7 steps to managing retail media marketing effectiveness
In the context of slower economic growth, rising input costs, and declining brand advertising investment, retail media spend growth represents a further headwind for brand owners.
The rapid emergence and revenue capture of retail media platforms like Amazon, Tesco, and Boots has disrupted the digital customer journey and created new management, measurement and effectiveness problems for brand owners to solve. Budget is already being diverted from demand generative campaigns, and unchecked, retail media penetration will erode brand owner’s margins.
A familiar story…
Recent analysis of AA/WARC data by the7stars showed that 72% of all growth in UK ad spend over the last decade has come via increases in Paid Search, Affiliates, and Aggregator budgets. Once these channels are stripped away, growth in the remaining channels lagged inflation in the general economy.
Dr Grace Kite described the channel dynamics at play here in a widely read and influential WARC article in 2020 (Is online marketing the new rent?). Activities like Paid Search blur the lines between what has traditionally been considered advertising and a business’ operational costs. Typically, the impressions delivered in search are harvesting demand rather than generating it and spend growth (particularly at the expense of more demand generative channels) represents a net transfer of margin from brands to search engines.
From 2000 onwards, Google won a greater and greater share of brands’ ad budgets by offering progressively more elements of its search experience to advertisers. For the most part, it had no meaningful competition either. Google Search Ads represented the final paid media frontier before the point of purchase and gave Google a near monopoly over access to high intent audiences during product discovery.
From Race to Convenience to Race to Profitability
But this monopoly was as much a function of competitor inertia as it was product strength or network economics. The first era of ecommerce retail was characterised by a singular focus on the customer experience. As Google converted customers’ product search journeys into Ebitda through the 2000s and 2010s, retailers pursued next day delivery and one click ordering to coax customers online. No retailer characterised this obsession better than Amazon. For over a decade, the Seattle-based company vocally rejected advertising and maintained a relentless focus on optimising the customer experience. But as these optimisations have reached diminishing returns, no retailer has better recognised the margin potential in selling ads than Amazon.
Amazon broadened their focus and began to monetise their own Discovery engine—capturing revenue at both ends of the product search journey. Since 2017, Amazon’s Retail Media business has grown six-fold and leapfrogged YouTube for share of global ad budgets. At the same time, Amazon have become the world’s biggest advertiser, simultaneously growing the share of customer product search journeys that start on their platform, and efficiently monetising them once they start.
Everything is biddable now
As ecommerce became a greater and greater share of revenues for traditional retailers during lockdowns, their focus has shifted from a race to convenience to a race to profitability too. Retail media propositions have been key to these efforts as businesses from Tesco to Deliveroo look to replicate Amazon’s phenomenal profit centre.
This growing retail media penetration represents a step change in the digital customer journey. The previous norm of meritocratic ranking algorithms has been disrupted as more and more search real estate is being sold to the highest bidder rather than the most relevant product.
The retail media propositions being brought to market are multi-faceted. However, the singular branding of each element as advertising creates a real risk that marketers misunderstand the effectiveness implications of retail media. The overwhelming balance of current investments are on search/discovery ads that boost product results to the top of the rankings and the implication of this growth is no different to Google’s in the 2000s and 2010s—margin is being transferred from brands to retailers.
In the context of slower economic growth, rising input costs, and declining brand advertising investment, retail media spend growth represents a further headwind for brand owners. New research from McKinsey queried the source of budget for brands’ retail media spending and reinforces this belief.
Growth in retail media spend is coming primarily at the expense of brands’ existing margins/’net new spending’ (55%) and brand marketing campaigns (21%). Only 16% is trade spend migration and 8% from digital media campaigns. If retail media spending continues to grow and budget is sourced from the same areas, the consequences for brand owners will be significant and long lasting.
7 steps to managing marketing effectiveness in the new era of retail media:
1. Break down retailers’ media products through an effectiveness filter
When considering retailer media propositions, it is key to draw a hard distinction between “point of sale media” and “audience access” opportunities. Retailers are simultaneously monetising their digital shelf space and their customer data, but these have very different implications for brand owners.
2. Seek to minimise point of sale media costs and aim for ‘net neutral’ migration of trade spend.
Spend on sponsored results should be carefully managed to protect margins. It’s likely that the depth and intensity of competition will necessitate spend in some cases, but high equity brands should be mindful to heed the expensive lessons learned by Airbnb and Adidas within paid search and re-marketing. Spend should be sourced primarily by re-balancing existing trade spend, visual merchandising, paid search, and affiliates with cost per click thresholds set as a function of acceptable trade costs rather than full product margin.
3. Test Audience Access opportunities early to win first mover advantage
Access to retailer’s first-party data has the potential to prop up Paid Social, Display and Online Video efficiency in a cookieless landscape, but brands should look to assess the value of alternative audiences at pace before competitors bid up cost pers.
4. Integrate retail media spend into incrementality measurement frameworks with urgency
As the pace of change accelerates, brands must incorporate the dynamics of retail media into their measurement frameworks. The in-platform attribution reporting associated with retail media represents new effectiveness signals, not net new effectiveness outcomes, and independent measurement is essential to right sizing investment in platforms.
5. Evolve media planning frameworks and budget setting
The likely increase in spend on bottom of funnel campaigns creates a new challenge for single dimension approaches to planning. Nuanced comms models need to carefully weigh up the role of channel at all stages of the customer journey and are key to effective communications planning in the retail media context.
6. Ensure data infrastructure is fit for new management tasks
The proliferation of retail media platforms has greatly increased the number of management tasks for brands. Previously, the concentration of paid media ecommerce campaigns into Google Search Ads simplified campaign management but it’s crucial that brands’ and agencies’ data infrastructure is fit to manage the highly fragmented but interdependent campaign management and optimisation tasks they now face.
7. ‘Make lemonade’
The number of retail media networks emerging has created unprecedented competition for bottom of funnel marketing budgets and this will encourage better outcomes over time. Brands should take the opportunity to exercise greater control over their digital customer journey and their visual merchandising too. Retail media may allow luxury brands to widen their distribution, give weaker brands the opportunity to disrupt the Double Jeopardy Rule, and allow all brands to re-think NPD launch strategies through access to retailer’s customer data.
Billy Ryan is head of analytics at the7stars.