Retail media: the challenges, opportunities and experiments for growth

Retail media is having its moment right now.

Despite us all bracing for a looming recession, this data-powered, challenger channel is growing – the sector grew 28% to £2.7bn in the UK in 2022. Woah. According to eMarketer, the advertising revenues of retailers are nearly double that of radio and print combined too.

Retail media is still being described as an emerging channel, but in reality, it’s been around for years, traditionally offering just on-site product ads and banners. Today, the channel is diversifying, and at pace. So, how do we define it now?

Retail media is digital advertising utilising a retailers own omni-channel properties and data, increasingly the whole retailer’s digital ecosystem, whenever and wherever customers come into contact with a brand from sofa to store.

In the current landscape, there’s retail media opportunity for everyone; whether you’re a retailer or brand monetising your properties and data; or an advertiser looking to maximise retailer data for your advertising.

Globally, we’re seeing retailers break into the top 100 advertiser lists, as brands look to strengthen strategic partnerships that enable retail growth without the reliance on third-party cookies.

Why now? What is driving this growth?

Amazon’s global media revenue reached $31.2bn in 2021 and it didn’t go unnoticed. Since Amazon successfully monetised its valuable first-party data, other retail powerhouses want a piece of the action too. The pandemic woke the sleeping giants of the retail world when more consumers became online shoppers, so more retailers have turned their digital assets into money by helping brands get closer to reaching active shoppers.

82% of advertisers intend to spend more in retail media this year.¹ As a more transparent form of advertising, it’s become powerful fuel in predicting your audiences next move - gold dust in a privacy-first, cookieless world we’re moving into, fast.

But moving into retail media isn’t an easy journey.

Two top things we can learn from Amazon’s moves:

1. Amazon admits establishing an advertising platform hasn't been smooth sailing and required continuous testing and learning - and many business models left on the bookshop floor before a successful one was found.
2. Its consumer-first approach to decision making, expanding ad opportunities, and evolving algorithm have added considerable value to customer experience and ultimately driven Amazon’s success.

That’s why experimentation is crucial while making moves into this channel – it makes us think about what works, why it works, and what might be done differently.

Let’s dive into the state of play, challenges, experimentations and key takeaways for brands to decide whether to put their eggs into this channel’s basket.  

Find out more.² 

The Maturity of retailers’ offerings

Retailers’ huge amounts of website traffic and login requirements have created vast lakes of consented first-party consumer data. Their systems are packed with audience insights on products bought, searched for, or abandoned – perfect for precision targeting.

As more retailers open their databanks to advertisers, competition is ramping up to offer quality reach at scale with a measurable impact on conversion.³ But the maturity of retailers’ offerings to activate those insights are sporadic.

The evolution of consumer behaviour means people went from going shopping to always shopping. To launch robust scalable retail media networks, retailers need to embrace fast digital transformation.

For advertisers looking to invest in retail media now, there’s difficult decisions to make for budget prioritisation:

Do you remain true to consumer-centricity and focus on digitally emerging retailers with well-established product categories? Or do you capitalise on maturer models that offer multi-channel targeting and focus on growing your category within that retailer? 

It's a difficult answer as every brand is different. Advertisers should be continually experimenting to find what works. 

For ideation and strategic recommendations to build a test, learn and optimise framework, deep-specialist expertise in retail media is needed to guide brands to the best route to success. With sight of the bigger picture, these crucial learnings empower brands to make decisions that deliver on business results over channel objectives.

Advertisers should consider:

Wrapping consumers in your brand experience

Granular consumer insights are your targeting superpowers. Find out how retailers can unlock data in the most valuable, smartest way to create more personalised media experiences. With new retail innovations and partnerships entering the market all the time, make the most of these new ways to get in front of customers, drive long-term relationships and ROI before competitors do.

Tesco rocked the UK retail media world with the launch of a consolidated media offering and Dunnhumby Sphere, a leading customer data science and analytics platform. To connect online and instore transactional data, Tesco (20 million Club Card members in the UK⁴) is strengthening loyalty programmes, and other retailers, like Nectar (18 million members⁵) aren’t far behind.

And Tesco isn’t stopping there. New partnerships with ITV, Pinterest, The Trade Desk and launching Connected In-Store Displays are in the works for this year. In France, Carrefour’s first-party data represents an est. 80 million customers around the world⁶. Its new platform, Carrefour Links helps advertisers connect consumers with the brand across multiple platforms (website, applications, stores).

Proving the value of retail media

By building a brand relationship across multiple retailer channels, you can get a holistic performance view to measure the real end-to-end impact. Retailers’ data can help identify incremental sales driven by media through sharing their rich, valuable purchase data to prove ROI. Advanced offerings like AMC (Amazon Marketing Cloud) and Carrefour Links offer this.

McKinsey reports that 70% of advertisers see significantly or somewhat better performance from retail media than other channels¹. Using a combination of short and long-term tactics, and a robust test and learn programme, we’ve driven a 44% uplift in share of category sales for our luxury spirits client.

Retailers and brands should consider:

Monetising data and properties to develop additional high-margin revenue streams

Ensure your data is worth buying. First-party data strategies will need evolving from short-term capturing of consented data, to building out long-term audiences that are consistently replenished that brands will want to target.

