Why retail media now needs to refocus on long term thinking; Unmade Index bounces by almost 4%

Sep 26, 2024

Welcome to an end-of-week update from Unmade. Ahead of next week’s REmade conference, we today take a retail media focus. Further down, news of stimulus activity for the Chinese economy, puts a rocket under the Unmade Index

If you’ve been thinking about upgrading to an Unmade membership, this is the perfect time. Your membership includes:

A complimentary ticket to all of Unmade’s events, including HumAIn (2025), REmade (next week), Unlock (31 October), and Compass (across November);
Member-only content and our paywalled archives;
Your own copy of Media Unmade.

Retail media moves beyond the early adopters; new challenges lie ahead

As Colin Lewis flies into Australia to address next week’s REmade conference, he reflects on how far the market has come, and what it now most overcome to continue its surging growth

The retail media sector has evolved rapidly in Australia. It is no longer just a media channel for early adopters or a nascent new line of business for retailers. Instead, rapid adoption has resulted in a sector-wide shift in how retailers can earn new revenues and how advertisers can get in front of shoppers.

Retail media has created an interconnected ecosystem of retailers, tech platforms, agencies, and advertisers in a way that was unimaginable just a few years ago.

These shifts are set to continue, and these will impact all parts of the ecosystem. So what are the challenges over the next three to five years and how do they impact the different parts of the ecosystem?

Challenge 1: Fragmentation and measurement

Retail media is presently highly fragmented:

If you are an advertiser, there is an array of networks, channels, inventory, budgets and reports.
If you're a retailer, you must manage the setup and operation of a business quite different from the core retail model. A retail media network is built on lots of new capabilities such as selling ad inventory, dealing with suppliers as customers, not as “mere” suppliers, working with data to create audiences, managing adtech and ad operations and delivery, and working with agencies.
If you are a tech vendor, which part of the retail media advertising stack do you target, which part of the retailer should you target (IT? Ecommerce? Marketing?)

One result of this fragmentation is the difficulty in measuring and standardising what is being sold. A regular gibe against retailers with retail media networks is that the measurement of results from advertiser investments is not clear, or the measurements are not the same across each RMN. Each ad on each network is different in terms of size, shape, prominence and customer profile. Measuring different ad formats on the same site is challenging and comparing RMNs is almost impossible.

None of this should be a surprise for anyone: indeed, criticisms of RMNs for their lack of clear metrics can seem hypocritical, given that no TV channel, newspaper, or radio station provides direct links to revenue uplift or conversions for advertisers.

Reducing the issue of fragmentation is going to have to be a priority for the sector. The good news on the issue of measurement is that the various IABs around the world – including Australia - are collaborating. The working groups in each market feature all the major RMNs, brands, agencies and tech vendors working on the standards for onsite, offsite and instore retail media both in terms of measurement and formats.

For the retailers and the tech vendors, coping with the challenges of setting up or selling to an RMN will never be easy - as there are simply too many moving parts to make grandiose statement about reducing complexity. Sure, bigger players will come to the fore, and the roadmaps for results will become clearer, but it will always be complex.

Challenge 2: Talent

Retailers and advertisers talk of skills shortage with retail media hires. Retailers are good at retailing, not at selling media, building adtech or working with data. As a result, retailers often must hire outside the internal talent pool. This is where the gap between retailer salaries and market expectations becomes evident.

Over the years, across many industries and many categories, we have heard the same story: we cannot get good staff, and there is a “war for talent”, a finite pool of skilled people in high demand who understand retailing, advertising and retail media.

However, surely, if there is a ‘war’, there must be an enemy? Like most bad ideas the “war for talent” has devotees and currency. Like most bad ideas, it is grounded in opinions and narrow-mindedness.

First, retail media is still new. Expecting a vast pool of affordable talent to be readily available is as delusional as posting a job ad for a ChatGPT expert with ten years of experience.

Second, the following is 100% true:

In most major cities, there are many people who have sold media for a living
In most major cities, there are many people who know how to use Google Ads and Meta Ads
In most major cities, there are many people who are already working in martech.

All of these people have skills that are directly applicable to RMNs.

The following is also 100% true:

Most major cities have an abundance of people who are ambitious, hungry to learn and looking for a break.

So, the talent problem is not the problem: the problem is how you are thinking about the problem.

Here is another set of reasons why you cannot hire:

You are looking in the wrong place;
You are using ancient interview processes;
You outsource the problem to HR people who don’t even know what the job entails;
You ignore anyone over 40 or under 25;
You are looking for a messiah, someone who can save you

We need to change our definition of what talent actually is.

As economist, Tyler Cowan writes, “Hidden talent is underrated and under-appreciated. Intelligence isn’t highly correlated to income. Energy and ambition is. Most hiring is too lazy to find unrecognised and unappreciated talent.”

So, what are you looking for? People with an energetic spark, who have new and creative ideas that will change how things are done, according to Cowan.

I say it somewhat differently. I draw inspiration from Dan Sullivan of Strategic Coach who says “find a ‘batteries included’” person.” They come equipped with their own energy, excitement, ideas, and capability; they don’t have to plug into anyone else in order to be successful. This is more than enthusiasm. They’re also self-managing.

Challenge 3: Trade teams vs retail media

In all retailers, there is a trade or merchandise team who work directly with suppliers on getting the product instore and on the shelves. As part of this, they offer suppliers media plans to help get the product off the shelves. Nothing new here – that practice has been around since the 1970s.

