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Retail Media’s Future: Eight Things to Look Out For

- Luke Metcalfe
Retail Media's Future: Eight Things to Look Out For

Retail Media’s Future: Eight Things to Look Out For

This fall, Crealytics hosted NY KnowGO 2019 – the only event dedicated to Sponsored Product Ads, Retail Media and Amazon. Over 150 brands and retailers attended the conference, from giants like PepsiCo and Ralph Lauren to successful start-ups. We’ve highlighted some of the day’s major talking points – from marketplaces to mediation. Here are eight things to look out for:

Retailers need these three qualities to survive and thrive in 2020

Online retail is evolving, and quickly. From its Sponsored Product Ads to buy box, Amazon has rewritten the rule book, with retailers feeling the pressure to adapt or die. Multi-brand retailers have floundered, unable to keep up with the pace of change and aggressive marketing tactics. Wholesale and Direct-to-Consumer (DTC) Brands also face a wildly different path to success than they did even five years ago. Some have adapted to the skills, resources, and data challenges required to compete. Others have not. A thread of three common themes weaves through the DNA of those likely to prosper in the future:

Scale

Think about the qualities needed to prosper in today’s retail landscape. Scale, price and product all spring to mind. The scale that some of the truly big hitters in retail have – think Walmart, Carrefour, Costco and Tesco – have enabled them to build or acquire capabilities that may be out of reach for smaller, less well-financed competition. As an up-and-coming retailer, the chances of usurping such giants feels slim to none. Without a path to scale, it can be impossible to enter the arena and prosper.

Marketplace-Friendly Offerings

Can retailers ignore the lure of the marketplace model? Most evidence suggests not. Plenty of marketplace characteristics feel attractive in a punishing climate. The retailer buys no stock up front, and enjoys a cut of every third-party sale made on its website. Nor must it bother with storage or logistics; in a true marketplace offering, participating brands operate both the warehousing and fulfilment of their products.  And availability of data-driven solutions for both host and vendors enhances potential further. In a 2018 survey, as many as 44% retailers had either launched or planned to launch a marketplace in the near future. Expect more retailers to take the plunge this year.

Brand Power

The power of brand equity counts more than ever. Some of retail’s biggest names carry enough clout to determine their own destiny, as opposed to relying on third parties. If you’re a major seller for a retailer you can start to set the agenda when it comes to product assortment, pricing policies, and even data sharing agreements.  Retailers know that brands who own primary consumer mind share are key to their success in driving on-and offline traffic. Smart brands use that cache to control their brand presence and marketing activity.

Sponsored Product Ads Represent a New Revenue Stream

Traditional wholesale no longer packs the same punch, but its stagnation has ushered in a new, platform-centric alternative. On paper at least, the sophisticated middleman of retail represents an appealing, hassle-free option for vendors. And retailers-turned-marketplaces feel less pressure, allowing brands to sell the products, handle fulfilment and determine their own payment options. Many offer cloud storage services. They also facilitate and galvanize relationships between brands and their customers through the provision of reporting and analytics. But could the platform economy’s key innovation center on new revenue streams?

 

Early pioneer Alibaba shows how: Over 60% of the marketplace’s revenue comes from ads. Jack Ma’s platform recognized advertising’s value as a revenue stream early on. Amazon also makes the bulk of its profits through Sponsored Product Ads.

As more retailers adopt a platform model, expect a further diversification of revenue streams.

Google’s (Lack of) Skin in The Retail Game

Google’s primary position in retail has been at risk for some time. Can it turn things around? Unlike rival Amazon, it has a logistics-shaped hole in its armour. Not only can it not offer fulfilment, but budget-conscious DTC brands continue to see diminishing returns from search campaigns.  Plenty of savvy retailers now offer their own ad units, and see Google as a direct competitor. As the biggest of them assemble their own offerings, the search giant has decisions to make.

Might the Biggest Marketplaces Eat the Competition?

Amazon casts a huge shadow over the retail landscape. And more shoppers than ever now rely on it for buying inspiration. In some cases, it claims as much as 75% of all product searches – even in the fashion category. This leaves little room for all but the biggest rivals to corral remaining shoppers. Smaller marketplaces will need to create competitive differentiation and true consumer value to gain share of mind and consumer dollars, or they’ll be left by the wayside.

