4 Pros & Cons of Retail Media

Retail media is one of the hottest trends in digital marketing for 2023.

It is also considered the "third wave" of online advertising, after search ads disrupted the industry in the early 2000s and social media in the 2010s.

The idea is simple:

Large online retailers own a lot of data about the shoppers' behaviour, which they use to sell ads on their platforms. Usually, this happens in the form of "sponsored" products on search pages or banners on the homepage.

Amazon and Walmart lead the industry, effectively challenging traditional publishers and Big Tech.

Some numbers and facts about retail media:

• Retail media is expected to see the fastest ad spend growth in 2023 in the U.S, +26% vs 2022, outperforming ad champions like Meta and Google.
• Amazon Ads has become the third-largest digital advertiser in the U.S., behind just Alphabet and Meta. In the third quarter 2022, ad revenue jumped 30% YoY.
• For comparison, ad revenues at Meta, fell 3.7% over the same period.
• Amazon's revenue from advertising was higher than fees from its Amazon Prime membership, audiobooks and digital music combined, in Q3 2022.
• Walmart's ad revenue is expected to climb by 42% in 2023, Instacart's by 41% and Amazon ads by 19%.
  

Who said online advertising was in trouble?

Retail media is emerging as a key driver of revenue and profit growth for online retailers and technology companies, particularly in the face of economic hardships and layoffs.

But let's look at this from the perspective of brands and advertisers.‍‍

Pros of retail media for brands

1. Reach potential customers when they are already close to purchasing.
   Users browsing Amazon or Walmart are looking for something specific to buy soon. Can you think of a better moment to showcase your products?
2. Operate in a first-party data context.
   Retailers sell their own users' purchase history data, which advertisers can use for efficient audience targeting.
3. Measurability.
   Retailers have long charged for prime product placements, such as placing items at eye level in large grocery stores.
   However, the latest innovation in retail media is the ability to accurately measure the impact of those premium placements on sales. Because the whole process (from ad buying to the user purchase) takes place on a single platform, the latest limitations on third-party cookies and tracking don't apply.
4. Trust.
   Consumers will trust your ad message more when it's delivered on a platform they already love.

Cons of retail media for brands

Unfortunately, retail media also comes with risks. Some of its advantages can turn into liabilities if not thought through properly.

1. Commoditisation.
   When advertising your products among hundreds of others, it may highlight their strengths but also reveal weaknesses, such as a lower rating or higher pricing.
   In contrast, a good organic ranking is typically a result of your products naturally outperforming others.
2. Ad tax.
   Brands not only pay a commission to sell their products on a retailer's platform. Now they also pay advertising fees if they want their products to be seen by consumers.
3. Giving up data and paying to get it back.
   When a brand chooses to sell its products on a marketplace like Amazon, it loses access to valuable customer data. In fact, the customer belongs to Amazon, not to the merchant.
   However, in today's digital economy customer data is extremely valuable. As a result, brands are essentially paying to regain access to this data through targeted advertising.
4. Privacy concerns.
   Ever wondered why retail media is more popular in the US than in Europe? One of the reasons is GDPR.
   Advertisers are generally attracted by the first-party context of retail media and how they can avoid third-party tracking and targeting limitations.
   But, as Mariano delli Santi, data privacy campaigner at the Open Rights Group, puts it while talking to the Financial Times: "the fact that this is being done by a centralised platform [Amazon, for example], instead of bits of data gathered across the web [third-party cookies], changes little to the [privacy] risks."
   Also, according to Jill Smith of Kroger, a US retail giant, "the fastest-growing part of retail media is off-site advertising, where brands like Coca-Cola use Kroger audiences for reaching households on social media, CTV, or programmatic display outside of Kroger.com." This means that first-party data is actually being used in a third-party context.

Bottom line

Retail media is undoubtedly one of the biggest trends in online advertising, poised to deliver years of revenue and profit growth to retail giants. However, it comes with risks that brands should carefully consider.