How retailers can take advantage of Advertising’s “Third Wave”
Are Retail Media Networks truly becoming the “Third Wave” of advertising? It sure is starting to look like it. Early growth is faster than both Search (Google) and Social (Meta). In only 4 years, the size of the market is estimated to be $100 Billion (!!). Which is double that of linear TV advertising, a mainstay of the advertising industry for a generation.
I don’t think Retailers appreciate the opportunity that’s in front of them. With margins north of 50%, the space has the capacity to print money à la Google and Meta. It’s the same business model that’s allowed tech companies to take moonshot after moonshot, and continue to lead the S&P in market valuation.
With RMNs, Retailers have the potential to fund massive investment in corporate strategic initiatives, improved customer experiences, and a healthier bottom line.
So why is there hesitancy?
I think it’s risk aversion and stickiness to the status quo. A reluctance to invest in spaces that at first blush seem outside the core business. There is a resistance to invest in data and marketing outsourced to marketing agencies and ad-tech firms. Pressure to maintain operating costs when there’s a required investment in technology, personnel, organization, hiring, all of the above.
Here’s the exciting news though – the market size is SO massive, and the margins are SO generous – that even with an imperfect rollout, the business case works and you net higher than business as usual.
The real risk is not doing anything, and letting competitors get a head start.
What’s driving this growth?
To understand the rise of retail media and why we’re so bullish, it’s important to understand several converging trends in the digital marketing space:
- Diminishing cookies and targetable audiences: Cookies were the lifeblood of targeted advertising 10 years ago. Since then, there’s been a steady chipping away of their viability in tracking and ability to target customers.
- Result – Advertisers are looking for stable customer identifiers that tie to real people. And retailers have some of the best, scalable identifiers available.
- Cloud technical infrastructure: Data is more manageable than it ever has been. From a technical perspective, customer data monetization is more feasible than ever before. Companies like Snowflake and Microsoft Azure provide scalable, highly capable platforms that make sharing and leveraging customer data privacy safe and compliant, both within enterprises and outside of them.
- Result – No longer only accessible by technology firms and specialized vendors, customer data management is done by all companies as a core, strategic part of their business.
- Ease of onboarding with key inventory partners: The translation of “offline” data to targeting cookies was once the space of cutting edge technology, black boxes, and sketchy probabilistic matching. The ability to match 1:1 on 1P identifiers from retailers directly to inventory source exists today.
- Result – The market understands the importance of #1 above, and have built the pipes and capabilities to target based on 1p identifiers. Data Clean Rooms continue to be in use and the “middle layer” of ad targeting are squeezed.
Retailers may not realize that they are the ones with leverage by collecting and controlling large banks of targetable customer identities– not the service providers that are intermediaries between customer and inventory sources. Partnerships are important, but we continue to see the outsourcing of retailers’ most valuable digital assets and vendor lock-in that takes years to unwind.
How to understand if you’re ready for retail media and data monetization
At the highest level, retail media networks are not complicated. There are three main areas that are needed for success:
1.Customer Data and Audiences. This is the lifeblood of successful retail media networks. Most often the data comes from loyalty programs that provide a value exchange (e.g. a discount) to customers for connecting transactions to a single profile. Sometimes data is managed directly by the retailer, and other times it’s outsourced. Regardless, the health and usability of customer data is essential.
The first things Transparent looks for when understanding the health of customer data:
- Are governance programs currently in place, and is this governance adhered to?
- Is there a modern technology stack in place that facilitates usage of customer data, or is it buried in databases only truly available to a few teams?
- Are there data science teams that are making customer data more valuable for the organization (e.g. predictive scoring)? Or are outputs limited to a one-time analysis?
- How fast and available is transaction data for audiences?
I strongly believe that customer data is a retailer’s most valuable asset. Data should be managed and owned directly where possible. We come across too many clients that outsource management and ownership of their data, and aren’t able to achieve their use cases.
2. Potential Client Base. You have the data. Do you have the advertisers? The easiest path to success is to leverage existing partnerships and shopper dollars for new media channels. This helps build organizational and operational maturity in an area of known revenue. A few questions to ask:
- Do the brands you carry have advertising budgets?
- How big and how are these dollars historically spent?
- Do you have existing relationships to run small scale pilots to grow capabilities together?
An important reason that retail media has potential to be so powerful is that it is doubly incentivized for advertisers. With both the benefit of advertising to a real, targetable individual. Also, to close the loop and drive actual product transactions.
3. Media Inventory Potential. Do you have the “eyeballs”? Are they with your advertisers’ most valuable customer segments? How do you leverage your digital properties today and what is the traffic?
Luckily for many retailers, there is the opportunity to create and commercialize “off-site” products. In these situations, inventory providers (e.g. TradeDesk, Google, or others) onboard audience segments. Once onboarded, audiences are effectively “licensed” to advertisers. This also provides options to expand audience sizes and extend reach though publisher or walled garden data sources.
Saying “yes” to these questions is only the first step. Significant investment is difficult when it may seem adjacent to the core business needs. Transparent advocates spending the up-front time to define the what – truly understanding a RMN’s commercialization potential – before investing in the how. Only then will you be able to make the business case to executives that may be hesitant to justify significant dollars in an area adjacent to the business.
Transparent Partners can help. We are not only experts in getting things done in a corporate setting, but also in evaluating the strength of your current situation. Reach out today to see how we can help you get started.