Did you know: The revenue share of marketplaces is expected to increase by 26% within 5 years.

Direct-to-Consumer Strategies Wilt Under Marketplace Heat

We mentioned that traditional wholesale faces a fight for relevance. But marketplaces also spell trouble for DTC brands looking to bypass this new hegemony. For every Harry’s or Warby Parker, you’ll find many more brands for whom a successful DTC business feels unrealistic. Circumventing marketplaces has some appeal. You get to own the customer data, build long term value,  – and maintain the customer relationship as a result.

But without an established presence or wide product selection, customer acquisition costs can be prohibitive. It’s also challenging to retain your customers once they’re in the fold. Choice-astute shoppers’ preference for brand “gateways,” from Amazon to Zalando – could force DTCs further out of the picture.

Did you know: Crealytics interviewed 100 brand executives about their expectations for retail media’s future. Among other themes, they expect the share of DTC to decline by 8% in the next 5 years.

Brands Must Quickly Get Their House in Order

Online retail offers more channels for brands to master than ever before. New advertising opportunities have sprung up, complexifying the rules of the game. How many companies are truly prepared for Advertising 2.0: Marketplace Edition? Brands who have mastered their DTC efforts with search, paid social, performance and display advertising must now add marketplace platforms to their portfolio. Sponsored ad networks, private marketplaces and co-funding products make for a wild and confusing new ecosystem.

 

DTC Brands Must Align Their Internal Organization
DTC Brands Must Align Their Departmental Goals

 

In this tangle of choices, organizational fluency will make or break a brand’s future.  Take this as a [fictional] case example. The DTC marketing arm of Just Pens Inc. has always been responsible for owning the performance side of the business. So far, so good. Upon launching its marketplace operations, the wholesale team gets the nod due to its understanding of product assortment, pricing and promotional strategy.

However, they must now deal with an area they’ve never been tasked with before: marketplace advertising. Asked to drive results but lacking the skillset to achieve them, they don’t recognize that it’s an integrated ecosystem – and spend media dollars without regard to incremental value, competitive pricing policies, and deterioration of their own DTC efforts. It makes for a messy arrangement. Brands without harmonized roles and responsibilities increase their risk of failure.

Today’s Brands Care Less About Exposure and More About Conversions

 

Retailers once held all the cards over their brand partners. But the latter’s subsidizing of ad spend for increased exposure no longer delivers. Smarter brands now press retailers on advanced concepts from attribution to incrementality, whereas their partners once enjoyed almost exclusive access to the data around a brand’s transactions. Spurred on by improved reporting standards (thanks in part to Amazon), expect brands to take an increasingly forensic approach to their investments.

Mediation the Smartest Route to Sponsored Product Ad Success

Today’s smartest retailers monetize their ad inventory using Sponsored Product Ads. At NY KnowGO, most shared a preference for Private Marketplaces (PMPs) over ad networks as the means to achieve this. The latter option makes things easier for would-be publishers. But our retail panelists voiced several disadvantages – from lack of control over ads shown to the high fees (12%) required to facilitate them.

 

PMPs avoid these challenges, allowing publishers a firmer grip over proceedings. Sidestepping ad networks saves on fees, and results in a higher yield on their media spend. However, a new, third option – mediation – received the most praise. Those who choose it can integrate all available demand sources, mixing PMPs with other players [from Criteo to Microsoft] to maximize revenue.

As waterfall models give way to more intelligent forms of mediation, get used to publishers seeking the best of both worlds.

 


NY KnowGo is back for 2019

- Luke Metcalfe

NY KnowGo is back for 2019

Today’s online shopping experience brings challenges as well as opportunity. Google and Amazon have made things difficult for brands and retailers: exactly how can they compete? In October 2018, Crealytics launched a one-day conference to answer this question.

Over 100 brands, retailers and technology vendors attended our inaugural event, which focused exclusively on Sponsored Product Ads, Co-op Advertising and Retail Media.

