Structural shifts in the advertising marketplace, and most recently in digital advertising, have created the opportunity for retailers to become highly effective channels for marketing dollars. Retailers can leverage their customer traffic as well as their first-party data to sell ads or services, either on their own website or on the sites of third parties. Sales can take place through retailers’ owned channels—such as websites, mobile apps, branded emails, in-store screens, and social media pages—which collectively are often referred to as “onsite.” Retailers can also make use of non-owned, or “offsite,” channels, such as Facebook, Google, Pinterest, or programmatic or direct-buy display ads. In all cases, though, the retailer leverages either its direct relationship with the customer or its first-party data from the customer to create customized audiences to target for its clients.

Advertisers come in two types: endemic and nonendemic. The first are brands that currently sell through the retailer. Nonendemic advertisers are brands that benefit from the retailer’s data. Think about a home insurance company that advertises through a home improvement retailer or an apparel brand that targets back-to-school shoppers at a drugstore chain.

Retail media gives both types of advertiser access to data about who is in the market for which products and enables them to get in front of the customer at the moment of decision making, promote add-on products, retarget previous customers, and learn which advertising tactics are working by closing the loop on actual purchase behavior. For brands, retail media can be a critical channel for marketing dollars going forward. It offers a better way to speak to customers and to actually measure the impact of their marketing dollars through closed-loop reporting. For retailers, a media capability supercharges their personalization efforts.

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New Challenges and Capabilities

If the premise is simple, execution is anything but. While many retailers have long been major advertisers, most have not built the skills and tools they need to compete in retail media. Some challenges are common to starting any new line of business (building the team, for example, or shaping the initial product offering, aligning the merchandizing team, and building excitement with advertisers). But several are specific to digital businesses and involve new capabilities. Data and digital technology skills are key.

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BCG Retail Media Opportunity for Brands:

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New tools are becoming more and more sophisticated. Some of the technology can be purchased off the shelf, especially when retailers’ programs are small. But as media businesses scale up, the options for sufficiently flexible and configurable functionality such as onsite ad serving are limited. Similarly, retailers will need to provide advertisers with a one-stop capability for building and launching campaigns that includes omnichannel inventory, the ability to see live campaigns, and measurement tools. In the early days of a retail media operation, retailers can offer managed service, allowing for the manual launching of campaigns, but as these scale, they will require automated, self-serve solutions.

For all but the most advanced retailers, the media business will require the acquisition of new skill sets—such as sales teams that can sell media and tech experts who can set up an ad ops team—since advertisers will expect the same level of capability, professionalism, and performance that they receive from digital publishers and tech giants.

Be prepared to test, learn, and adjust. Start by selecting an advertiser-partner or two with which to pilot or test a minimum viable capability in real time with real customers. Take a page from the digital natives: don’t be afraid to fail and adjust. Move fast but make decisions based on what the data tells you is working. When something is working, scale up quickly.

Retail media is a big pie, but it has a limited number of slices, and gaining a seat at the table requires vision, commitment, and resources. Retailers that want to seize significant share of a major new market need to start now.

Source: BCG