What are Retail Media Ads?

March 18, 2022

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7 min

In recent years, there has been a lot of buzz around the topic of retail media within the space of digital advertising. This makes sense because nowadays, with more people shopping online than ever before, there is a growing opportunity that marketplaces and brands can no longer afford to ignore.

In fact, based on the data provided by Statista (2022), more than one out of every four people are online shoppers. In an attempt to monetize on this trend, major online marketplaces such as Amazon and Walmart have been quick to establish dominant positions across retail media, allowing them to snag most of the advertising dollars available in the market. However, for marketplaces and retailers planning to enter the media space, there is still a $100 billion opportunity in retail media globally to capitalize on according to the latest research conducted by Boston Consulting Group (BCG, 2021).

Before diving deep into the discussion, let us have a brief introduction to the main stars of the show — Marketplaces. In this context, marketplaces are referred to as ecommerce websites where products and services are sold by a variety of brands and individual sellers. On top of that, they also serve the purpose of providing ad spaces — and not just regular ad spaces either. Marketplaces hold the special attribute of being the closest point to a customers’ digital point of sale. In other words, customers are more likely to follow through with an advertised purchase through ads on marketplace websites.

So, What is Retail Media?

Retail Media is a means of monetizing the digital advertising space by enabling partner brands or sellers to promote their products on marketplaces’ websites and apps. Traditionally, brands used to purchase advertising inventory solely from platforms and content providers such as Youtube, and the Wall Street Journal, whereas online marketplaces were perceived as shopping destinations rather than advertising platforms. However, in the last few years, retailers and marketplaces realized the incredible opportunities that come with the model of taking advertising concepts utilized by publishers and implementing them on e-commerce websites.

Through this model, retail media allows brands to target consumers near the digital point of sale through native and display ads such as sponsored product and brand ads, as well as video and banner ads. These ads can be placed at various points of the consumer journey, specifically the home page, search results, product detail page, and even on some social media platforms.

Why Does Retail Media Make Sense Now?

The most compelling reason is that retail media can offer high yielding returns. With the explosive growth in e-commerce shopping as a result of the Covid-19 pandemic, brands have been doubling down their marketing efforts by shifting their advertising budgets into online media. This can be evidenced by the survey conducted by Merkle (2021) which revealed that 81% of Consumer Packaged Goods (CPGs) companies expect to move more advertising dollars into the retail media space. Another important statistic marketplaces should consider is that revenues generated through retail media can have profit margins as much as 80%, in contrast with the typical in-store margin of 10–20% (BCG, 2021).

Just to give you an idea of how lucrative the business is in the current environment, Amazon’s advertising arm is one of the fastest-growing segments of the company, recording over 57% year-over-year growth rate in earnings compared to 2020 (Amazon, 2021). As a result, Amazon was able to hit a whopping $31 billion in its advertising services. Meanwhile, Walmart’s retail media is also expected to see a similar growth rate, with its ad revenues forecasted to increase by 53.5% for the year and report $1.55 billion in 2021 (emarketer, 2021).

Why is Retail Media Beneficial to Marketplaces and their Sellers?

There are at least four ways Retail Media can add value to your business:

First, retail media ads offer much-needed additional sources of revenue to online marketplaces. Have you ever used a search bar on an ecommerce platform and been given dozens of useful suggestions for your search? This is something we call retail search, providing shoppers with the most accurate and helpful products. Aside from the organic retail searches, there is also the option for brands and sellers to opt for a paid retail search. As the name suggests, paid retail searches will boost brands and sellers to appear higher up on consumers’ searches. From the marketplaces and retailer’s point of view, it is a great way to monetize each and every search, finding them another source of untapped revenue.

Secondly, it is a future-proof strategy, especially in a post-cookie world. With internet browsers slowly phasing out the support of third-party cookies, consumer brands are being forced to find a new way to target customers. Marketplaces that leverage media platforms will be the answer brand advertisers need to solve this problem.

This is because marketplaces with relatively large audiences are like a gold mine filled with clean, reliable, and insight-rich first-party customer data. This data can show valuable information on consumers’ behavior such as their browsing habits, shopping interests, preferences, and many other important factors. Those marketplaces that are able to leverage and activate this data through effective retail media will be highly sought after by data-hungry brands.

Next, marketplaces can enhance their relationships with their sellers and brands by providing them with self-serve advertising dashboards. Many retail media platforms provide insightful features for linking marketing budgets to sales outcomes. In other words, brands are given the chance to track the performance of their marketing campaigns by measuring key performance indicators (KPIs). As a result, by sharing the necessary marketing tools and insights with brands, marketplaces will be able to build long-lasting relationships with their existing and potential sellers.

Finally, retail media fosters loyal customers by providing personalized experience. All of the data collected and shared by marketplaces will enable brands to make their offerings relevant to consumers, even after third-party cookies go extinct. As an example, by placing relevant ads at the point of purchase, customers will be able to make more informed purchasing decisions and take advantage of available discounts and promotions, improving the overall customer experience. Subsequently, through providing this customer-oriented service, marketplaces will be able to retain their existing base of loyal customers, whilst also increasing traffic of new ones onto their websites.

How to Start Running a Retail Media Business?

Generally, there are three options marketplaces can use to start getting involved with retail media:

The first option is to establish your own in-house advertising unit. Examples of companies that have built their retail media platforms include major retailers such as Amazon, Walmart, and Tesco. The main advantage of having an in-house media platform is that it gives companies more control over their advertising efforts. Moreover, it ensures the privacy of data because there is no need to share information with third-party agencies. On the other hand, the process of building a retail media platform from scratch is extremely complex, costly, and time-consuming. Hence, this option is often beyond the reach of all but the largest and best-equipped retail companies.

The second option is to outsource the advertising part to a software company. Despite being more affordable than the first option, retailers usually lose track of the software once it is in use by sellers, and won’t maintain it in the long run with updates, features, etc., because there is no in-house team responsible for it.

On a positive note, marketplaces are not restricted with building or outsourcing decisions. Online marketplaces can also engage in partnership with established ad tech companies. This partnership will empower retailers to scale up faster than other competitors thanks to the guidance and on-going maintenance by the partner company. On top of that, retailers will be able to potentially save millions in cost and years in development time.

The Time is Now

In conclusion, digital behavior of consumers has been experiencing a paradigm shift, driving brands and advertisers to allocate ever-increasing amounts of investments into retail media. Therefore, this is a golden ticket for retailers to seize a significant share of the new market and enjoy high-margin returns. Platforms that ignore this innovation will obviously miss out on high-margin revenues.

References:

Amazon. (2022). AMAZON.COM ANNOUNCES FOURTH QUARTER RESULTS. Retrieved 10 February 2022, from https://s2.q4cdn.com/299287126/files/doc_financials/2021/q4/business_and_financial_update.pdf

BCG. (2022). The $100 Billion Media Opportunity for Retailers. Retrieved 10 February 2022, from https://www.bcg.com/publications/2021/how-to-compete-in-retail-media

emarketer. (2022). Walmart’s retail media business hits its stride with soaring revenues and more advertisers. Retrieved 10 February 2022, from https://www.emarketer.com/content/walmarts-retail-media-business-hits-its-stride-with-soaring-revenues-more-advertisers

Merkle. (2022). The Evolution of E-Retail | Reports | Merkle. Retrieved 10 February 2022, from https://www.merkleinc.com/thought-leadership/white-papers/evolution-e-retail

Statista. (2022). Digital buyers worldwide 2021 | Statista. Retrieved 10 February 2022, from https://www.statista.com/statistics/251666/number-of-digital-buyers-worldwide/

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