And so we’re bringing it back for 2019. This year’s NY KnowGo promises bigger and better content. Participants will hear from industry experts, gain vital knowledge via breakout sessions and meet peers through exclusive networking opportunities.

No other event dedicated to these topics exists.

Check out our relaunched website at www.nyknowgo.com – you’ll find ticket sales, dedicated blogs and all the latest announcements.

retail media event


Co-op Marketing’s Top 5 Challenges In 2019: Brands’ Edition (Part 1)

- Nikolai Lien

Co-op Marketing’s Top 5 Challenges In 2019: Brands’ Edition (Part 1)

In this four-part series, we’ll be looking at the co-op marketing challenges retailers and brands must be ready to tackle in 2019. We’ll identify the top five challenges facing each side —and discuss how these challenges can be overcome. In this first part, we will examine the challenges associated with tracking, verification, and unoptimized processes. When discussing brands in this article, we are referring to manufacturer brands. Specifically, those supplying retailers with their consumer goods.

If you’re unfamiliar with online co-op marketing, check out our introductory article on the subject:

https://www.nyknowgo.com/post/thebenefitsofonlinecoopmarketing

‍For busy readers, we’ve provided a quick summary of the article’s content at the top. If you find the topics interesting, they are discussed in more detail below.

1.    Establishing tracking and verification processes

2.    Identifying a sustainable and scalable workflow

3.    Communications and collaboration

4.    Financing, acceptance, and approval

5.    Brand safety

Establishing tracking and verification processes

When it comes to co-op marketing in an online setting, there is a lack of established infrastructure. What does this entail? It means that the bones of contention, such as data-sharing, remain unsolved. Brands engaging in online co-op expect to see performance reports, similar to those accessed when conducting their own online performance marketing activities. It’s a reasonable expectation, but not without complication. Online marketers expect this level of performance transparency.

That being said, sharing performance reports with affiliated companies is not something most marketers would be familiar with.The industry-wide culture is to protect performance data as securely as possible. More than a few retailers’ eyebrows will raise at the mere mention of sharing their performance reports outside the company. Even with their own suppliers. Still, can you imagine the prospect of a brand spending its dollars blindly? It flies in the face of everything marketers have come to expect when managing online budgets.

Beyond evaluating performance, brands must define new ways of verifying that their co-op budget is being spent as agreed by the retailer. Co-op marketing in the offline world did not really face this issue. Cardboard cutouts, flyers, billboards. These are tangible, physical objects, plain for all to see. In online co-op, however, things become diffuse. Ad impressions don’t exist in a physical space, they appear and exist in brief moments on a would-be customer’s device. This means that unless the brand is allowed to track impressions directly, they will have to trust the retailer is spending the money on what, how, and how much was agreed upon. The brand must see their marketing dollars aid them in meeting a business objective. Simply subsidizing the retailer’s marketing costs for the sake of charity won’t cut it.

Identifying a sustainable and scalable workflow

As alluded to above, online co-op remains an uncharted field. The lack of optimized processes follows as a natural consequence of this. These include:

  • Technical processes – how are the co-op activities going to be structured and delivered upon?
  • Actionable processes – who is doing what and when?
  • Creative processes – who approves concepts and collateral on either side?
  • Reporting processes – who will share what data and how frequently?

Each of these questions requires an answer for a co-op marketing campaign to get off the ground.

Today, no established best practices exist. Retailers might suggest for a brand to spend a certain amount. The brand must then accept this proposal and shift the budget over to the retailer. Marketers have no streamlined platform or interface to work through. Everything happens through emails and agreements. In this sense, players conduct online co-op in much the same way as its offline counterpart.

However, in this unintentional homage to its comparatively slow-moving roots, online co-op is also forfeiting many of the advantages of moving efforts online. The status quo is a far cry from an interface allowing marketers to monitor campaigns in real time and shift budgets accordingly. Brands must continue to push retailers on their co-op processes and technology. Only by doing so can true efficiency and agility become realistic objectives, not merely an abstract and theoretical carrot.

 

Stay tuned for the continuation of this series. The next article will cover the final three co-op challenges facing brands in 2019. For more information on these subjects, why not visit www.nyknowgo.com – we’ve revamped our website for 2019’s conference!

