Pros and cons of retail media networks every brand should know Share via

According to the market research firm eMarketer, spending on retail media will surpass the USD 50 billion mark by 2023, with most ad spending expected to come from the e-commerce channel. In addition, global consulting firm BCG estimates that big retailers are already racing towards a USD 100 billion high-margin annual revenue prize in retail media, with Amazon leading the share and other major retailers like Walmart, Target, and Kroger moving fast to establish their positions with their retail media networks. While there is no doubt that retail media is changing the dynamics of digital advertising by providing significant benefits to brands, customers, and retailers, a few challenges also need to be discussed.

Let us first look at the advantages that retail media networks offer retailers and brands.

Additional Revenue Stream

Retail media’s most significant advantage to retailers is opening an additional revenue stream. This is particularly important because e-commerce across the globe is a very thin-margined business, and the revenue generated from advertising provides a much-needed cushion to the marketplaces. Even the profit margins generated from the CPG businesses have narrowed over the last many months, putting a big dent in the bottom line of these retailers. On the other hand, retailers who have ventured into the advertising business like Amazon and Walmart have grown their retail media business to a massive scale and are giving top digital advertising platforms a run for their money.

Solving First-Party Problems

As third-party cookie tracking is nearing its end and increased data security and privacy laws are coming into effect, retail media is solving the first-party data problem of the brands. Since brands do not have scalable first-party data and rely heavily on third-party data, which will cease to exist shortly, they have started to advertise more on the online marketplaces, taking advantage of the retailer’s solid understanding of the consumer. The retailers know the brand’s customers more than the brand itself. They have access to data on the consumer’s interest, purchase behavior, brand preferences, shopping frequency, and much more, which is a gold mine for the brands trying to tap those customers.

Highly-Personalized Targeting

Retail media provides brands with highly personalized targeting capabilities, effective ways to measure the ROI on their ad spending, and flexibility to track down spending to the SKU level, making this channel popular with the organizations. While retail media massively increases the brand’s visibility when the customer’s purchase intent is high, it also makes it easier for brands to tie spending to sales.

There have been many talks about the growing significance of retail media and how it is revolutionizing the digital advertising and marketing industry, but as is the case with everything, there are some flip sides to this emerging strategy.

Let us look at some disadvantages marketers associate with retail media networks.

Uneven Concentration of Power

According to the pundits, one of the most significant disadvantages of retail media networks is that it gives a humungous amount of power to big brands, creating an uneven playing field for the smaller brands which does not have the resources to develop retail media network of their own. While big retailers are earning billions of dollars in revenue from digital advertising and growing in stature with every passing day, small retailers are struggling to keep up with the competition.

Emergence of More Walled Gardens

With many big retailers launching their own retail media networks, there has been an increase in the walled gardens for brands advertising on these platforms. It is of utmost importance for brands to know who their customers are and how they behave online while shopping for products in the e-commerce space. But with retail media networks, these data insights are rarely accessible to advertisers. And there is hardly anything brands can do because they rely heavily on the high-quality purchase intent data that the retailer is sitting on.

Extensive Resources Required

Not all retailers like Amazon or Walmart have access to high-quality first-party customer data. To create a successful retail media business, marketplaces should have a profound understanding of their consumers and should be able to use the available data to generate higher sales for their partners. They should also have scalable first-party data that can benefit their partners in the long run and provide value for every dollar spent on retail media. That means retailers must drive more consumer traffic to their websites to build a sustainable revenue model. Although building a retail media network seems the next big thing, it is not a viable proposition for retailers lacking in scale.

Keeping aside the limitations faced by retail media networks, it is on course to play a significant role in the absence of third-party cookie tracking and will soon become one of the core marketing strategies for brands to reach out to their customers effectively. Brands have already started to allocate more funds to the retail media, fueling the growth of this additional revenue channel that retailers have created.