Retail Media IT: How to Put the Trickiest Puzzle Pieces Into Place
Retail media networks, retailers’ powerful tool in their advertising and marketing arsenal, are forcing new compliance, integration, and ROI considerations for consumer goods IT teams.
Retail media networks are retailer-owned digital platforms that capture first-party data — such as purchases made at the point of sale — to enhance their targeting capabilities with personalized messaging, essentially enabling retailers to become their own media outlets.
Retail media spend was projected to grow five times in five years to a $25 billion increase in spend from 2018 to 2023, according to consulting firm Bain & Co., and retailers are jumping on the bandwagon with their own ad networks seemingly every week. In fact, more than 90% of the top 100 global retailers will build their own or will partner with a media vendor/provider to build retail media networks to leverage first-party data for revenue by 2025, IDC predicts.
“Retail media’s power comes from the fact that it’s based on delivering contextually relevant ads when people are shopping, based on first-party shopper data that provides closed-loop measurement and a clear sightline into return on ad spend,” observed Andrew Lipsman, a principal analyst at Insider Intelligence, who moderated a recent panel on RMNs for the National Retail Foundation.
Further, Bain & Co. found that 59% of advertisers say media networks offer benefits other channels can’t replicate, while 60% believe tighter data privacy rules will make retail media more important.
But as momentum for the retail media market grows, there are several considerations for IT teams on the back end to ensure that their brands can, in fact, offer those contextually relevant ads and leverage retail media analytics. “IT should be aware of how the results of retail media campaigns are being piped into the technologies that marketers use to measure media’s efficacy,’’ Nikhil Lai, senior analyst at Forrester, tells CGT.
Integration with Legacy Systems
A big consideration is the ability to tie together legacy data with first-party data. Retail experts say this is a dicey proposition.
“RMNs do not integrate seamlessly with legacy media planning, buying, and optimization systems,” according to Forrester’s Q1 2023 CMO Pulse Survey, Lai notes. The survey found that 55% of CMOs said that “rationalizing retail media with our other media investments” is their biggest retail media-related challenge.
Nikhil Raj, a partner at Bain & Co., agrees that right now, systems are not well integrated, making it a challenge for CPGs to buy retail media leveraging their own infrastructure. What is notable, Raj says, is that the brands already have a relationship with their retail partners, and they are sharing consumer data from which they could potentially gain insights. “So, leveraging that becomes a very interesting opportunity for consumer goods companies when they think about targeting and measurement,’’ Raj says.
However, he questions whether the data CPGs receive from Walmart, for example, is the same that is coming from Amazon or Target, and if it is all “integrated cleanly to read my campaign performance and take actions.”
Campaigns could “certainly benefit from a tighter integration with the technology and the retailer teams,’’ Raj says, adding that he suspects this is not happening. “It's early days right now.”
Ensuring Cross-Channel Integration
Retailers with RMNs hold the keys to the kingdom because they capture first-party data such as who is buying what in their stores — the holy grail for brands.
“Vendors that sell in Walmart want to know if someone is buying a toaster, who bought it?’’ says Rick Ducey, managing director at BIA Advisory Services. The retail giant could potentially provide a list of who bought toasters five years ago and may be in the market for something new, like air fryers, he says.
“Now, the ROI will be pretty high if you can provide that,’’ he observes. But getting to that information requires brands and retailers to share data. The question becomes, who does that — Walmart’s IT department or a third party?
“A brand’s IT department needs to work with the retail media network to figure out how to do those queries and how to get your first-party data to mine and restrict it,” Ducey says.
This requires having a data governance strategy that takes into account corporate rules and procedures that comply with regulatory requirements, he says. “So for IT, there’s technical work that has to be done, then making sure [the RMN is] in compliance with various policies.” It’s also key for IT to know the companies they’re dealing with and the tools and retail media platforms they use, Ducey adds.
This is where data clean rooms, which manage data in a private and trusted way, come in, and companies including Clorox are investing more deeply in them.
“To manage data, marketers and their IT teams should consider clean rooms, which empower retailers and brands to connect datasets across multiple touchpoints and analyze them without requiring any data to be moved, commingled, or centralized,’’ says Lai. “Clean rooms provide marketers and media owners with the control and flexibility they need [to] connect and match datasets without breaching privacy and security regulations.”
Ducey agrees, saying that in a data clean room, the retailer and the vendor contribute their data in a personally protected way using a unique identifier. However, “someone has to know how to join those two records.” IT needs to know how to interact with different corporate data architectures while adhering to governance rules and sharing data in a third-party data clean room, Ducey says.