 

NY KnowGo Conference 2019


Collaborate to Accumulate: Retailers, Revenue and Digital Co-op Marketing

- Nikolai Lien

Collaborate to Accumulate: Retailers, Revenue and Digital Co-op Marketing

Retailers and brands are missing out on potential revenue and efficiency by not pursuing opportunities in Co-op marketing. This article explains why Co-op is increasingly garnering attention among the top online retailers. It also explores some of the challenges that retailers and brands face when they engage in online co-op marketing. 

Let’s start with the basics. What do we mean when we say Co-op marketing? The practice has been around for a long time. It’s a simple concept: a manufacturer of a product buys in on a retailer’s marketing efforts in exchange for increased exposure. This has a series of advantages for both parties. 

How does digital Co-op benefit retailers?

The retailer will typically engage in marketing efforts regardless of their brands’ willingness to share those costs. They sell products for a variety of brands, attempting to persuade would-be customers to take a look at their catalog. Hopefully, they then decide to buy something. Barring considerations of margin, price, and stock levels, the retailer will not be too bothered which of their products the customer decides to purchase.  

Let’s say a brand wants to share some of the retailer’s marketing costs (in exchange for skewing the marketing message toward a specific section of their catalog). The retailer faces a relatively cheap trade-off. They take less risk upon themselves, and give up relatively little. 

How does digital Co-op benefit brands? 

However, Co-op benefits more than just the retailers involved. Brands have plenty of incentives to engage in such activities too.

Given the extremely competitive atmosphere in today’s global, online retail economy, it can be very challenging to stand out among the crowd. Plenty of great products have been abandoned, not because they were pointless or deficient, but because they did not find their audience. Having the spotlight of a prolific retailer shone at your products can be a powerful way of raising awareness. It can also help brands overcome gaps in experience; gaps that the retailer may be better equipped to tackle. For brands seeking to sell their products across regions or globally, it can be difficult to find the right messaging for each respective local market. 

When it comes to digital co-op, retailers can help brands with the sorts of logistical problems they may otherwise struggle with.

The costs associated with conducting market research, hiring local experts, and formulating a cohesive, consistent strategy should not be overlooked. By working with retailers already familiar with these markets, the brand can spend their marketing budgets more efficiently. After all, they can rely on those retailers’ established teams and experience. 

This sounds all well and good. What are the numbers? 

For a lot of companies, the sole concern of whether something is worth pursuing rests on how it will affect their bottom lines. So let’s see what’s going on in the industry. Estimators put the global Co-op market at around $70 billion dollars*. This amounts to roughly 12 percent of all marketing spend. The fact that Co-op isn’t channel specific means we can already see tremendous room for growth. Diving deeper, more than 80 percent of this amount takes place via offline channels (think billboards, TV commercials, offline media, and in-store media). With retailers devoting more and more of their focus towards online channels, it is only a matter of time until we see Co-op efforts move further in this direction, too. Early adopters are already ingesting some of the advantages related to marketing efficiency. They are also uniquely poised to define the practices and expectations for Co-op marketing in an increasingly online world of commerce. 

Online Co-op has its own set of challenges and opportunities. 

As the nature of marketing has evolved and shifted towards measurability and performance, so has Co-op. The days where all a brand expected in return for their cheque was a photo of their shiny, shared billboard looming over a busy city street are long gone. Online retail has ushered in a new world of measurement, in which professionals operate with data and metrics. If you can’t measure it, it’s not worth pursuing. That is the mantra of the digital marketing space, and that is where Co-op marketing has a lot of catching up to do. While other forms of online marketing activities have been remarkably standardized and commoditized, Co-op marketing remains largely ad-hoc. Those pursuing it do so in wildly differing ways. Generally speaking, processes, success metrics, reporting expectations and execution remain defined on a per-deal basis. 

Billboard - Co-op advertising
Your ad here? The days of brands accepting merely a shared billboard in exchange for their ad dollars are long gone.