Whilst originally, we were seeing traditional retailers embark on becoming Retail Media Networks, this scene is evolving with brands like Marriot thinking outside of the box, monetising not just its data, but its global properties in hospitality first also.  

Offering audiences data-driven personalised experiences based on their habits

This is a path that should be considered carefully – we have seen retailers undertaking this step on their own, opening up their data and properties to the detriment of their customers experience.

Take the clear learnings from Amazon and Walmart and ensure consumers are centric to any data monetisation. Personalisation will be key here, ensuring ads are relevant to each person whether you’re exploring endemic or non-endemic partnerships.

Navigating the complexities and challenges

Digital retail media is at an interesting point. It’s already a significant part of the digital industry, but it’s still emerging. The industry lacks verification of data and clarity from an independent body to define standards - something the IAB is addressing with its Retail Media Working Group. 

1. Inconsistencies with who owns the retail media budget

Many advertisers are unknowingly sourcing retail media investments from a variety of different budget categories. Retail media spans across multiple teams and channels with different focuses and KPIs, it’s not just retailers’ websites (paid social, programmatic, the list goes on…).

With retail media growing faster than ecommerce sales, and driving in-store sales too - to be competitive in this space, trade/commerce budgets aren't enough to cover all activity.

Key Takeaway: Brands must have a clear ownership, single-source funding model for all retail media activity. And bringing ecommerce, performance and brand teams together is important for a holistic approach to drive converging objectives.

1. The market may begin to saturate with competition inflating bids in simplistic auction model

Brands are flocking to use retailer data, this is accelerated by seamless access through self-serve solutions. Value may diminish as ad costs are inflated, particularly for those only thinking short-term, not looking beyond return on ad spend (ROAS) KPI’s and optimising only to best performing products.

Key Takeaway: Constant experimentation through test and learn, being smarter in how you use the data and bringing different data sources together to shape optimisations will set you apart in a channel that everyone wants to use. Create holistic customer experiences across the whole consumer journey by aligning brand and performance tactics.

Keep an eye on the long term, market-share and new customers goals, tailoring your KPIs to the business need of product categories, whilst growing incrementality and lifetime value - the North Stars of activity.

1. The cost-of-living crisis is driving a rise in an on-site competitor: own-label products

The recession is driving purchase re-evaluation. Kantar data shows that own-label sales are growing quicker than brand in October 2022: 10.3% vs. 0.4%.⁷

In recessions, consumers look to buy from brands that offer better value. This can be trading down price, but also trading into a brand perceived to have better value.

Key Takeaway: Increase your share of digital shelf to provide that sales ‘nudge’ at the point of sale to mitigate brand switching. Don’t fall into a scattergun approach, strategically target your competitors’ products and proactively determine which of your products can counter competition.

1. Data is only as valuable as the insights driven from it

Most platforms largely favour last-click attribution models, with limited sophistication in incrementality and A/B testing options.

Value is not maximised from just reaching shoppers, it’s the analysis of buying habits that unlock new opportunities and informed strategic planning. Going beyond marketing and platform data to use it in the right way will inform decisions and drive more customer value.

Key Takeaway: Analysing the buying habits of millions of customers may be more valuable than any market research or planning models. Ask these critical questions in your retail media strategies:

• Is my retail media experience offering sufficient opportunity to build the relationships needed to drive lifetime value?
• Are we relying heavily on retailer data for conversion activity or is this integrated with our first-party data?
• Are we extracting sufficient insights from purchase data to drive lifetime value at a holistic level? 

If you want to tap into this growing sector, beware of investing solely on joint business planning (JBP) requirements and murky ROAS metrics. Retail media specialism, experimentation and connected technology are key to maximise the opportunity. 

In a world where marketing and ecommerce are now converging there is no time to stand still. 

IAB Europe forecasts retail media ad spend to reach €25bn in Europe by 2026⁸. This channel now sits firmly at the intersection of brand and performance for anyone who has a product to sell or data to monetise. If brands don’t have a current plan to make these opportunities a reality, they’re already being left behind. 

Author: Abi Hammond (Ecommerce Planning Director, Dentsu)

Contributors: Ash White (Ecommerce Managing Partner, iProspect); Maria Triall (Director of Ecommerce, Merkle)

Sources:

¹Source: Commerce media: The new force transforming advertising | McKinsey & Co

²Source: Run past retail media at your peril | James Bailey, iProspect UK CEO | Performance Marketing World

³Source: Dentsu 2023 Media Trends

⁴Source: Tesco-reveals-it-is-reaping-rewards-from-revitalised-clubcard-scheme | Article | The Grocer

⁵Source: Nectar Loyalty Programme | Nectar360.co.uk

⁶Source: Carrefour-and-Publicis-Join-Forces-to-Create-a-Leader-in-the-European-and-Latin-American-Retail-Media-Market | Article | Business Wire

⁷Source: Grocery price inflation drives consumers to discounters | Article | WARC

⁸Source: IAB-Europe-Industry-Insider_Microsoft_Retail-Media-December-2022