Current growth estimates rely on retailers being able to win all of their media budgets from other channels, but in reality, some of this will come from trade. According to Andrea Leigh of ecommerce agency Ideoclick, around half of the mid-market consumer packaged goods (CPGs) they work with primarily use trade dollars to fund media spend.

Forrester research also concurs with Ideoclick.

Retail media today often pulls from trade marketing which isn’t incremental to retailers. And, given that budgets are not infinite, the money has to come from somewhere. Many of the brands that are using shopper or eCommerce budgets for their retail media. So, while a retailer may technically be getting brand or shopper budgets, their trade pot is still feeling pressure.

We should look to the US for inspiration. Many RMNs are entering the maturity phase, and have solved the trade spend vs retail media spend conundrum.

The basics still matter - enhanced reporting is needed to justify incremental retail media investment as key for CPG players – and many US retailers have solved this with advanced analytics and insights platforms. Included in this is the idea ofiIncrementality. This is still a big concern across the retail media ecosystem and slows retail media investment

One of the oldest RMNs in the US is Best Buy Ads. Keith Bryant, the former president of Best Buy Ads, points out: “The challenge with trade funds is that every time you negotiate joint business plans, you have to go through this uncomfortable conversation about what the supplier is getting for the dollars. The reality is that we must move some of the old dollars into new places. Yes, you are going to get dollars in from new budgets because the media ecosystem is recognising that retail is a valuable place, in some cases a more valuable place than incumbent media. Regardless trade media is going to be affected”.

Thinking about trade marketing as a funding mechanism that will continue indefinitely is hard to justify in a world where measurement can be done pixel by pixel, and conversion rates appear in real time. Both trade and retail media can and will co-exist, as merchandise teams will still need to get good pricing, get products on and off the shelves and ensure the supplier-buy machine ticks over.

The final word should be left to Bryant: “Retailers should get clarity about whether their RMN is primarily about creating opportunities to generate income, or if it’s a long-term strategy. Is this just about monetising around a transaction? Best Buy Ads are investing in a long-term strategic play grounded in adding value to our customer experience.”

Challenge 4: Ad load

You might be familiar with this story: you are a regular user of an app, or a media site – or a sports site. Gradually you notice that it is harder to get to the content you want, as you appear to be trapped in an obstacle course of sign-ups, pop-ups and ads. Eventually you sidle off sullenly to another site promising the same content – only to find that it too gradually succumbs to the same cycle of ‘more’: more ads, more pop-ups and more things that get in the way.

This gradual degradation happens as a result of the site prioritising revenue at the expense of user experience. It’s a trap. Retail media expert Raj Redij-Gill believes the trap emerges when relevance is ignored in the rush for higher revenue.

In the case of retail media, the simplest analysis of the problem is one of ad load – an increase in the number of advertising units per page.

Redij-Gill points out the sequence of events that leads to this trap:

Stage #1: Retail media initiatives start with great promise. By adding a few sponsored product slots, retailers can generate immediate revenue without dramatically altering the shopping experience.
Stage #2: The retailer is conservative and the balance between organic and sponsored products remains intact, and the shopper experience doesn’t suffer.
Stage #3: Initial success is achieved, everyone gets excited and senior management – who don’t know the outcomes of increasing the number of advertising units per page, asks the retail media team to increase revenue by adding more ad slots.
Stage #4: The retail media network starts prioritising revenue over relevance, targets over customer experience.
Stage #5: As more ad slots are introduced, ad load per page increases and relevance starts to slip. Organic listings end up below the fold. Sponsored products take priority. Shoppers get frustrated with irrelevant result.
Stage #6: Trust is eroded and shoppers set-off for other sites to get what they actually want, not what the retailer wants to sell them

Initially, there are immediate gains. Long term, it’s another story. Over time, click-through rates and conversions drop as ad saturation leads to diminished consumer trust and engagement, resulting in poorer returns on investment for advertisers

The way to avoid the trap is to think about relevance all the time

Redij-Gill points out that “shoppers don’t mind sponsored products, as long as those products meet their needs. When relevance is prioritised, engagement increases, click-through rates improve, and conversions rise. Advertisers also benefit, as their ads reach a more targeted, engaged audience, driving higher returns on their investment.”

Redij-Gill continues: ”Relevance is more than just a filter on which products to show - it’s about keeping the customer experience central to every decision. Without relevance, even the most sophisticated retail media efforts will struggle to maintain long-term value.”

Here are steps that retail media networks should take according to Redij-Gill:

Define your retail media principles: view every decision through the lens of relevance
Balance sponsored and organic: Analysing all metrics through the lens of relevance improving the overall shopping experience
Personalisation: elevating relevance, not just performance - ask yourself ‘is our personalised advertising making our ads appear as natural, useful recommendations that align with what the shopper wants as opposed to random insertions?
Reframe A/B testing and metrics: monitor their success through relevance

A/B testing, monitor click-through rates, and track conversion rates are great tools for optimising performance, but the key differentiator is how these tactics are applied with relevance as the primary focus.

Retail media networks must identify the point where they are tipping into prioritising revenue over relevance. While it’s tempting to add more ad slots and push revenue higher, this will lead to trust going down.

Relevance drives engagement and engagement drives revenue. The long-term success of retail media for every part of the industry – retailers, advertisers, adtech, marketers, agencies - hinges on relevance.

Colin Lewis will be speaking on Tuesday at REmade - Retail Media Unmade. View the full program and buy tickets here

Unmade Index jumps on Chinese boost

The Unmade Index had one if its best days in many months on Thursday after the ASX reacted positively to news of stimulation efforts in the Chinese economy.