This lack of pervasive best-practices may render the outcome of campaigns more unpredictable. However, in some ways, this can prove an advantage. Brands pursuing specific goals need not worry about having their vision or expectations dampened by tired retorts. “This is just how it’s done” or “This is how we’ve always done it” will become less frequent. In online marketing, Co-op is an emerging strategy. The final textbook has not been written. We’re barely on the first draft. This means brands will have an easier time convincing retailers to agree on highly individualized campaigns that truly complement a brand’s needs. 

Retailers and brands are already in a prime position to overcome Co-op’s challenges. 

There’s no getting around the fact that measurement is a real issue for any party interested in Co-op. Other channels have their path laid out bare for all to see. If you run SEM on Google Ads, it tracks your conversions. Both the advertiser and Google can see that it occurredIn Co-op, this is not as clear cut. The retailer must strike a balance between its own ability to measure, attribute, and report, and the brand’s expectations to see the efficacy of their joint campaigns. Compounding the trickiness of this balancing act are the retailer’s own concerns for data safety, and their desired level of transparency and effort. 

This may be tricky challenge. But it is not an insurmountable one. A big advantage here comes in the form of trust and communication. And to some extent this comes built-in already: both parties already do business together. The already cooperate along the supply chain, and earn millions (or more) worth of revenue together, year after year. It requires no cold calling, nor slogging through awkward introductory phases in an attempt to get a seat at the table. The brand and retailer already pass money and goods back and forth, meaning the foundation for the bridge of Co-op marketing is already in place. Trust remains essential when giving another company money to advertise within the world of online marketing. There is no tangible billboard to photograph, and no boxes of fliers to show off. 

If a true tracking option is not a feasible solution, the brand must trust the retailer to  do what was promised with the funds they are granted. They must trust that the execution was as intended and that they report back legitimate numbers.

Likewise, the retailer must trust that the brand will not adversely affect the retailer’s image or reputation in the market. Ultimately, the retailer has already qualified the brand as meeting their company values and positioning by opting sell their products. This trust has also largely already been established before talks of Co-op marketing  begins. There could hardly be a more ideal scenario from which to build out a lucrative and mutually beneficial partnership.

NY KnowGo is back for 2019. Stay tuned for more details on an exclusive event dedicated to Co-op and Sponsored Product Ads! Keep an eye on our soon-to-be refreshed website here: www.nyknowgo.com


Retail Media in the Age of Performance Advertising

- Nikolai Lien
Sponsored Product Ads - the Future of Retail Media?

Retail Media in the Age of Performance Advertising

The retail media market needs a paradigm shift. Sponsored Product Ads (SPA) represent a key component of this arena, and fuel the need for its change. This article addresses what Sponsored Product Ads are, their current status, why retailers and brands should pay close attention – and why the landscape requires a serious shake-up.

So what are Sponsored Product Ads?

Sponsored Product Ads are one part of a broader family of efforts referred to as site monetization programs. They form ad placements, which online retailers sell to brands. Separate from a retailer’s organic catalog, brands can pay to have their products listed more prominently on a given category page, search results page, or wherever else the retailer decides to offer ad placements. Doing this allows retailers to monetize online traffic beyond their core business (i.e. facilitating purchases from customers).

Brands benefit from this in a variety of ways. Beyond just increasing their sales, they can increase their page views in a strategically important category. Further, they can guarantee that products they wish to bring more attention to will be seen by potential customers. These ads can be seen as the online analog of brands paying a brick-and-mortar store to place their products more prominently on their respective shelves, or setting up a cardboard display in a highly trafficked aisle.

Today’s retailers have two choices. Either they can negotiate direct deals with brands to purchase a pre-defined volume of ad impressions at a fixed price, or negotiate a deal with a network demand source. These networks are advertising partners that act as a Demand-Side Platform (DSP) for multiple brands. In the case of a DSP, the DSP receives guaranteed placements and volume from the retailer’s ad inventory; and their clients can bid on these ad impressions. The DSP then picks the most lucrative bid and passes this ad on to the retailer.