“Interoperability is the challenge — and that costs money,’’ he says.
To ensure integration across RMNs, IT can help marketers deploy market intelligence and campaign performance software platforms that normalize retail media results so the marketers can make apples-to-apples comparisons across their portfolio of retail media investments, Lai says.
Wanted: Increased Data Sharing
Advertisers are looking for a few different things from retailers, such as the promise that they can target their audience in the right context and create measurements that until now, were difficult to get, says Raj. “Along each of those dimensions, there are challenges that have a gap between the promise and the reality from the perspective of the CPGs. The data sharing from retailers is not as much as the CPGs would like” in terms of measurement.”
He adds that the brands “could certainly use better visibility and transparency from the retailers on that measurement.” Indeed, 28% of consumer product manufacturers in the Path to Purchase Institute’s 2023 Trends Report cited data sharing and transparency as a challenge in working with RMNs.
The operating model is a pretty big difficulty, Raj says. “Retailers have been used to treating brands as vendors and now they have to treat them as customers” because they are the media buyers on their platform. “Both sides are trying to figure out how the new relationship is going to work.”
Selecting providers
From a high-level perspective, selecting an RMN boils down to “where you think your people are hanging out’’ and which retailer has your target audience, Ducey says.
He suggests doing a little experimenting as well. “If you’ve got $1 million, go to the top four RMNs and spread the spend, so you can be targeted and conceptually driven.”
An obvious factor to look at is how much business you do with a particular retailer, Raj says. Also, you need to know how comfortable the retailer is with sharing data and giving you the scale you need and how well run their campaign operations are.
Retail media IT should know what capabilities the networks have and whether the retailer can help the brand gain visibility with other audiences, such as the ability to use the data provided to buy ads on other channels such as Facebook or Instagram, for example. The RMN should also be able to provide measurement and reporting, which “will become important going forward as retail media gets saturated and [the brand] needs more ad inventory to buy” in a competition model, Raj says.
How to Measure ROI
The return on investment of using RMNs should be measured by brand- and campaign-level KPIs, Lai says. “Marketers can have proxy metrics that are unique per network but, to optimize spend, marketers must hold every network accountable to common, brand-level KPIs like market share,’’ he says. “When they do, marketers can calibrate spend depending on networks’ performance against overarching goals while optimizing for campaign-level KPIs, like keyword-level share of voice and product-level contribution margins, to lift tactical efficiency.”
Determining how to measure ROI will likely be specified by marketing and can be product- brand- or campaign-specific, agrees Ducey. “Ultimately, what people love to see is if I put out $1 in advertising, how many dollars does that return? Then there are high-level branding goals [such as] people feeling warm and fuzzy about the brand.”
Brands will also want to measure performance KPIs, which is retail media’s strength, he says.
There are the classic measurements brands have traditionally used for media buys, like impressions, reach, and frequency, which they will continue to think about. They will leverage IT to help them with other measurements to drive sales, Raj says.
“In fact, one of the main reasons to buy a retail media network is to drive sales,’’ he says. So sales metrics could be the conversion.”
Ensuring/Maintaining Regulatory Compliance
IT professionals must stay abreast of new regulations at the local, state, federal — even international levels, Ducey says. They can do so by attending webinars, gaining certifications, and working closely with their corporate legal departments. If they belong to professional organizations, they should stay in touch with them so they know what is happening from a governance and legal compliance perspective.
Rules are constantly changing at all governmental levels and “there may be some state-specific requirements, so [IT has] to make sure they have on record permission to use someone’s purchase history to serve ads,’’ because IT creates that structure, he says.
Future Outlook
More than half (53%) of advertisers expect RMNs will proliferate in the next three to five years, according to Bain & Co. But for all the buzz, CPGs and their retail partners have a lot to iron out before they mature.
The future of RMNs is one of growth — but with underlying tensions, Lai believes. “We expect that the retail media market will more than double in the next four years to reach over $85 billion by 2026, catalyzed by endemic, data-poor CPG and consumer electronics brands investing in media that reach shoppers at the point of purchase,’’ he says.
However, decades-old tensions between retailers and brands constrain retail media’s potential, and that’s something that has to be addressed, Lai adds. “At times, retail media feels like a tax that brands must pay to nurture their relationships with retailers, and, at others, brands use their retail media spend as leverage to negotiate higher prices for their goods. The future of RMNs hinges on the resolution of that tension.”
