Can retailers grab more CPG ad dollars without repeating digital media's mistakes?
Retailers building their own platforms to sell and place ads for marketers is a business firmly in its boom period, with the looming deprecation of third-party cookies and demand for alternatives to digital's old guard fueling a surge in interest. With a proliferation of retail media networks from big names like Walmart, Target, Home Depot and Macy's — and some offerings hitting new levels of maturity — consumer packaged goods marketers are expected to shift more budgets to platforms that can closely tie advertising messages to the point of sale and tap into a wellspring of first-party data.
Despite that promise, retailers already threaten to repeat some of digital's past mistakes, particularly in regards to ad volume. At the same time, companies with historical specialties in bricks and mortar face pressure to build out complex technical infrastructure on a compressed timeline. The upshot will be a period defined by a surfeit of activity as retailers try to avoid leaving money on the table, and accompanying that gold rush, a lot of trial and error.
"If you think of going online to an e-commerce platform now, the amount of inventory that is sponsored, that is sold, that is advertising has increased significantly," said Emily Turner, head of customer engagement and media, Americas, at Dunnhumby, a data science firm that specializes in the retail category. "There's been, in my opinion, compromises on the customer experience."
Any meaningful shakeout isn't really in the cards in the short term if for no other reason than that the market is so hot. The consultancy Winterberry Group estimates that spending on retail media marketing in the U.S. doubled from $20 billion in 2020 to $40 billion in 2021. The race to find a proper replacement for cookies, which are expected to be phased out sometime in 2023, will push brands to seek other outlets to reach shoppers, with retail media primed to benefit.
"There's been, in my opinion, compromises on the customer experience."
SVP of customer engagement and media, Americas, Dunnhumby
In response, the list of retailers standing up some form of ad network that weds physical and e-commerce shopper data has grown long: Walmart, Target, Kroger, CVS, Best Buy, Home Depot, Lowe's, Macy's and Dollar Tree are among the many vying for a piece of the pie. That's leaving out Amazon — still the model many are following — which itself is realigning its advertising priorities to chase larger brands as ad sales continue to be a top-performing segment, as Insider reported. Services are also quickly evolving to incorporate cutting-edge features like data clean rooms or cloud-based management.
"In the one- to two-year timeframe, this represents such a big opportunity. Right now, they're in the investment portion," said Brian Gioia, director of product strategy at the e-commerce specialist agency Scrum50. "They're not worried about being profitable."
But the question lingers: Will retailers use the windfall wisely? There are plenty of gaps that need to be closed as mastering digital marketing remains a tall order for internet natives, let alone companies with little tech backbone and the need to demonstrate true omnichannel finesse and the much-ballyhooed "closed-loop measurement." The pandemic forcing retailers to jump to e-commerce has clearly demonstrated the pitfalls of falling short on the customer experience end.
"They've had growing pains going from traditional shopper marketing and trade marketing. What was working for them is no longer working for them in the same way," said Turner. "How do you evolve the way that you operate from a traditional trade and shopper marketing business to be a media [business]? That's learning a whole new skill set that they often don't have."
As retailers make the uneasy transition, solutions providers see an opportunity. Dunnhumby introduced a solution called Dunnhumby Sphere that tries to streamline retail media functions like audience targeting, media booking, forecasting and measurement. The idea is that retail media is too fragmented and carries too much disconnect between platforms and their partners — a familiar story to emergent pockets of digital marketing.
Deeper integrations with tech providers could be in the cards for brands chasing the structure of established advertising heavyweights.
"The rate at which things are evolving, a retailer doesn't really have that much of a chance to wait to build slowly," said Turner. "In that race to go fast, they often need to partner."
"Right now, they're in the investment portion. They're not worried about being profitable."
