While mainstream media channels were earlier considered the primary destination by brands for digital marketing of inspiration, consideration, and conversion, that is no longer true today.
With growing diversification of the media landscape, Retail Media Networks (RMN), a collection of digital channels owned by retailers, have emerged among the fastest growing digital media channels.
With a healthy annual double-digit growth, the global retail media market is expected to reach ($179.5 billion) by 2025. In the UK alone, retail media ad spending is expected to outdo TV ad spending in 2025 and exceed £7 billion in 2028.
Amazon leads the pack with the lion’s share of retail media revenue (~$60bn in 2024). Walmart is a distant second (~$4bn). This gap speaks of the market’s growth potential and intense competition for other RMNs.
Compared to the thin traditional retail margins, RMN revenues typically exceed 70%. Many retailers have entered the fray considering this additional revenue stream and margin contribution potential – over 200 RMNs – have been launched in the last few years.
The rise of RMNs:
The availability of various social media and online channels has ensured the path to purchase is not linear anymore and follows multiple channels. Post-pandemic, consumer behavior has changed significantly, as seen in the emergence of the Research Online Purchase Offline or ‘ROPO’ effect.
Both local and large brands are constantly seeking opportunities to create brand awareness across available channels. They want to reach consumers with the right messages, right content, and at the right moment on their path to purchase.
Today’s retailers offer a variety of ad units and ad formats with audience reach across an extended ecosystem. It includes their own onsite, in-store, and partner networks. Most importantly, retailers with right shopper loyalty programs have high quality first-party (1P) data that advertisers want to capitalize. Therefore, advertisers are more willing to invest in retail media which can deliver incrementality and ROI.
Well-established RMN can create a true fly-wheel effect for retailers in growing sales, consumer experience, and ad revenue.
Challenges to effectiveness of RMNs:
Despite the opportunity for retailers in the RMN business, they may not generate expected revenues from brands and their agencies due to various reasons like lack of relevant operating model and technology capabilities. The retail business requires a buyer mindset, while the media requires a seller mindset.
The absence of integrated joint business planning (JBP) hampers collaboration between retailers and brands organizations. Insufficient technology capabilities lead to poor 1P data, limited ad inventory and formats, without a self-service model or supplier insights to verify ROI and incrementality. Often organizations apply the wrong measurement metrics to measure success. RMNs also face intense competition from various retailers.
Ingredients of a successful RMN:
Currently, over 80% of the RMN spend by brands is for onsite (retailer’s .com and mobile app) channels in the form of sponsored products, brands, display ads, and videos – their primary focus is bottom-of-the-funnel marketing.
Retailers have a high-margin revenue stream in monetizing the 1P data in their omni channels by becoming full funnel player – ecommerce sites, mobile apps, in-store ad units, magazines, themed events.
With offsite channels like Meta, Google, Tik Tok, CTVs and in-store digital screens, RMNs can transform into full-funnel marketing channels. Many have already become omni-channel, media owners through strategic partnerships like Tesco Media & Insights + ITVX, Walmart + Tiktok.
The following steps will support the success of RMNs:
- The right organization structure, well-defined operating model and strategically aligned retail teams and RMN teams
- High-quality 1P data that can activate various audience segments
- Ad Units and Ad formats across onsite, offsite and in-store channels which can shape in-store themed experiences
- ML based audience activation and measurement across the channels
- Data clean rooms to combine 1P data with partner data, safely and securely
- Self-service and managed service options for an integrated campaign booking, activation and reporting
- Experimentation platform that can perform A/B testing
- Real-time insights – metrics like Return on Ad Spend (ROAS), Incremental Return on Ad Spend (iROAS), incrementality, brand lift, sales lift
- Standardization of metrics and definition of measurement
When it comes to instore, the ability to integrate ad servers and screens delivering ad content and including a feedback loop on aspects like the number of impressions shown, view time etc., is crucial. By mapping these metrics against in-store purchases, retailers help brands get an accurate view of sales incrementality, iROAS, and other key metrics to close the marketing loop.
RMNs that offer a 360-degree view of customer interactions across retailer touchpoints will help brands achieve micro-segmentation and hyper-personalization.
From media buyer to agency mindset:
To compete against the likes of Amazon, Google, and Meta, RMNs must demonstrate how they can provide superior ROI to the brand advertisers by leveraging AI and ML technologies, impacts consumer behavior. A consulting partner like Infosys can draw from their vast experience in implementing and integrating such technology platforms for global retailers.
Above all, retailers must begin to view RMN earnings as an additional revenue stream derived from a brand’s marketing spends. Those able to effectively don an agency’s hat in selling ad performance will encourage brands to entrust these precious marketing resources with them.
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