Taking the First Step Toward Retail Media Success
If you’re a retailer in 2023, it’s likely that (a) you’ve been wondering how Amazon brings in $30 billion of revenue from advertising, envisioning the grand opportunities retail media; and (b) you’re frustrated because your retail media program is operating well below the margin and revenue targets that the industry hype had promised you.
Why is retail media such a struggle? What can organizations do to make their retail media programs real, and really profitable? David Billings, Global Head of Digital Media at EPAM, provides some useful retail media wisdom in a recent DMEXCO masterclass.
The Urgency and the Consolidation: How to Become a First Mover
Billings says that the time to act is now. CPG brands are happy right now to test and learn, learn and test, with a variety of retailers. But in the long term, there are just too many retailers out there for CPGs to work closely with all of them.
"It is not sustainable for CPGs to be deeply engaged with 10 or 15 different retailers per market," he says, adding that, in the near-future, "No more than five retailers per vertical per market, are going to end up dominating with market share and then you'll have a long tail of retailers that is scrabbling around to try and capture whatever's left.”
Given the upside on offer, the goal for retailers is to place themselves amongst the top five. Smaller retailers should think about standardizing their media offering for CPGs and agencies to buy through their normal buying platforms.
To qualify for this position, Billings says, a retailer needs to concentrate on three elements: scale, first-mover advantage and differentiation. An organization needs to honestly assess if it has the necessary market share to scale and move quicker than their competitors in the space. Once there, "you have the opportunity to learn what your suppliers want from you, what they want from your proposition, what they find valuable, which means you can start to build differentiation."
What he’s really promoting is a virtuous cycle that can propel a retailer into a leadership position.
Holding Retailers to a Different Standard
But becoming a top-five retail media player is not as easy as clicking on a shopping cart. An enormous amount is expected of retailers in this sector, much more than is normally asked of digital publishers. “The type of inventory, the type of ad format they're expected to offer is much, much broader,” than what is expected from your non-retailer. “It's not just digital display, it's sponsored search, it's sponsored product ads, it's off-site monetization through programmatic audience extension.” This can feel, of course, overwhelming.
Leveraging Retail Data to Create Accurate Forecasting
“You're expected to be able to build descriptive audience segments that describe what people did, what people purchased over the last 12 months,” says Billings. And because retail data is so informative and granular, it can and should lead to accurate forecasting.
“We're seeing the leading retailers start to build propensity models so that you can predict what people will do in the future, who's going to enter the category for the first time, which stores have the most headroom to drive growth for a particular product.”
Another big challenge is the complex groups of stakeholders involved: shopper marketing teams, digital agencies and in-house ecommerce teams. "You've got to cater to all of those simultaneously and then probably even more challenging is the fact they will expect to interact with your business in a different way," Billings says.
All of which will require you to package your offering up in at least two different and simultaneous operating models.
Managing Skepticism in Your Organization
There will be people in your company who doubt the value of retail media and will worry that this work will, Billings says. Unless you can prove that web ads won’t interfere with, say, average basket size conversion rate or customer lifetime value, you’re going to be constrained in what you can achieve.
Dealing with Complexity
Retail media technology is nascent. This means that, as you develop a retail media program, many retailers wind up creating an increasingly complex technology ecosystem. "Most of those components won't integrate easily with each other," says Billings. "They typically won't integrate with your existing corporate infrastructure."
What happens is that a lot of tech gets cobbled together and you "end up with a lot of very manual, very repeatable tasks trying to stitch all of that together and present it as a unified whole to your buyers. And that's what generates this organizational complexity."
This causes all kinds of problems within a retailer’s workforce. You need a large team to make it work, this erodes margins, generates manual errors and many of your employees will be stuck doing mundane and boring tasks.
Says Billings: “If you don't have automation within your business, you're also going to get a lot of employee churn, which means that by hiring you're just filling up a leaky bucket.”
Sit Down. Think. Plan.
You don't just stumble into retail media, says Billings: You need to sit down, think, and plan.
“The first piece of advice that we will often give to a retailer is to step back and think about where they want to be in two years’ time, in five years’ time,” he says.
Billings sees three futures for companies that aspire to retail media-hood. There’s the syndicated network, the hybrid trading desk and the premium walled garden.
With the syndicated network, you have just a single provider. "You pump in your data, you make your inventory available, that provider will bundle it up with other retailers' inventory" and your suppliers will target a blind network of retailers. "You don't know who you're buying from." The syndicated network has low setup costs, and it's easy to operate (you outsource the complexity to the provider). The issues: It's difficult to scale, the profit potential is low and you might devalue your data and inventory. This model is probably best for smaller retailers.
The hybrid trading desk model, on the other hand, usually involves three or four different retail media platforms for different channels, with limited automation or integration. Says Billings: “As a user, whether you're a retailer user running a managed service or an agency user, say, executing campaigns, you will log into several different platforms to manage processes.” The setup costs are higher, obviously, because you’re dealing with multiple tech partners. Operating costs will also be high. There’s more tech and organizational complexity but, say Billings “the scalability is higher certainly than a syndicated network.”
For those retailers who do opt for this model, the key is to avoid falling into the trap of organically developing a complex technology and services ecosystem. Starting by planning the services you'll offer, rationalizing the tools that will enable them and sitting down with a product and engineering team who can help you understand where integration and automation can create a better experience for platform users. With even a very lean development team, retailers can reap big rewards in terms of operational efficiency and campaign performance, ultimately leading to a larger and higher margin business.
As for the premium walled garden… it takes a big retailer to join the likes of Amazon or Walmart. But, asserts Billings: “You're going to get several retailers per vertical per market who can adopt this position.” He says this will provide users with an integrated environment that looks and feels like the retailer-owned portal: “You can plan across different channels so you can access a portfolio of inventory, a portfolio of data.”
Such a system features elements such as the opportunity to sell ancillary services, premium Insight solutions, premium measurement solutions, and even A/B testing solutions. With the walled garden, of course, setup costs are high but: "The operating cost is actually going to be lower than in the hybrid trading desk because you have the opportunity to build automation, scalability, the profit potential if you get it right, is very, very high."
Whether you’re just starting on the road to retail media or seek to speed up the progress of your retail media program, you’ll benefit from exclusive content by David Billings and our other experts.