Retail Media’s Future: Eight Predictions

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:

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.

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