As long as we’ve sold products, we’ve had ads. Crazily enough, the oldest ad ever is for a basket-weaving business way back in ancient Egypt – printed on papyrus!
We’ve come a long way from papyrus ads with hieroglyphics (now we use emojis 😳). But one of the biggest evolutions in advertisement has been the shift from ads in traditional media to ads in retail media.
This shift allowed businesses to advertise to customers who were already looking to buy products, targeting them in a more receptive state. And business has exploded, with retail media representing over 11% of all total ad spend in 2022 – nearly $115 billion worldwide.
That spend is expected to grow, as the revenue generated from Retail Media will eclipse that of television ads by 2027.
The upshot for advertisers is enormous. But, like all ad campaigns, it comes with risks. How many ads are too many? Will these retail ads end up turning off customers?
Retail media presents an exciting challenge for businesses: advertise right, and you meet buyers at the point of sale with a personalized solution.
Here’s how ecommerce businesses can navigate the retail media landscape, and what they should expect to see in the near future.
What is retail media?
Retail media, refers to an advertising channel on a site where customers buy products.
Retail media is similar to the traditional advertising user journey in digital marketing, but specifically on sites where consumers actually make their purchase.
Instead of seeing an ad for a Wusthof knife block on NBC.com, I now see one on Amazon when I type in “knife block.”
This advertising space is particularly valuable to brands because the user is already on the platform where they can complete the purchase. What's more, the fact they're searching for the item on a marketplace or retailer site, is a good indicator that they're already looking to buy.
What are some examples of retail media?
Retail media can be divided into two main buckets: physical and digital.
Physical retail media refers to ads for products placed in brick-and-mortar stores.
Cooler Screens, which replace transparent cooler doors with digital displays, allow retailers to both showcase their products and advertise specific deals and drinks. These have been rolled out in places like Kroger, CVS, and Walgreens.
Digital retail media networks, by contrast, provide advertisement space on a retailer’s site.
Here’s an example of an ad on Amazon, the largest retail media network in the United States.
When I searched for “Pasta Maker,” the first result that came up was “sponsored.” This is an ad. The maker, Sailnovo, paid to have their product listed above the other products, including Amazon’s “overall pick.”
In 2023, Statista unveiled the top three retail media networks by market share – as of 2021.
Here are the top three:
- Amazon Advertising – with an 89% market share
- Walmart Connect – with a rising 6% share
- Instacart – with a 5% market share
Amazon dwarfs the other largest retail media networks, but that doesn’t paint the whole picture. Walmart’s retail media network, Walmart Connect, grew sales by 36% in the last year. Furthermore, Walmart Connect has grown its network of advertisers by 60%.
Unlike Amazon, Walmart Connect bridges the divide between physical and digital retail media. Walmart Connect now offers third-party brands the option to advertise in-store at check-out kiosks and sampling stations.
Most of the top marketplaces in North America are also large retail media networks, such as:
- Ebay
- Macy’s
- The Home Depot
- Target Roundel
- Etsy
- Drizly
This isn't just in America, the growth of retail media is one of the most important ecommerce trends in 2024.
What are the benefits of retail media?
Retail media offers businesses significant advantages over placing ads in traditional media markets.
As traditional tracking methods such as cookies become obsolete thanks to privacy laws and policies, placing ads on non-retail sites offers less ROI; advertisers no longer have access to viewer data.
Retail media networks, by contrast, are able to utilize first-party data for effective targeting, while still respecting privacy laws.
Retail media utilizes user data without needing cookies
Third-party cookies have already been banned on Safari and Firefox, and are being phased out of Google Chrome. In the cookieless future, brands will need to partner with consumers to ethically gain access to their data.
Retail media networks allow brands to access valuable first-party user data without relying on cookies.
First-party data, as a refresher, is data that a business collects directly from its users – when they interact with their site, ads, or make a purchase. When a customer buys a pair of Nike sneakers directly from Nike’s site, Nike gets access to critical user data through the purchase page, the search behavior, and the products clicked.
Retailers can get this same, high-quality data through retail media networks. When a customer views an ad or clicks on a sponsored product on Amazon, the retailer gets access to those behaviors.
