Advertising on the platforms of major retailers such as Amazon, Tesco, Carrefour or Albert Heijn is becoming increasingly popular. The turnover of retail media can reach up to 100 billion dollars worldwide. What is the best strategy for brands? And can retail media compete with platforms such as Google and Facebook, or major publishers and media operators?
In the New Media series, we ask ourselves where advertisers are better off spending their marketing budget in the post-Covid era. Digitization is moving faster than ever, and with it new possibilities for mass reach, personalization, segmentation and new techniques, such as offered by digital out of home (DOOH) messaging, podcasts and digital weeklies.
First party data is gold
Retail media certainly belongs in that list. The first party data that retailers collect from their customers is worth its weight in gold in the cookie-free era - which is why large European retailers such as Tesco in the UK and Carrefour on the continent are trying to become publishers themselves, and draw advertisers to their own platforms. If they can provide enough scale and differentiation on their online and offline platforms, then large retailers can take on publishers and media operators, and even large-scale platforms such as Google and Facebook, experts at a VIA conference in Amsterdam explained. The marketing association is therefore speaking of a veritable retail media revolution.
IAB Europe estimates that Amazon will earn 1.3 billion euros this year from retail media in Germany, where it is the largest e-commerce retailer. In Europe, according to the trade association, 6.5 billion euros has already been spent on adverts in retail media. That figure could well increase to 30 billion euros. According to the Boston Consulting Group (BCG), retailers could eventually reach advertising revenues of $100 billion, in particular due to the connection they have on their platforms with their customers and the first party data they have to offer advertisers. This results in a high level of engagement and personalization. World leader Amazon will earn $26 billion this year through its retail media business, BCG experts estimate. They speak of a landslide that occurs once in a generation, similar to the shift from traditional to digital media over the past ten years. BCG predicts that in addition to Amazon's revenue, another $75 billion in advertising budget will shift to retail media across the globe.
Riding that e-commerce wave
During the Covid-19 pandemic, the market share of e-commerce increased explosively compared to offline retail. Advertising budgets shifted towards digital media at an even faster rate than in other years. IAB Europe has calculated a 30 percent increase in digital ad spending in Europe this year, which will continue to grow by double digits in the years to come. A minor caveat is that the 200 percent price increase of the global freight logistics chain – essential for e-commerce – might slow down that growth. According to experts, retail media can surf along with that wave. "There's a lot of new money flowing into the digital advertising market, and retail media has a chance to capture that," says Daniel Knapp, chief economist at IAB Europe. "Most of the growth we're witnessing is down to the usual suspects such as Google and Facebook, but local players can also grab a share of that market, especially because there is major fragmentation taking place. Due to the disappearance of 3rd party cookies, there is no longer one open internet. There is the anonymous web, Google's sandbox, and the ID web. They are not compatible. New walled gardens and market places will emerge, this includes those from retailers. If European players work together to achieve more scale, they'll be able to compete with large platforms."
Anyone with an audience is trying to convert that audience. Major retailers who have built their own platform in recent years with many logged-in customers have an advantage with advertisers over publishers and media operators who are only now starting to do so.
E-commerce operates on small profit margins. Platforms that generate extra revenue through advertising beat their competitors, says Knapp. "Every platform, not just Albert Heijn, Bol.com, Douglas or Boots in the UK, everyone wants to become an advertising company and monetize its own audience, which is why Uber wants to buy its own advertising platform (DSP) for example."
Albert Heijn's mega reach
In addition to market leader Bol.com, Albert Heijn is another important publisher in retail media in the Netherlands. This largest of Dutch supermarket chains has a huge reach, and offers advertisers a range of offline and online media channels. Its thousand supermarkets attract 16 million customers every week, almost as many as the entire Dutch population (17.4 million). In those stores, there are 20 million opportunities to see screens for digital out of home advertising (DOOH). The website attracts 3 million visitors every week, and the AH app is used by 2 million people. Its own Allerhande magazine has 5 million readers, and 4 out of 10 million customers that own its bonus card have been registered. As a result, transaction data can be linked to the shopping behaviour of customers, which enables individual targeting by advertisers down to product levels based on hard purchase data. "We are not only a retailer, but we explicitly see ourselves as a publisher and even as a media agency," says Maurits Priem, Media Services VP at Albert Heijn, responsible for retail media.
ROPO and ROAS
The advantage over other platforms with a great deal of reach is that Albert Heijn is a highly valued brand, and advertisers are operating within a brand-safe environment. Because of the different media channels, the supermarket can offer them omni-channel, 360-degree mass reach throughout the entire funnel. From a tasting session in the store to a floor sticker, from in-store radio, an advertisement on a display, a targeted e-mail, a banner on the website, the app to an advertorial, or a recipe in its own Allerhande magazine. Priem can measure the results of campaigns based on purchase data, actual click and search behaviour, and conversion. In addition, the retailer has its own panel of 40,000 customers to conduct research. "Linking that hard purchase data to qualitative and quantitative analyses enables a deep insight into every step of the customer journey that even brings ROPO (research online, purchase offline) and ROAS (return on advertising spend) closer. We are one of the first in Europe to be able to show the occasional isolated sales uplift performance of an offline or online campaign," says Priem.
