The COVID-driven shift to e-commerce has profoundly impacted commerce. As shoppers flock online in droves, 75% of they report changing brands during the pandemic, and many won’t go back to previous brand loyalties.

Brands have scrambled with supply chain disruptions and activating the shopper in this new omni-commerce world, including shifting their connection points with customers to digital media.

Lastly, e-commerce experienced explosive, 35% year-over-year growth, according to Mc­Kinsey. What’s more, this growth spurt has turned many retailers’ economics upside-down as they become responsible for last-mile delivery, unpredictable demand and changing shopper preferences.

A highly profitable revenue stream

The challenging economics — and growing shopper audience — of e-commerce have borne a new form of media: retail media. While a few short years ago, Amazon was the only retailer monetizing its audience and selling advertisements on its platform, recent events have unleashed a frenzy of retail media launches across retailer platforms such as Piggly Wiggly.

According to Jason Goldberg, chief commerce officer at Publicis Groupe, “It’s not difficult to understand why retailers are so enthusiastic about retail media networks. Selling ads is far more profitable than selling goods.”

Retail media is expected to be a $100 billion business by 2026, representing 25% of total digital media spending, according to the Boston Consulting Group.

What is retail media?

Retail media, or retail media networks (RMNs) are advertising platforms on retailer websites and applications. The advertisers may be brands that sell products directly on the retailers’ platforms. They may also be non-endemic brands in categories such as financial services that are interested in the audiences provided by the retailers, even if they don’t sell products through them.

Advertisements may be shown throughout the online shopping experience within search results, on home pages, category pages, product pages and more.

As e-commerce becomes more search driven, RMNs are largely believed to give brands an advantage on the digital shelf through search and display advertising, replacing such in-store placements as an end-cap or in-aisle feature.

What’s more, consumer brands and retailers should prepare for further complexity and competition for advertising dollars. According to Pacvue, a leading enterprise advertising software provider, we’ll likely see a minimum of 35 new RMNs globally within the next five years.

Delicious data

The data provided by RMNs can be highly satisfying to advertisers, which is a big driver of their rapid growth. Being able to connect advertising directly to retail KPIs such as conversion, sales, traffic, etc. can provide a level of assurance about advertisers’ investments. Additionally, RMNs provide targeting opportunities that are incremental and more data-rich relative to other digital media.

Yet, brands aren’t happy. According to Bobsled Marketing, only 21% of brands are happy with how their retail media dollars are currently allocated. Attribution to the complete sales picture is a challenge, too. According to an annual report by Profitero, 41% of consumer brands cite RMN impact on off­line sales as a top challenge area for their organization.

Shoppers aren’t necessarily happy with digital ads on retailer sites, either. According to Statista, only 31% of U.S. Amazon users considered sponsored ads on marketplaces helpful.

Three best practices have emerged to ensure RMNs are a win-win-win for retailers, shoppers and brands:

• Be relevant … and connected.

Personalization is critical to deliver effective advertising on RMNs. According to McKinsey, 71% of consumers expect companies to deliver personalized interactions, and 76% get frustrated when this doesn’t happen.

However, relevance is one step beyond personalization. Relevance, by definition, means being appropriate — appropriate to the shopper and their buying history. Appropriate to the search term. And appropriate to the shopping occasion.

Relevance also means being connected. Connected to and with data, but also connected to the offline/in-store experience.

Do be aware of key seasons or occasions and align your advertising messages accordingly. For example, minor tweaks such as messaging preparing for summer BBQ season or back-to-school can make ads feel timelier and more relevant. Connect the advertisements and targeting capabilities to the shoppers’ in-store purchase history, if available.

Avoid allowing advertisements on keywords that aren’t relevant to the product, such as showing antacids when a shopper searches ibuprofen. Don’t show shoppers ads for products they’re purchased too recently and are unlikely to be ready to replenish. Lastly, ensure you’re swapping messaging out once that seasonal event has ended. No one wants to see an ad referencing Mother’s Day after Mother’s Day.

• Be transparent.

Shoppers don’t categorically dislike advertisements on retailer platforms, but no one likes to be tricked. When shoppers feel tricked, trust is compromised. In an environment of low brand and retailer loyalty, building and maintaining trust is a critical area of focus for retailers and brands alike.

Ensure that advertisements are clearly noted as such, even if they are designed to look like a search result, for example. Be transparent with the shopper about when they’re being marketed to. Remember, shoppers don’t necessarily mind advertisements that are targeted and relevant.

Don’t underestimate the shopper. Their level of digital savvy has increased multiples during the pandemic.

• Be inspirational.

Personalization isn’t enough. Serving up advertisements that understand the shopper’s favorite brands, shopping habits and purchase history is the status quo. Next-level tactics include inspiring the shopper. Are there ways to make the advertising experience feel more exciting?

For example, a shopper visits the retailer website and executes a search for “sunscreen.” This is the equivalent of a shopper walking into a store and saying, “I’m going to be out in the sun.” In what ways would a sales associate assist that shopper? What other products might the shopper be looking for, and how can we merchandise them via advertising?

Advertisements for other types of sun care, hats — even coolers and pool floaties — are likely to convert. However, currently, this search on Instacart yields five sponsored ads for sunscreen and search results exclusively for bottles of sunscreen, with similar behavior on other retailer websites.

Takeaways

Retail media is here to stay. When executed well, it can be an excellent revenue stream for the retailer, a great way for brands to connect with potential audiences and a value-add for the shopper in delivering an enhanced shopping experience. However, when executed poorly, it can frustrate advertisers, and detract from the shopping experience.

Ensuring that advertising is relevant and connected to data and the in-store experience is critical. Transparency is also key in building trust with shoppers. Lastly, finding ways to inspire shoppers by introducing them to new products and categories will ensure the retailer remains a value-add in the shopper experience.

Written by Andrea Leigh