Ultimately, this first-party data allows brands to personalize ads to their customer base, increasing ad relevancy.
Retail Media Networks reach customers at the point of purchase
How many times have you been scrolling through a news article on a site like CNN, only to be met by an ad for an unrelated product? You’re not looking to buy a watch right now, you’re trying to read about the Hurricane coming your way!
This is the downside of advertising on traditional networks. Even with personalization and targeting, retailers are still delivering ads when customers are not in “purchase headspace.”
Advertising with Retail Media solves this problem.
Why?
Because a site visitor is already in “purchase headspace.” A visitor who goes to Amazon.com is likely to buy a product or to perform product research at a minimum.
Customers additionally often search for the products they’re hoping to buy. A visitor might type in “sneakers,” on Amazon, and then sift through the listings.
By using retail media to advertise, a brand like Nike can have their sneakers listed above the competition. Searchers will be more likely to engage with the ad because it corresponds to their behavior. It doesn’t interrupt their article – it provides a solution to their search. If a user clicks on that ad, Nike gets the user behavior data as well. Users will
Those are the big benefits of Retail Media Networks: advertisers get access to first-party data, and they reach customers at the right moment.
The future of retail media
Retail media sounds like a win-win-win, right? Brands advertise to customers more effectively, retail sites like Amazon generate ad revenue, and customers receive personalized ads at the opportune moment.
That’s the logic that is spurring brands to spend more each year through retail media networks. In 2024, it is estimated that 1 in every 6 ad dollars will be spent through retail media.
However, there are some challenges on the horizon.
Firstly, there is the stress between ever-expanding retail media networks and brands’ desire to streamline. While Amazon may hold the lion’s share of retail media spend, more and more RMNs are coming online and chipping away at Amazon’s hegemony.
This puts retailers in a bind; they don’t have the capacity to be on every channel at once. Furthermore, the ad specifications are not standardized across retail media; every RMN has different design specifications.
This makes investing in RMNs challenging. Bain and Company found that only two retail media networks had a positive NPS in the United States, while the remaining 21 next largest networks had negative scores.
On top of that, only 17% of CPG advertisers currently believe that retail media networks offer a high ROAS (return on ad spend). Email and search tied for first with 38%.
What does this mean?
In a nutshell, it means that while retail media networks are growing and valuable, there are still many kinks to be worked out. Advertisers are worried about juggling too many networks and about a low ROAS.
Customers, conversely, are worried about ads becoming too intrusive. Remember those Cooler Screens we mentioned earlier?
Turns out, customers hate them. They make them harder to shop. How? By hiding the products from view. Sure, you get a digital display of Coke bottles, but when you open the door, you’re greeted with completely different products – or worse, empty shelves.
When you type in “Cooler Screens” into Google, the first thing you see is their abysmal 1.4 star Google score.
Just look at some of these reviews.
This is the challenge that retail media needs to navigate: how to connect with customers without frustrating them.
Obviously, Cooler Screens are an extreme example, but there are similar issues on digital Retail Media Networks.
Customers, when searching for a product, can become frustrated by ads that clog up their feed. For example, when I typed in “Marcato Pasta Maker” on Amazon, the sponsored listing was for the brand “MZTOGR.”
What? How do I even pronounce that?
Ad experiences like these can frustrate customers, leading to distrust. More extreme, it can lead to the use of Ad Blockers. In fact, over 42% of internet users worldwide have installed Ad Blockers as a way to reduce the barrage of irrelevant content.
Nearly 1 in 2! That number is only going to go up as advertisers continue to frustrate shoppers.
Brands need to understand that retail media networks are a promising and powerful new channel that can deliver relevant ads at the opportune moment. But there are challenges. Channels are disparate, design specifications aren’t standardized, and customers are only one bad ad away from turning on an ad blocker.
Retail brands will need to be savvy to these trends in order to take full advantage of the valuable first-party data that these RMNs offer. Expect to see waves of consolidation, as marketing teams choose fewer retail media networks to focus on. This may be countered with design standardization, allowing brands to easily deploy ads across multiple networks without having to go back to the drawing board.
The upside is enormous. The risks are real, though certainly not insurmountable. Targeted ads, relevant material, and non-intrusive display will help brands improve their ROAS.
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