Digital Transformation Other

How retailers can capitalize on premium inventory amid retail media surge

By Doug Huntington | Chief executive officer

March 2, 2022 | 6 min read

As the industry shifts away from third-party data-based models and puts a premium on first-party approaches, owned media marketplaces offer retailers the opportunity to supercharge revenue in a customer-centric, privacy-safe way. But scaling a retail media business comes with inherent challenges, writes Doug Huntington, chief executive officer at adtech firm FatTail.

Retail media is poised for rapid growth in 2022, but as retailers dive further into advertising, they will encounter challenges similar to those of other publishers: privacy restrictions, a programmatic ecosystem full of costly intermediaries and scant infrastructure for programmatic deals that expose them to the value erosion of the open market.

funnel and shopping cart with man

Retailers do have an advantage over other publishers, though: a vast inventory of extensive first-party shopper data. While publishers know what consumers are interested in, retailers know what they buy. The challenge for retailers is how to leverage their premium inventory while navigating the aforementioned challenges that publishers face in the broader scheme of things.

The latest marketing news and insights straight to your inbox.

Get the best of The Drum by choosing from a series of great email briefings, whether that’s daily news, weekly recaps or deep dives into media or creativity.

Sign up

So why is now the perfect time to capitalize on retail media’s surge — and how can retailers combat the many challenges of upscaling their media businesses?

Why now is retail media’s moment

One could hardly script a more apt time for the surge of retail media. The pandemic shuttered brick-and-mortar stores, accelerating digital transformation and emphasizing the importance of alternative revenue sources. Meanwhile, digital advertising is undergoing a massive shift toward privacy that has placed a premium on first-party data solutions, which retailers are especially well-positioned to provide.

Enter retail media. The category is surging — and the wave is not limited to the biggest players, such as Amazon and Walmart, who have been at this for a while. Everyone from Instacart and Kroger to Lowe’s and Walmart is jumping into the fray, and retail ad spend is increasing as a percentage of overall spend. The reason is that retailers wield first-party data earned as a result of close relationships with customers that other publishers and advertisers simply cannot replicate.

The growth of retail media marks the early stages of a tectonic shift in the advertising landscape. Regulators are determined to clamp down on any technology powered by forms of personal identification — cookie-powered or otherwise — captured without full transparency and consumer consent. As scrutiny of data collection and customer data-driven advertising intensifies in the private and public sectors, retail media will only grow more attractive, and more retailers will get in on the gold rush.

The challenges of scaling a retail media business

While the opportunities in retail media are apparent — and the sector is sure to enjoy key advantages compared to news publishers — retail publishers will still face many of the same challenges as news publishers as they seek to scale their media businesses. Some of those challenges will be more pronounced because retailers are getting into the business for the first time and are likely to seek efficient means of entry that may not equate to the most strategic long-term business decisions.

For example, while retailers are sitting on a gold mine of first-party data, they will still need to determine ways to collect and leverage that data safely while also sharing it with advertisers. Just because someone shops at a brick-and-mortar location and thus hands over shopping data does not mean they are comfortable sharing that data for advertising purposes. Retailers will need to implement new consumer data protocols to ensure they are gaining informed consent to collect data and monetize it — and they’ll need to get that consent repeatedly.

Another challenge for retailers is how to monetize their media inventory efficiently without compromising control over their inventory and monetization potential. Unlike traditional publishers, most retailers don’t appear to be venturing into the display ad business with strong upfront investment in direct sales and operations capabilities. Instead, they’re turning to the programmatic open market. While this strategy reduces time-to-market and generates short-term revenue, it risks undercutting the value of retail inventory and exposing retailers to the same thorny brand safety issues traditional publishers have been navigating for years.

How retailers can make the most of premium inventory

The problem with turning to the open market to monetize ad inventory is that it does not maximize CPMs received for each ad impression. In addition, restrictions on data sharing and heightened brand safety concerns may ultimately imperil the open market itself, calling into question whether it will be the corner of a sustainable media business model for much longer.

To optimize revenue and future-proof ad businesses, all publishers, including retail publishers, will most likely need to implement enhanced programmatic deal-based transaction capabilities. This is not a return to the days of fully manual, human-to-human deals. Rather, programmatic deals involve leveraging automation to set up and execute private auction, preferred and programmatic guaranteed transactions — all of which increase value and control on both the buy and sell sides.

Fortunately, retailers won’t have to incur the same high costs as did their predecessors to be effective at direct sales. This time around, they will be able to augment their existing open-market tech stack with relatively inexpensive and easy-to-deploy technology, standing up much lighter sales and support teams in the process.

The retail media boom is here to stay. Retailers who launch ad strategies meant to sustain them for the long haul are at the beginning of a revenue diversification period that will buoy them in tough times like the past couple of years.

Doug Huntington is chief executive officer at FatTail.

Digital Transformation Other

More from Digital Transformation

View all

Trending

Industry insights

View all
Add your own content +