Retail media networks are set to transform the advertising landscape

Retail media networks are the entities set up by retailers to monetise their first-party customer data, enabling retailers to sell advertising to brands
Close-up of Sainsbury's website with options for online shopping

Retail media advertising is not new, pioneered by global ecommerce giant Amazon which introduced many of the advertising units that other retail media networks now model, including sponsored products (search) and sponsored display (audience targeting and retargeting).

But with the huge growth in online shopping during the pandemic, combined with challenges around the costs associated with the ecommerce model, many of the large global retailers are now launching their own retail media networks (RMNs), spying a lucrative future business model that offers a win-win for both brand and retailer.

Global retail media revenue is forecast to reach $101bn (£87bn) this year, up from $88bn in 2021, according to a report by GroupM, WPP’s Media Investment Group, which was published in September. This amounts to 18% of global digital advertising and 11% of total advertising. 

And the study predicts that retail media advertising will increase roughly 60% by 2027, making it set to be one of the fastest-growing parts of the advertising industry.

Alongside Amazon, Walmart is another big RMN player in the US. In the UK, the likes of Tesco, Boots, Asda and Sainsbury’s have all launched RMNs in the past few years. 

“Retail media is the holy grail of advertising for brands,” says Andrew Lipsman, eMarketer principal analyst at Insider Intelligence, the parent company of eMarketer. “And I’m not sure to what extent brands fully realise it yet. 

“Should you be thinking about how you move your ad budgets into retail media? For most brands, the answer is probably yes,” he adds.

Third-wave advertising with first-party data

The opportunity for advertisers is around being close to the point of sale, says Athar Naser, global director for marketing transformation consultancy CvE, who counts Vodafone, Boots, Nokia among their clients. 

“Essentially, it’s having media that is rich in data and finding audiences that are loaded with purchase intent, or that we at least know something about,” he says.

Lipsman says retail media is following in the footsteps of search and social as digital advertising’s ‘third big wave’, built on a foundation of valuable first-party purchase data and contextually relevant ad experiences. 

The other crucial element is the ability to close the loop on purchase reporting. 

For decades, advertisers have faced challenges around connecting their ad spending to actual customer purchases. But retail media changes this by directly connecting audience impressions with omnichannel transactions, so there’s an incredible depth of information and purchase behaviour to provide a rich profile for delivering ad relevance.

Should you be thinking about how you move your ad budgets into retail media? For most brands, the answer is probably yes

Sainsbury’s RMN is operated by Nectar360, its loyalty, insight and marketing services business, which it says offers advertisers a clear view of who their customers are through first-party data provided by its 17.5 million Nectar loyalty card members. 

Sam Burston, Sainsbury’s director of Nectar & Loyalty, says: “We enable brands to have a deeper understanding of customer behaviour and to deliver personalised offers and advertising, optimising campaigns in flight, and closing the loop through transparent performance measurement.”

According to one major FMCG client, who works with Sainsbury’s RMN: “Being able to quantify our own segments with real sales data has helped us better understand our audiences and drive a better return.”

And nearly 70% of advertisers see significant or somewhat better performance from RMNs than with other channels, according to McKinsey’s Commerce Media: the new force transforming advertising analysis.

Dollars and sense: boosting visible returns

Marketing expert and author of WARC’s The Rise of Retail Media report, Colin Lewis, whose clients include Unilever, Samsung, Kingfisher and TK Maxx, says in a world where the demise of cookies and the Apple ATT have changed digital marketing radically, retail media can be seen as an obvious choice for consumer brands. 

“When you can run your 30-second TV commercial in tonight’s United v City game on Amazon Prime and know if it tracks directly to a sale, rather than an ITV ad, why wouldn’t you? If you can run your product ads on the Tesco ecommerce site instead of Facebook, why wouldn’t you?” he says.

The gravitational force pulling brands into retail media today is the return on ad spend, says Lipsman. “They’re seeing this as performance advertising. I put $1 in and I’m getting $4 out. And the CFO says put more dollars into that channel if it’s driving that return on ad spend,” he explains.

To date, most retail media ad spend comes from the low-hanging fruit of sponsored search, which he says will keep growing. But going forward, a much larger opportunity will come from “the other 85% of retail sales [with regards to the US market] – the nearly $6tn market of brick-and-mortar retail,” he says.

Digital, in-person experiences

“There is huge potential for in-store digital,” says Nick Baldwin, director of ecommerce practice at global media agency MediaCom.

“We’re fairly close to it being possible for loyalty apps to greet shoppers as they arrive, message them personalised offers as they move around the store and remind them at checkout of the items they missed. Imagine getting a reminder call from your smart fridge while you are in-store to tell you to stock up on butter while it’s on offer, just as you pass the chiller?”

Sainsbury’s says it sees a notable opportunity to digitise a proportion of its in-store media portfolio in the future, with the ability to programmatically serve adverts in-store based on time of day or the weather and the proximity to purchase being extremely appealing for its clients.

But how do RMNs sit within the overall campaign mix? Baldwin says the most effective clients are bringing together performance-based campaigns, with traditional marketing or brand campaigns, to deliver a seamless experience of brand engagement at the point of discovery and shopability.

But despite its clear growth potential, RMNs still pose some challenges for advertisers, one of the key being incrementality. The danger being that you’ve essentially served an advert to someone who was just about to buy your product.

To overcome this, RMNs need to ensure greater transparency around performance and measurement. Lipsman says: “Brands want transparency. There are concerns around retail media networks grading their own homework,” he adds.

With first-party data becoming more important, RMNs will have a key role in the future advertising mix. But brands need to see continued evolution by retailers to ensure current momentum is maintained, warns Baldwin.

“Notoriously, marketeers like shiny new spaces to play in, so we need to ensure we can utilise this focus to make RMNs a credible advertising space, fit for the long term,” he adds.