The lone, notable exception to this two-pronged approach comes from eCommerce behemoth Amazon. Instead of one-off direct deals or locking its inventory to one DSP, it offers more sophisticated solutions. Brands work directly with Amazon in a competitive ad environment, where they have access to actionable insights about their ads and performance. Further, they can customize their ads, as Amazon offers multiple ad formats for the brands to make use of. Amazon emphasizes this further by controlling its site’s entire ad experience. Brands do not have to worry about their ads existing alongside undesirable content. Nor should they worry about the ads looking foreign or out of place where they are displayed.  Amazon produces a consistent ad experience by controlling both the input and the context. For brands, this means little to no risk of harming their reputation.

Further, as there are very few established DSPs in this specific vertical, conditions tend to be poor for both retailers and brands. The fee-per-impression for media sellers hovers at around 30 percent: and a lack of players in the market hardly incentivizes DSPs to offer better deals. Amazon gets around this issue by working directly with the brands for which they already sell products. Without a third party in the middle, brands and retailers save on the fee, and are free to nurture their pre-existing relationships in a mutually beneficial manner. Brands get the exposure they want at a reasonable price, effectively gaining more working media ad dollars. On the other side of the table, Amazon gets to monetize its onsite traffic without having to split the profits.

Sounds like a significant competitive advantage, how does this play out in the market?

Given the state of Sponsored Products Ads described above, no one should be surprised to hear that Amazon dominates this market. Out of SPA’s estimated $5 billion market today, we estimate that Amazon captures $4 billion. That’s 80 percent of the entire market captured by a single retailer.

Some retailers have tried to get around the limitations of tying their ad placements to a single DSP. How, exactly? By building multiple, distinct ad placements on the same page. They make dedicated ad placements (known as “swim lanes”) for different demand sources, resulting in cluttered pages. As the DSPs provide their own ad types and formats, this often results in an inconsistent and noisy page. Little space remains for organic content above the fold.

And a lack of optimization between the two swim lanes compounds the issue. Without competition between them, the ads may affect each other adversely. In the worst cases, the same product may end up winning both placements as the brand works with the DSP too. The result? An abomination of a landing page where the same product is advertised twice, in two completely different looking ads. Had the brand known that this would be the outcome, they likely would rather save their money on the second ad. Achieving good click-through rates are enough of a challenge without competing against yourself.

However, most retailers lack the resources to provide brands with proper performance insights. Without this, the brand will never know that this happened. Instead they remain in the dark, continuing to spend their budgets inefficiently. Additionally, the DSPs have no incentives to give brands information which may cause them to reduce their ad spend. This results in brands opting to spend most of their budgets away from a black box of unknown inefficiency. Where can they take their money whilst avoiding this situation and the potential marketing pitfalls? Amazon.  

So should retailers just roll over and let Amazon laugh all the way to the bank?

Not exactly. The good thing about this whole situation is that the facts are laid out bare for all to see. Amazon’s success represents a learning opportunity for every other online retailer out there. Brands don’t like black box solutions. They want insights and a clear path to improvement. They need to know what isn’t working and why, and they need to have the freedom to improve upon those things. Other retailers have relationships with brands they can leverage, just like Amazon did. By talking to the brands, and understanding why they avoid spending more money with them, retailers can close the gap little by little. These relationships already exist. Parties pass money back and forth, and mutually beneficial conversions pan out every single day.

Still, not every retailer will be in a position to offer the brands what they want. For these retailers to capture more of the SPA market, they need the whole ecosystem to change. They need better terms from the DSPs. They need competition between DSPs. Increased competition on an industry level would incentivize more reasonably priced fees, as well as increased transparency and ad customization standards.

It would also require DSPs to compete directly for the retailer’s inventory for every single impression. Only then could the retailer start to capture the true value of their ad inventory. Until the retailers come together on this—and until they put their feet down at a structure that disproportionately benefits the DSPs and pushes ever more money in Amazon’s direction—the status quo will remain. One should keep in mind that DSPs can only earn money with the retailer’s consent. Without supply in the form of ad placements, their demand sources will quickly move elsewhere.

The Sponsored Product Ad market needs a paradigm shift, and it needs retailers and brands alike to come together to usher in a new era. Failure to act has given the world’s largest online retailer an 80% share of a $5 billion market so far, and the latter number will continue to grow. If brands and retailers aren’t vigilant and looking for new approaches, the former number will rise too.