Director of product strategy, Scrum50
Walmart made waves in 2021 when it teamed with The Trade Desk, a leading independent ad-tech firm, to develop its own demand-side platform. Walmart DSP, which went live around the 2021 holiday season for select partners, provides access to The Trade Desk's inventory across display, streaming, mobile, audio and connected TV and draws on shopper data from Walmart's website, mobile app and 4,700 brick-and-mortar locations. It serves as a significant test of whether a retailer can scale an ad-tech stack to rival the triopoly of Amazon, Facebook and Google — and may serve as a model for rivals to follow in casting a wider advertising net.
"The Trade Desk is building for them that self-service tool, which is something that a lot of the suppliers are looking for," said Ryan Gibson, vice president of strategy at performance marketing agency Adlucent. "When you're talking about being able to elevate customizations to the supplier, they want that visibility and transparency and ability to control to the extent that they can. That's where The Trade Desk partnership is going to be particularly appealing."
A similar theme animating the category will be the expansion of retail media networks off of a given brand's owned properties. Kroger, the largest grocery chain in the U.S., last fall rolled out a private programmatic marketplace through its 84.51° data and analytics unit. With broader reach comes the mandate for retailers to incorporate ad formats that cover more parts of the sales funnel. Richer media placements may help combat feelings of ad fatigue that are starting to degrade the user experience.
"You could look at the way Amazon has evolved their offerings," said Gioia. "You start with some sponsored product listings in search results that are very conversion-focused. You demonstrate some success and then you scale up from there in terms of more brand-building."
The pandemic has shown plenty of old chestnuts finding fresh relevancy on this front. Everything from QR codes to print catalogs has reentered the retail media marketing rotation and could carry newfound utility in an era where convincing customers to fork over their personal info is the top mandate.
Despite the resurfacing of some traditional media, retailers by and large will need help to round out leadership with a squarer focus on digital. Hiring could come from outside the category, from places like tech companies, while marketing services providers might be tapped to assist with integration. Similarly, CPG customers using retail media networks might need to build up some new muscles to deploy campaigns effectively.
"There's a lot of transformational work that needs to happen," said Gioia, who previously worked in management consulting. "I can totally see the Accentures of the world helping build out these new organizations."
Marketers have long griped about the constraints of working within the walled gardens of the triopoly, but a limited number of platforms does eliminate some of the choice paradox from the equation. Conversely, advertising through Walmart Connect might look markedly different from doing so on Kroger, Macy's or Instacart.
"The world of digital media is going to look a lot more diverse than it does today."
Director of product strategy, Scrum50
That said, a variety of options might be welcome since different retailers cater to different audiences when it comes to factors like demographics or price points.
"The world of digital media is going to look a lot more diverse than it does today," said Gioia. "If you're a CPG company with different brands, some of your brands will probably overindex at Dollar Tree, others will overindex at Target. Your media plan will reflect that."
CPGs have already voiced concerns that retailers could be propping up new walled gardens even as they promote themselves as averse to the old ones. Though it's an increasingly crowded field, retail media could end up dominated by a select few that have both the physical footprint and digital savvy to match the scale large marketers require.
"Typically in the digital technology world, whenever there's something new happening, there are tons of new businesses popping up. That's not going to happen here because there are huge barriers to entry," said Gioia.
"Unless you spent the last 100 years building lots of Lowe's stores, you can't have a Lowe's retail media network," he added. "The thing that will dictate success is not necessarily who has the best technology or who has the best media offering. It's who has the biggest size."
While reservations persist, it will be hard for CPGs to ignore the pull of retail media. Cookies and other changes to identifiers will weigh heavier on performance and measurement during a period where improving those skills is paramount. And retail media, when based on quality data, ultimately promises something that the murkier areas of the digital world frequently struggle to prove: Someone at the other end is actually searching for something to buy.
"There's not necessarily a lot of trust in the world digital marketing," said Gioia. "At the very least, I trust that people are visiting Kroger's website and visiting Amazon and Walmart's website. I know real people are seeing my ads."
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