In last month’s article for SG-retail, I identified four areas ripe for development in 2022 and the topic that produced most follow-up questions was Retail Media Marketing. So let’s double down and look at this in a bit more detail. It’s sometimes called the third wave of digital advertising.
Some context first: the first wave was the utilisation of Search Engine Optimisation (SEO). Pretty much everyone will know that SEO means ensuring that your website is at or near the top of search results, regardless of the choice of search engine. Good SEO is still of key strategic importance today.
The second wave was social media advertising, which only really gained major traction in the early 2010s. Facebook had launched in February 2004, but it was another four years before Facebook Ads arrived. Either through fortuitous coincidence, or perfect planning, the first ever iPhone hit stores in Europe that very same month. Smartphones had existed before, but they were difficult to use and weren’t all that smart. The iPhone, however, captured the public’s imagination. Anyone who thinks that the original 2G iPhone doesn’t have a special place in consumers’ hearts should take a look at the current value of an unboxed iPhone original on eBay (16.5k since you’re asking).
The ever more powerful smartphones allowed a rapidly growing number of people to surf the web, watch videos and dip into social networks ‘on the go’. No longer limited to the desktop, the traffic on social networks increased massively as did the opportunities to advertise to the people who were on them. The years after the turn of the decade saw the rise of a whole new generation of mobile-first social networks: Whatsapp (2009); Instagram (2010); WeChat, Twitch, Snapchat and the ill-fated Google+ (2011); Tinder (2012) and many more.
Armed with tracking mechanisms for a userbase whose screen time was rapidly increasing, and an Ad platform with a few years of learning behind it, Facebook was able to achieve exponential advertising revenue growth. With the ad revenue, Facebook quickly set about eliminating perceived threats to its business, buying Instagram in 2012 for $1billion USD and WhatsApp in 2014 for a $19 billion. Lest these prices seem excessive, it’s worth pointing out that in 2014 alone Facebook generated $11 billion in ad revenue.
Major retail businesses have spent millions on search engine optimisation and social media advertising, but the fastest-growing area (the “third wave”) is what is known as retail media. The basic premise here is that ads “at the point of purchase” are more likely to be cost-effective than search or social ads.
To illustrate: Janet searches online for “detergent”. Sure, Janet might be shopping, but she could also be an eco-warrior researching the effects of detergent on the environment, or a chemistry student looking at the constituents of the product. The point is that Janet may not actually be buying detergent, so the marketers of Persil (for example) will have to decide how important it is to ensure that Persil is high in the search rankings when the word ‘detergent’ is entered. It is easy to waste money on ill-directed ‘search advertising’ here.
‘Social advertising’ also has its limitations. For example, Facebook can perhaps see that Janet is a young female who has recently gone to university and has joined a Facebook Group that shares tips on doing laundry. She may well have no brand affinity at this moment in time and might therefore be a good target for Persil. But if she buys washing powder only very occasionally, and the ad fails to land in the critical buying window, it is unlikely to have much effect.
Retail media, on the other hand, is highly targeted. If Janet is on the Tesco website searching for detergent, there’s a pretty good chance she’s in the market to buy some suds. If Janet sees that Persil is offering 10% off today, price-sensitive student Janet is likely to be persuaded to buy Persil over the other brands.
This kind of advertising has been long resisted by some retailers. Jeff Bezos kept Amazon ad-free for decades, instead opting to build the ultimate organic customer recommendation engine, but in 2012 Amazon began the shift towards retail media by launching Amazon Advertising. In 2018 Amazon passed Microsoft to become the third biggest digital advertiser after Facebook and Google and in 2021 the e-com powerhouse generated $31.2bn in advertising revenue alone. Inspired by Amazon, many retailers are following suit and a search for “detergent” on many of the major grocery websites will show ads at the top of the listed offerings.
Best Buy joined this stampede earlier this year by launching Best Buy Ads and Walmart split out its financial results to show how much ad revenue it had generated for the first time last month (a cool $2.1 billion). With low implementation costs, retail media marketing is a lucrative business and research shows retailers can generate additional income of around 5% of sales revenue when this is done well. Ads can be highly optimised, personalised and made contextually relevant by using first-party data and closed loop attribution. But there’s a problem.
Clearly, there’s a finite amount of space on any website. Run too many ads, especially if they are irrelevant, and you run the risk of damaging the user experience or, worse, coming across as spammy. Maintaining customer trust is essential. The key for the retailer is to choose the right tech platforms so that the advertisers have the tools they need and then to make the customer journey as seamless as possible. Good strategic positioning can ensure ads enhance rather than disrupt customer journeys. Agreeing ‘relevancy rules’ between retailer and advertiser is essential and product duplication must be avoided. Algorithms based on the ongoing analysis of key search words can decide which sponsored products to show, and where to show them. But in the end, high demand from advertisers and limited supply in terms of available space sometimes simply increase the income per ad from the brands.
This all fits nicely into the wider picture. Shopping behaviours are increasingly complex and omnichannel, creating a wide range of possible touchpoints. The smartest management teams will ensure that all touchpoints (eg website, apps, social media, print media, tv/radio, physical stores, email, newsletters, loyalty programmes, payment mechanisms) are carefully balanced and utilised. Retail media is just one part of this. Here at SG-retail, we know how vital it is to incorporate the disparate aspects into a coherent overall strategy.
Alex Knapman, SG-retail
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