NY KnowGo is back for 2019. Stay tuned for more details on an exclusive event dedicated to Sponsored Product Ads! Keep an eye on our soon-to-be refreshed website here: www.nyknowgo.com


Seven Things We Learned from NY KnowGO 2018

- Luke Metcalfe

Seven Things We Learned from NY KnowGO 2018

On October 10, Crealytics hosted its inaugural “NY KnowGO.” This exclusive, one-day event focused on digital Co-op and Sponsored Product Ads. It welcomed 16 of the top 50 U.S. retailers—including Kohl’s, Under Armour, Urban Outfitters and Foot Locker—as well as leading brands and technology vendors. Several industry leaders delivered lively presentations at the conference. Want a refresher, or interested in learning more about the content? Today’s blog selects seven of the event’s hottest talking points.

1. Who Will Win the Battle for Co-op Supremacy?

Anyone who’s monitored Google and Amazon’s evolution has a similar verdict: convergence. Things used to be clearer cut. Once upon a time, Google was just a search engine. Amazon was just a retailer. But the last few years have seen the giants encroach aggressively into each other’s market.

The lines between the two have blurred, with both offering similar business models. Things get especially intriguing when it comes to Sponsored Product Ads (SPAs) – a key piece of the Co-op puzzle. Amazon built much of its current business model around them, and generated $10 billion’s worth of revenue from them in 2019. But 2017 saw Google follow suit. Head to retail sites like Best Buy and you’ll see trial program SPAs from the Alphabet subsidiary.

And now? Both have extended their reach offering offsite, via digital Co-op. Google has launched a co-funded Shopping Ads beta. Not to be outmaneuvered, Amazon recently introduced SPAs for its Extended Ad Network (in the form of Display Retargeting). The upcoming battle represents a head to head, with Amazon favorably positioned. At NYKG 2018, we learned that victory depends on four competitive differentiators:

Sales Support
Amazon boasts a formidable, proprietary sales force. Google (and other retailers) rely on a third-party equivalent.

Ad Inventory
Google offers little reach by way of ad inventory on other retailers’ websites. In this arena Amazon can again flex its muscles – it owns as much ad inventory as the rest of its competition combined.

Control
Google remains reliant on third-party providers, which means no control over ad delivery or ranking. Amazon’s proprietary tech ensures the opposite: a 100 percent say over its website and product rankings.

Cost
Google receives a major revenues from Co-op SPAs in the form of major “traffic tax.” On the flip side, its rival receives 100 percent of brand budgets.

2. Predicting a $13 Billion Opportunity (Why Digital Co-op is Set to Flourish)

Co-op marketing represents a huge opportunity. At the time of writing, marketers still spend around roughly 80 percent of their Co-op budgets offline – from TV commercials to billboard ads. Things are changing. Purely-online retailers are spearheading a shift away from traditional formats. Yet even in the face of this new, digitally native frontier, retailers and their brand partners reserve just 20 percent of their budgets for digital Co-op activities.

Learn about digital co-op marketing
Download Crealytics’ Free White Paper on Digital Co-op Here!

Even loose calculations reveal a staggering opportunity. The total potential spend represents $42 billion. Amazon, which bases most of its operations around Co-op relationships, looks set to eat up around half of this figure. That leaves $21 billion up for grabs. Search marketing accounts for 80 percent of this number ($16.8 billion), almost all of which will be claimed by Product Listing Ads (PLAs). That leaves retailers and brands chasing a $13+ billion-shaped windfall.

3. Why Are Product Ads and Digital Co-op Perfect Partners?

In PPC advertising, Product Listing Ads generate 75 percent of sales. Understandably then, prominent listings are crucial. Because it’s a highly competitive environment, retailers alone will always struggle to afford a competitive advantage. The solution lies in joint budgets. They are naturally higher, resulting in more visible real estate.

