Retail Media Networks: Winning the New Retail Battleground for Growth

Retail Media Networks are no longer a futuristic concept, they are the present and future of retail advertising. For retailers seeking to thrive in a data-driven world and unlock new revenue frontiers, building a robust RMN is not just an option – it's the new cost of doing business.

What is an RMN?

A retail media network is essentially an advertising platform that leverages a retailer’s first party data to target customers with ads and measure their effect using direct transaction data.

“I know I’m wasting half my marketing budget… I just don’t know which half,” old marketing adage.

Why retail media networks are valuable

Two key things set a retail media network apart from traditional media strategies:

Retailers have a one-to-one relationship with customers through traditional loyalty programs and online channels, which offers advertisers more precise customer targeting.
Retailers can directly measure ad efficacy through purchase behavior (transactions), referred to as closed-loop measurement.

But retailers always sold CPG goods, how do advertisers know whether they are measuring an existing behavior or actually increasing sales?

It breaks down to two metrics: ROAS and iROAS. ROAS is return on ad spend, or ad spend over revenue. iROAS is the incremental return on ad spend, meaning the difference (increment) between the return on ad spend using this specific tactic versus another. In other words, I may have an ad strategy where each dollar I spend on the ad returns five dollars in sales. My ROAS is $5. But if the strategy merely pulled customers away from another ad channel, reducing that channel’s ROAS by $2, then my incremental return (iROAS) is $3.

What does a successful RMN campaign actually deliver?

What does good look like? Generally, advertisers at least want to double their investment, so a $2 ROAS (100% return on investment) is considered table stakes. A $4 ROAS (200% ROI) indicates exceptional performance, according to several sources.[1]

Retail Media was pioneered by Amazon in 2012. They released an ad auction, similar to Google’s AdWords, allowing marketplace sellers to “sponsor” their product placements in search. It’s also similar to bricks-and-mortar retail where CPG’s “sponsor” and endcap or a pyramid of product cases in the center of “action ally” based on store-level sales data.

“The report of my death was an exaggeration.” - Third party cookies.

Retail Media was, and still is to some extent, grounded in online retail. It mitigates the death of third party cookies, which have long been a cornerstone of digital advertising but are becoming increasingly restricted due to privacy concerns. Now it’s grown to encompass paid media, digital out of home and even CTV by porting the retailer’s audiences to these other platforms through onboarders and other ad tech platforms.

Retail Media Networks create a flywheel around customer data, which adds a new revenue stream. The additional income diversifies traditional retailers and nudges them further into the tech world.

The flywheel effect in business is about continuous growth. It happens when elements of a business work together in a self-reinforcing loop. A flywheel in motion becomes easier to turn with each rotation. A business that harnesses the flywheel effect gains momentum. It becomes more efficient and effective.

In this case, data is the center of the flywheel. Marketing campaigns drive traffic to the site through email, SMS, search engine marketing, display ads and other tactics. Ecommerce customers generate first party data, like name, email and phone number, as well as behavioral data, like search and transaction history. Retail media networks harness the data to drive campaigns on behalf of their sellers, like consumer packaged goods companies. These ads in turn drive more sales, benefiting both the retailer and the CPG, generating more data for marketing to use to drive more traffic.

It's a virtuous cycle that drives increased revenue for the retailer, better performance for advertisers, and richer data for everyone to leverage, leading to a continuous growth flywheel.

This powerful flywheel effect translates into significant revenue potential for retailers. There are now 216 RMNs worldwide and the US market has ballooned from $1 billion to $30 billion in just 5 years.

Walmart (and Amazon, for that matter) do not make profit off their eCommerce business, so this profitability is not just a side benefit – it's critical for these retailers. For businesses where eCommerce margins are thin, RMN revenue provides a crucial boost, funding innovation and future growth.

I find this fascinating because what happens when the ad business outstrips the ecommerce, or even traditional retail, business for dominance? Amazon’s ad network makes $30 billion. Walmart’s $4.4 billion. Both are far more profitable than their retail counterparts, both online and in store. In my experience, business units making money hand-over-fist can command a higher share of technical resources.

Then again, it only takes a multi-billion-dollar retail business to generate a profitable retail media network.

Conclusion

The rise of Retail Media Networks represents more than just an incremental revenue stream for retailers – it's a fundamental shift in the retail landscape. In a privacy-conscious world where first-party data is paramount, RMNs are not simply a nice-to-have; they are becoming a strategic imperative for any retailer seeking sustained growth and competitive advantage. By harnessing the power of their own data and building robust RMNs, retailers are not just selling goods, they are building powerful, data-driven advertising platforms that are poised to reshape the future of both retail and advertising itself.