The world is now divided as the pre-pandemic and the post-pandemic. Every development or growth that came after 2020 was more or less an after-effect of COVID-19 or a solution that had to be concocted in the face of it. Retail technology and retail media networks (RNS) are two such components that picked up traction because of the pandemic.
What is retail technology?
Even though these are terms that we constantly hear from the mouths of many people, one may actually wonder what they entail, on a technical level. Retail technology encompasses a range of digital tools and innovations that assist retailers in efficiently running their operations. These technologies include things like augmented reality, cashierless checkout systems, and automated shelf monitoring and inventory management solutions.
After the pandemic, retail stores were and are still looking to enhance the in-store shopping experience, and retail media is expected to contribute to this effort. Grocers are incorporating technologies such as smart shopping carts, interactive kiosks, digital display screens, and even aisle-roaming robots into their stores as regular features.
2022 was a year of many wins for retail tech, especially because there was significant growth in the field of retail media networks, and this trend was expected to continue with a projected annual growth rate of 25% over the next five years. And as word goes, 2023 is living up to the expectations so far.
Retail media networks provide retailers with a seamless way to deliver personalised advertisements to their customers through their online platforms, such as websites and mobile apps. As opposed to showing ads to people during times that they wind down at home, RMNs slide advertising content to the people while they are in the process of shopping. This benefits shoppers by offering them a convenient shopping experience where they can discover new products, create shopping lists, and take advantage of coupons and rewards. Making it extremely influential. For retailers, this technology allows them to gather valuable first-party data on consumer behaviour within their closed ecosystem, which can be used for further optimization and personalization of their marketing strategies.
What is so promising about retail media networks?
It is a well known fact that retail media is completely redefining the advertising space in ways unknown before. The retail media sector has experienced significant growth and was valued at $50 billion in June 2023, a substantial increase from its $13 billion valuation in 2019. Technically, being a shareholder of the retail media space has become a requirement, one that retail stores can’t afford to not adhere to.
Major retailers such as Amazon, Kroger, Walmart, and Target have transformed into data-driven companies. They have developed their own retail media networks (RMNs) that leverage the first-party data derived from consumer transactions and receipts. These RMNs are used to effectively target, deliver, and measure advertising campaigns for brand partners who choose to collaborate with them. In essence, these retail giants are utilising their vast reservoirs of customer data to offer highly targeted advertising opportunities to brands and advertisers within their retail ecosystems. Tracking such gargantuan growths make one wonder why RMNs have become the new ‘IT’ thing.
One of the most alluring qualities of RMNs is that it helps the advertising landscape. It offers brands access to valuable first-party data, which serves two important purposes. Firstly, it allows brands to execute advertising campaigns that effectively reach their target consumers. Secondly, it enables them to measure the performance of these campaigns while adhering to data privacy and compliance regulations.
In the ever-evolving landscape of advertising technology, understanding the direct factors that lead to a sale is immensely valuable for marketers. Instead of relying on indirect metrics or proxies to gauge the effectiveness of their advertising spending, having access to real, and first-party data provides a more accurate and actionable understanding of what truly drives sales. This means that brands can make data-driven decisions to refine their marketing strategies and improve their return on investment (ROI) based on precise insights into consumer behaviour and preferences. With the phasing out of third-party cookies and the shifting landscape of advertising technology, retail media networks (RMNs) quickly emerged as a lifeline for brands. Additionally, RMNs are famed for offering ad diversification which means that brands had a variety of RMN channels such as Amazon advertising, Walmart Connect, Target Roundel and ad types to choose from.
Is the noise created around retail media networks one that will last?
Retail media has been glorified and subjected to high praise in recent years as a watershed in advertising. GroupM, at The Media Leader’s annual invite-only Year Ahead event in January 2023, came forward with a rosy forecast about RMNs. They predicted retail media to be worth US$ 110.7 Bn in global revenues by the end of 2023. While it may take some time for international media buyers and researchers to definitively determine if 2023 truly lived up to the title of ‘the year of retail media,’ there’s no denying that it has been a year filled with significant developments and activities in the retail media sector.
Despite the stats that continue to signal an unhindered growth of RMNs, not every company that invests in digital advertising is interested in advertising on a retailer’s website. Retailers themselves are already significant digital ad spenders and typically don’t advertise on each other’s websites. So, who actually spends on Retail Media Networks (RMNs)? Consumer packaged goods (CPG) companies, especially national brands, are major players in this space.
Forbes research indicates that 74% of CPG brands already allocate budgets for RMNs. Another study from Wakefield Research found that 64% of CPG brands with advertising budgets of $100 million or more plan to increase their RMN spending in 2023.
However, there’s a potential challenge on the horizon. Many of these CPG brands are not allocating additional funds specifically for RMNs. Instead, they are using money from trade funds. Trade spending refers to the deals, fees, and incentives that CPG companies offer when negotiating with retailers. In the grocery industry, a significant portion of sales—up to 40%—comes from promotions funded by these trade funds. In the United States alone, PwC’s Strategy& estimates that CPG trade spending exceeds $200 billion. This trade spending can be as much as 25% of a CPG company’s gross sales, surpassing their general spending on digital advertising.
Another pitfall of RMNs is when they start becoming annoying. While technology providers list out ‘more personalised offers’ as one of their main benefits, it is important to note that RMNs primarily provide targeted offers, not really personalised ones. This distinction truly matters. In the early stages, retailers can align their inventory with both brand and shopper interests, resulting in a win-win situation. However, as RMN revenues become more vital, and brands aim to use RMNs for building brand awareness along with sales, conflicts may arise.
Targeting faithful consumers of one brand with ads of another brand can test their patience. For instance, an individual whose go to is Adidas cannot be tempted with Nike ads, and that is a fact. Shoppers really do not appreciate offers that go against their brand preferences. True personalisation means delivering relevant content. Simply targeting customers who would never buy a product, even if it were free, is not personalization; it’s just targeting. While a single ad may not make a shopper switch retailers, it can contribute to a range of annoyances that lead to losing customers. Anything that diminishes a shopper’s enthusiasm for a brand can have a snowball effect, potentially resulting in a lost customer for life.
Additionally, Forbes also claims that the retail media network landscape is fragmented, lacks transparency and does not measure up to industry standards. RMNs need to make sure that their service is at a 100% if the advertisers are incurring a premium cost. It should be a 50-50 situation where all parties should benefit, not merely retail media. The future of retail media should focus on being flexible and not tied to specific media platforms or retailers. This approach benefits not only brands but also ensures that advertising is more effective by giving priority to consumer preferences and privacy.
(Sandunlekha Ekanayake)