By Carly Donovan, Associate Partner, McKinsey & Company
The global pandemic changed the purchasing landscape. It accelerated the growth of online sales as consumers migrated towards ecommerce sites. According to the Office of National Statistics, online sales now compromise nearly a quarter of retail revenue in the United Kingdom.
However, the shift towards ecommerce hasn’t come without its challenges for traditional retailers. The opportunity to drive profitable online growth by investing in ecommerce is seen as critical but there are significant costs involved in creating and scaling online operations. Financial considerations are amplified due to rising inflation, soaring productions costs and decreased footfall.
The rise of retail media networks
As competition from pure-play ecommerce platforms grows, traditional retailers have an opportunity to innovate. With customer relationships that often span generations, traditional retailers know who their customers are, what they buy, and how their tastes have changed over time, and they’ve earned their trust and loyalty. By leaning on these inherent strengths, retailers can deliver targeted advertising that addresses consumers needs and wants, both instore and online.
Retailers are starting to recognise media networks as a new and fast-growing profit stream. These retail media networks (RMNs) are third-party ad platforms that retailers set up on their websites. They can include “shoppable ads” that enable people to purchase products through online or mobile ads, and “live commerce” or “shoppable TV,” where viewers can interact with video content and buy products directly from their TV or device screens.
Tailored ads, built with first-party audience data, ensure consenting customers receive relevant offers and recommendations. While digitally-enabled ads in physical stores hold the promise of a personalised omnichannel experience by engaging consumers as they shop. Consumers value the deeper engagement retail media networks offer both in-store and online, and brands are starting to demand them from their partners.
Embracing a fast-moving landscape
So how can traditional retailers embrace the move online by establishing retail media networks?
Firstly, have a distinct plan. To access marketing budgets, retailers could establish best practices for client engagement across vendors and agencies. They could take proactive steps to foster an understanding within the sales team of agency dynamics and provide training on the metrics valued by marketers, such as cost per mile (CPM), click-through rate (CTR), page views, and reach.
Secondly, it’s important to co-ordinate support across departments and bring different parts of the business together. For example, IT can power media networks with data and technical infrastructure. Digital commerce can create the advertising experiences with consumers. Marketing can negotiate and govern the allocation of inventory reserves for third-party brand ad placement. While merchandising can coordinate interactions with supply-chain partners across both trade promotions and media.
Finally, take steps to ensure a loyalty programme captures first-party data, something that is the cornerstone of effective retail media networks. Updating the consent-management process and wording for loyalty programmes can drive improved consent across existing customers. And validating customer information at sign-up or piloting device fingerprinting or IP address mapping can increase match rates across channels. By increasing the number of active users in loyalty programmes, retailers can boost the effectiveness of targeting and improve the percentage of loyalty members locatable on other channels. In turn, this can help media networks to reach more shoppers and deliver high-quality customer segmentation and attribution.
Follow the consumer
Retail media networks are emerging as a key tool for allowing bricks-and-mortar retailers to follow the shift of consumer spending online and benefit from higher margins compared with those of ecommerce. In low-margin businesses such as grocery, this is particularly important as the additional investment to build a retail media network is relatively low.
Retail media networks are also emerging as one of the few ecosystems where brands can access valuable audience data and gain end-to-end attribution. Our research shows 91% of customers are more likely to spend on brands that provide relevant offers and recommendations, yet brands have traditionally had limited access to first-party customer data, limiting their ability to target audience segments. Additionally, there is likely to be a decrease in availability of third-party data due to tighter privacy approaches and the death of the cookie in the next two years. Retail media networks offer an opportunity to overcome these obstacles and provide brands with direct access to customers.
In a fast-changing retail environment, media networks have transitioned from a side business generating supplemental revenue through “sponsored products” to a growing market offering a strategic way for brands and retailers to drive loyalty and growth. Retail media networks hold potential value for consumers, in targeted advertising that addresses their needs and wants. For brands, in direct access to the targeted market. And for retailers, in the chance to build a high-margin business to drive ecommerce innovation.
