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Retail Media Networks: opportunities for growth in an increasingly crowded landscape

What if you could start a new, multi-million-dollar business with roughly 50% gross margin overnight? 

For most people, the answer is: where do I sign up?  

This is precisely the question that has driven many retailers to launch retail media networks (RMNs) – a complement to core retail businesses with better margins than most products sold in stores. Add in the fact that retail media network sales are expected to grow at roughly 25% per year and you can see why there is such a point of emphasis for retailers to launch and/or expand these businesses. 

Retail Media Networks: opportunities for growth in an increasingly crowded landscape 1
Source: The Boston Consulting Group

However, with attractive margins and growing sales come increased expectations from clients and competition. Well-capitalized and technologicallysavvy players, like Apple, Netflix, and Disney, are all expected to play in this burgeoning media commerce space. 

Interestingly, this is an unfolding example of Clay Christensen’s classic business theory, The Innovator’s Dilemma,

which established that markets with high margins lead to new entrants. Competitors undercut prices of established players to capture sales and take market share to eventually become dominant players in the space. 

A similar observation is the oft-cited Jeff Bezos aphorism: “Your margin is my opportunity.” 

Given the market dynamics – and to stay ahead of competitors – retailers will need to transform their retail media networks from being just “found money” to strategically differentiated in an increasingly crowded market. 

What does the media commerce landscape look like and how are retail media networks positioned? 

The media commerce landscape has evolved rapidly over the last decade with early, established players, like Google (and YouTube, which it acquired) and Meta (Facebook), the most notable companies to build large advertising businesses. The two tech giants facilitated growth for many brands’ businesses through targeted, digital ads which drove customer acquisition and sales.  

Advertising revenue, 2021 ($ billions)

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Source: 2PM

However, privacy changes in the last few years have limited consumer tracking – along with Apple’s announced terms of service changes on its iOS platform – and shaken up the landscape. These modifications made it harder for Meta, in particular, to provide relevant ads to customers given the limitations on consumer tracking.  

Increased costs of marketing and customer acquisition, coupled with greater demand from clients to connect advertising dollars to sales via measurement, have opened the door to new opportunities in the advertising market. 

Enter retail media networks which have built networks on the back of a retailer’s customer data and closed loop measurement – a tangible way to connect a customer’s ad exposure with register sales. 

Sure, there is much debate in terms of sales attributions and the best way to measure return on ad spend (ROAS), but retail media networks are well-positioned in relation to legacy tech players because of the closed loop measurement they provide. This is a strength that RMNs will have to lean on as the market grows and competitors emerge, such as Apple and Netflix.   

With increased competition, it is paramount for RMNs to develop a clear strategy for advertisers to stand out – and build technology products to support the strategy – or risk losing out on a slice of the growing media pie with new, motivated players in the mix.   

Internal urgency is critical given the competition’s technological strengths and the annual growth rate 

So, how can you ensure you continue to grow your retail media network – and don’t just treat it like a passive income stream – amidst high growth and increased competition? 

For starters, driving the right internal urgency is critical. Look no further than how motivated new entrants are to come into the space given the estimated growth rate and the margins. Retail media networks must share the same urgency to invest in the business and grow faster than the expected market rate. 

According to media reports, Apple will have about 500 people for its media advertising business by year’s end. Netflix is considering $65 CPMs (cost per mille, advertising parlance for cost per thousand impressions) – rates that are higher than Super Bowl ads. Amazon had a record number of Prime signups, during a recent Thursday Night Football game, because of the allure of its media properties. 

These well-heeled tech players have the technological chops and streaming media properties to redefine the media commerce landscape – in a short period of time – given the data and media properties they have. Identifying a strategy centered on differentiation with advertisers is crucial to continued RMN growth. 

Benchmark your offering and understand the wider RMN lens to compete moving forward 

To identify how you can differentiate, start by raising your bar. 

Pinpoint your current weaknesses to achieve parity with the market. It is hard to distinguish yourself if you fail to offer the same level of capabilities as others in the market. 

Then, leverage your strengths, as a retailer, to support your retail media network. RMNs must be aligned with customers and vendors alike to succeed in the long run. 

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Source: The Navio Group

How does this work in practice? 

If your strengths, as a retailer, are low prices with most of your sales coming from your stores (i.e., dollar stores or convenience), consider investments to grow your market share through greater trip frequency or basket sizes.  

If you are a home improvement retailer, think about customizing your technology investments for contractors who shop with you frequently. 

Your tailored strategy is more than can be covered in any blog post, but the key is to continue to raise the bar in relation to your peers since that is how brands and advertisers are evaluating your network in the broader landscape.  

From there, it is all about getting behind technology and product investments that drive engagement with your customers and bring greater value for your brands.  

As you prepare for next year, the question to ask is: How do you wrap your arms around a compelling strategy for advertisers in an increasingly crowded media commerce space? 

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