4. How to Solve Co-op’s Scalability Challenge:

How can retailers scale Co-op advertising effectively? It’s a tricky question, and one best answered when broken down into smaller responses. At NYKG18, Crealytics’ Head of Global Digital Marketing identified four major constraints, along with their respective solutions:

Lack of Measurability When It Comes to Performance

Current systems make it difficult to distinguish between regular “business as normal” activities and potential Co-op uplift.
Solution: Retailers and brands can divide and conquer.

Lack of Transparency When it Comes to Reporting

How can brands measure their ROI when all they see is overall revenue? In most instances, they remain stuck with generic, unhelpful metrics.
Solution: With the right partner, brands should be able to aim for richer, more granular data reporting. Perhaps granted their own login, thousands of brands could seek a comprehensive overview of product performance (and the ability to review budget spend if necessary).

Problematic Budgeting

Quite often, retailers will take a Co-op budget without making a commitment to spending it. As a result, they remain “on the shelf” – or used as a measure to reduce product price.
Solution: Brands commit to a maximum budget. If Return on Ad Spend (ROAS) is met, budget is used (low ROAS sees the budget frozen). A guaranteed ROAS for brands eliminates any risk of overspend without return.

Complex Manual Work

With thousands of potential brand partners potentially involved, manually implementing (and monitoring) their performance is highly inefficient.
Solution: With the right partner’s technology in place, they should be able to automate all aspects of Co-op campaign management. This includes assigning budgets, establishing thousands of audience campaigns (like retargeting), bidding towards ROAS targets and reporting on performance.

 

5. Scott Galloway Doesn’t Hold Back When Assessing the “Big Four”

Best-selling author and NYU Stern Professor Scott Galloway focused on technology’s “Big Four”. And the keynote speaker didn’t hold back – putting Google, Amazon, Facebook and Apple under the spotlight during a tour-de-force presentation. Much has changed since the Big Four’s early days. Though they initially won plaudits for challenging old industries, Galloway argued that they now threaten our global economy and society.

Only five nations have a GDP greater than the Big Four’s combined market capitalization, with no sign of them slowing down. Check his after-show interview with our CEO Andi above!

6. How Can Retailers Get Sponsored Product Ads Right?

Retailers who stick to selling products the traditional way make only small retail margins.

Sponsored Product Ads (also known as “Featured” or “Recommended” ads) offer an antidote. SPAs can be a fantastic asset for retailers and brands, generating extra product visibility, promotional impetus and a helping hand for clearance items. They can also help monetize non-purchase traffic via fees. But implemented the wrong way, sponsored content can actually have negative effects on your visitors…cancelling out any potential gains in the first place. What if the advertised products aren’t relevant? What if people don’t want to buy them? Could retailers weaken their overall conversion rate and burn more money they could ever bring in via regular ads?

NYKG invited conversion scientist Brian Massey to elaborate. His presentation showed that retailers can optimize their site monetization programs, declaring A/B tests to be the “supreme court” when it comes to valuable insight. Click here to see how his techniques help retailers to avoid sales cannibalization, optimize ad revenue.

7. Musings From the Retail Panel: Escaping Thin Margins

Back in the day, you could express a retailer’s core capability in two basic steps. First: Buy the right products. Second: Make a margin by selling them at a higher price. Fast forward to 2019. The most successful retailers have evolved to become advertising and media companies. Alibaba owns over a third of the Chinese digital market. Amazon’s biggest growing sector comes from selling ads to vendors (and marketplace sellers).

And the rest of the market is catching up. Zalando – Germany’s #1 fashion retailer – has built its own ad sales house, employing 160+ people. Meanwhile, Target runs Target Media and Walmart…Walmart Media. All share the same goal: make bigger margins and find alternative monetization strategies. NYKG’s retail panel assessed how to build these media subsidiaries. Sears’ Thomas S. Kozak and Staple’s Marco Steinsieck joined Scott Hames (ex-Bed, Bath and Beyond) to discuss Sponsored Product Ads, and tackle how to better collaborate with vendors.

NY KnowGo is back for 2019! Whether you’re a retailer, brand or media player, get in touch today. From tickets to speaker inquiries: find out more at www.NYKNOWGO.com or get updates on our fresh new look via Instagram: @NYKnowGo2019