media. No wonder, the gross margins for onsite retail media is 70-90% and offline media is 20-40%.

Retailers’ physical stores attract more unique visitors every day compared to their digital stores. The USD 45B in retail media spend that’s projected for 2023 might sound ginormous, but it’s all just online media. 70% to 85% of retail sales still happen inside the store. That cements brick & mortar’s supremacy as RMN’s last mile. Digitize the store diligently and you have shopper data that’s comparable in precision to its eCommerce peers.

What does healthy gross margins mean?

It means more attention and money to make onsite and offsite retail media work seamlessly for brands. Every surface that can be turned into in-store media will be.  Privacy-safe attribution, integrating measurement for online and offline/CTV/Social ‘paths to purchase’, and efficient allocation of dollars will become the focus.

Credit: Cooler Screens

Speaking of measurement, whither standardization?

That’s the Achilles’ heel RMNs need to tend to immediately. Retailers have to learn to be media companies.  Inconsistent, low-quality data and reporting make it difficult to compare results across platforms and for brands to manage their plays across networks.  

Companies like Pacvue (Le Parent De PipeCandy) exist because of the fragmentation of retail media. If you are a brand selling on Amazon, Walmart, Kroger, and Instacart, you need to deal with five media networks to manage budgets and campaigns. Then there is downstream data harmonization, synthesis of campaign data and taking actions.

Retailers are not going to be as UX-friendly as Facebook or Google – not for a long time.

The industry of retail media optimization, reporting, and the control center to view, understand, and act – all in one place – is just beginning. They are the proverbial spades in the gold rush.

Brands als have a steep learning curve. They are used to heuristics-based approach to media optimization (In simple terms, ‘throw them and see what sticks’). As media gets fragmented, it's beyond human capability to manage and optimize. Rules-based optimization and even black-box, AI-led optimization are all here, either directly from the retailers or through the spend optimization platforms.

Brands are used to agencies giving them answers. Agencies are used to native DSP interfaces. There is new stuff to learn and figure. There are great tools to optimize media spend but they also need to educate the retailers what programmatic advertising tablestakes are, when it comes to data cleanliness and reporting. They also need to educate agencies and brands to learn new control centers beyond native DSP UIs to optimize spends better.

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

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