By Fred Marthoz, VP of Revenue & Global Partnerships at Lotame
Retail media is the latest in a long line of digital equivalents to established offline advertising channels. Digital display evolved from analogue print ads, streaming ads from linear TV spots, and now retail media replicates in-store end caps and car park billboards. This makes retail media an easy sell for brands that already have a strong brick-and-mortar presence, while the accessibility and flexibility of digital buying gives pure-play digital brands a way to reach store shoppers.
But the rapid rise of retail media — estimated by the IAB to grow from a market value of £4 billion in 2023 to almost £8 billion by 2026 — has been fuelled by more than the accelerated digitisation of daily life. The proliferation of privacy regulations and the slow death of the third-party cookie have created opportunities for any organisation with ample first-party data, a steady flow of traffic, and space to insert ads to launch media wings of their own. Retailers, which own some of the richest stores of customer data, are perfectly positioned to take advantage of this new opportunity.
For budget-squeezed marketers feeling the pinch in today’s turbulent economy, high-growth advertising channels like this look like a safe bet. But before going all-in on retail media, brands need to weigh the risks and rewards of their investment.
Avenue for growth or a cost of doing business?
The US retail media market, which is more mature in both scale and capabilities, gives us a glimpse into how the sector might evolve on this side of the pond. In an ANA survey, 85% of marketers said they feel pressured by retailers to put money into their media networks. Investing in retail media, which holds troves of data on a brand’s customers that are hard to come by elsewhere, may become a cost of doing business with retailers rather than a driver of growth.
This tension between opportunity and dependency will sound familiar to any marketer who has spent their career wrestling with digital advertising’s walled gardens. Indeed, retail media networks follow closely in the footsteps of Google and Meta, which also secured their dominance by being able to activate exclusive consumer data of incomparable scale through inscrutable black boxes.
To avoid a “golden handcuffs” relationship with retail media, brands must also invest in data and technology that allows marketing independence, whether that is a cross-platform ID solution, third-party data from a reputable provider, or cross-brand data collaboration via a clean room.
Retail media is not a full-funnel sales driver
The current economic climate leaves marketers little room to expand their budgets. Rather, this is a period of optimisation and refinement, which means that funds for investments into new channels need to be pulled from elsewhere. If budgets are redistributed to retail media without considering its role in the funnel, marketers risk sacrificing long-term brand building for a short-term sales uplift, which looks great on a quarterly report but may come with ramifications down the line.
The ability to target customers as they are actively shopping is retail media’s main selling point, but brands must balance conversion-focused marketing with campaigns that get them in front of their audiences in the consideration and awareness phases. Retail media skews strongly towards bottom funnel conversions, and offers little options for meeting mid and upper-funnel KPIs. As such, when investing in retail media, it would be sensible to divert spend from other lower-funnel channels such as search rather than upper-funnel channels such as TV.
Fragmentation and last-click bias skews retail media metrics
Like CTV, the other ascending star of today’s media buying landscape, retail media suffers from a fragmentation problem. Sainsbury’s, Tesco, and Argos each have their own targeting, measurement, and attribution systems, making the like-for-like comparisons necessary for strategic media planning difficult. Until there is a concerted effort towards standardisation — for which seeds are currently being planted — marketers will rely on retrospective econometric studies to determine the optimal distribution of their media spend.
Even if the promised land of standardised metrics does emerge, retail media’s performance should still be scrutinised and independently measured. It’s important to ensure the channel provides genuine incremental growth as — perhaps more than any advertising channel to date — it is ideally situated to benefit from last-click bias.
For example, if a customer with high purchase intent for a particular brand of biscuits visits a retailer to buy that product and interacts with the brand’s ad prior to purchase, the retail media network can take credit for the sale, regardless of whether the customer had already made up their mind. Of course, targeting high-intent prospects is part of retail media’s appeal, but this needs to be weighed against the ease with which a platform that combines advertising, sales, and distribution can mark its own homework.
Despite these risks, retail media offers exciting new opportunities to make an impression on consumers. The channel is particularly suited for CPG brands that — unless they have a successful direct-to-consumer model — typically struggle to acquire actionable customer data. But before diving in, marketers must remember three golden rules: secure a store of brand-owned insights, balance spend across the full sales funnel, and maintain healthy scepticism of self-reported metrics.