Research shows added value
Retail media is always part of a broader media mix. What is its impact, both in terms of brand uplift and conversion? Albert Heijn commissioned independent cross-media research into this in conjunction with MeMo2 and Publicis, based on two cases with Duracell and Iglo. It showed that retail media adds more unique reach on top of TV advertising than social media - even up to 25 to 28 percent more. The brand uplift of retail media is greater than TV and social media. The combination of traditional TV advertising and retail media emerged as the ideal way to kick-start a customer journey, especially when launching a new product. When brand awareness is high – such as with Duracell – TV advertising generates zero sales uplift. For their research, the participating parties were awarded four IAB Europe Research Awards in May 2021.
According to Rogier Lammers, Central Europe Sales VP at start-up advertising agency Cavai, retail media is especially interesting for advertisers because visitors go there with the intention to buy. "The challenge is how to stand out as a brand. If I'm searching for a hairdryer on Amazon, I get over 200,000 results. So you have to be able to distinguish yourself as a brand," he says. This can be done via sponsored products and bannering, but also via conversational advertising, which is a banner with a chatbot that starts a conversation with consumers. For example, it might ask which product they are looking for, in what size or colour, or it makes suggestions for recipes. First trials lead to high open rates of more than 3 percent, tests showed. "It offers brands the opportunity to stand out among the standard ads. You can ask the customer what they need and you can improve your conversion," says Lammers.
The advantages of retail media platforms are offset by a significantly higher CPM price compared to other publishers. Due to more and more advertising budgets being allocated to retail media, that price will only increase. According to a multinational corporation such as Unilever, there needs to be something offered in return. "You have to be able to demonstrate the added value of that higher price. It shouldn't merely be the claim that to be closer to the purchase you need to advertise with us; you really have to calculate that thoroughly" says Maurice Wener, Data Driven Media & Commerce Media Lead at Unilever.
What is the potential of an omni-channel as retail media for advertisers? According to Nathalie Peters (IPG Mediabrands, Chairwoman of IAB Netherlands for five years, and currently a partner at MORGENFRISK), omni-channel customers are more loyal and spend more than consumers who utilise a single channel. "Adding retail media as an omni-channel platform therefore offers unprecedented advantages, especially when matched with digital advertising" she says. "Because consumers are increasingly starting off at retailers instead of search engines, it is extremely important for brands to be visible there. In retail environments, the concentration is on 'what can I buy?'. As a brand, you are very close to the moment of purchase and that is incredibly interesting."
According to Peters, the results show that advertising around the product in the retail environment exerts a positive influence on the Add To Basket of brands, and benefits the ROPO effect.
But is the publishing model actually suitable for every retailer? In Peters' opinion, smaller retailers can also get started with media. "Scale is always important, but it's not the most important aspect. It can only be a real success if it doesn't get in the way of the core activities of retailers, which is selling products and making customers happy; that's why it's important that retail media integrates as seamlessly as possible with retailers' operations and channels," she says.
Retailers aiming for the marketing budgets of brands must invest in advertising technology, otherwise they won't be an interesting provider in terms of data transparency, targeting, measurability and campaign reporting. According to Peters, there are several technological solutions available for this on the market.
Interesting for FMCG brands
According to Han Roode (IDTV, Mindshare and head of strategy at M2Media for six years), retail media is a strong and wonderful addition to the media mix, especially for the so-called Fast Moving Consumer Goods (FMCG) - not just for marketing close to the moment of purchase, but also for increasing deliberation and preference. According to him, the smart use of the enormous pile of first party data can create an unprecedentedly high impact. "Especially if you combine it with other media channels. The CPM is relatively high if you only use it for targeting with coverage targets. That's why it would be less appealing to non-FMCG brands as long as the inventory is relatively limited," he says.
Research shows that retail media is very good at stimulating conversion. Roode: "The strength lies mainly in the sharp targeting possibilities. From purchasing behaviour, combined with search behaviour, an extremely sharp recipient profile can be created, and that in a more or less closed eco-system. The combination of a high degree of brand safety, the relevance of the environment, and the increasing variety of advertising options, also makes its deployment for reinforcing brand effects increasingly appropriate."
Competition with publishers
According to Aart Lensink (Director of LVB Content Marketing), traditional publishers cannot compete with the best retail media. "Publishers are sitting on the data and want to make you pay every time. The environment of retail media is safe for brands, which is what makes those brands so eager to be there, close to the customer's purchasing decision. That's not feasible for ordinary publishers," he says.
According to Lensink, the concept of a magazine such as Albert Heijn's Allerhande, with its recipes full of sponsored content, is very strong. "As a fast mover brand, you can't really ignore Allerhande," he says. "Retail media that is successful started out with content. They saw a content domain where there was enough scope to become a major force. With a magazine like Allerhande, it's all about the recipes of course. A lot of retail media are caught in a slight dilemma, as you want to offer your customers some content and inspiration, but the environment is so valuable that you also want to display as many products as possible. We notice this in practice with our customers. The pull is coming from two directions. "
On platforms such as Bol.com, he notices that in the final phase of the funnel, there is no longer any content visible. Lensink: "That isn't strange from the perspective of Bol.com. Customers are about to buy something, so to serve content at that moment isn't a smart move, it's distracting; it should be done much earlier in the customer journey. "