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Mobile Development Data Retail
Emil Waszkowski Izabela Franke
Digital Transformation Business
Izabela Franke
Digital Advisory E-commerce
Izabela Franke
Digital Transformation Technology
Emil Waszkowski
Digital Advisory UX research
Jakub Nawrocki
Explore all insights

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Business Digital Transformation

Retail Media – a Path to Increased Revenue or a Threat to Customer Trust?

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In an ever-shifting landscape where margins are tighter than ever and competition is fierce, retail media emerges as a potential game-changer for the industry. This innovative strategy promises not just new revenue streams, but also a more profound understanding of consumer behavior and the ability to personalize offerings on an unprecedented scale. Yet, with great power comes great responsibility.

How do you balance advertising profits with customer shopping experiences? Where is the fine line between effective personalization and intrusive tracking? And most importantly, will retailers who don't jump on the retail media bandwagon be left in the dust by their competitors?

What’s retail media?

Retail media is a point-of-sale advertising strategy that leverages e-commerce platforms and shopping apps to promote products right where consumers make purchasing decisions. It encompasses various ad formats, from sponsored search results and banners to dedicated product pages and personalized recommendations.

At its core, retail media uses consumer shopping data to target ads with pinpoint accuracy.

The potential of retail media

Predictions suggest that global spending on retail media will jump from $50.69 billion in 2019 to a staggering $165 billion by 2025. The share of total digital ad spending is expected to rise from 15% in 2019 to nearly 22% by 2025, making retail media one of the fastest-growing areas in digital advertising (source: eMarketer).

This explosive growth is fueled by the rising popularity of online shopping, the growing effectiveness of data-driven ads, and brands’ search for new advertising channels amid upcoming data privacy changes.

E-commerce leaders are already capitalizing on retail media's benefits. Amazon, the undisputed trailblazer in this area, generated $46.9 billion in ad revenue in 2023, reflecting a nearly 25% increase year-over-year (source: Amazon). This surpasses the ad revenue of the entire YouTube platform. Walmart, the second-largest player in the U.S. market, experienced a 26% year-over-year increase in ad revenue in 2023, rising from $2.7 billion in 2022 to $3.4 billion. Walmart Connect, the company’s advertising platform, shows an average 32% increase in brand awareness and a 15% boost in purchase intent for promoted products.

But it’s not just the giants reaping the rewards – smaller platforms are successful too. Etsy, the go-to marketplace for handmade and vintage items, saw a 13% increase in ad revenue in 2022 (source: Statista). What’s more, sellers using Etsy Ads experienced an average 20% boost in store visits and a 30% rise in sales.

Instacart, the online grocery platform, reported that 30% of its revenue came from ads in 2022, totaling $740 million (source: eMarketer). One of the campaigns for a non-alcoholic beverage brand even achieved a 28-fold return on investment. These success stories demonstrate that retail media can bring significant advantages to both e-commerce platforms and advertisers.

Risks and challenges hindering retail media growth

Despite the impressive numbers and promising outlook, implementing a retail media strategy comes with its set of challenges and risks. One major hurdle is balancing ad revenue with a positive customer shopping experience. Excessive ads or overly aggressive targeting can deter shoppers and damage their loyalty to the platform.

For example, Target faced criticism for excessive ad personalization when rolling out their Roundel platform (source: OrderGrid). In response, the company introduced clearer data control policies for users. Although this initially slowed ad revenue growth, it ultimately strengthened customer trust. By 2023, Roundel had driven an annual revenue increase of over $1.5 billion, with campaigns on the platform achieving a 40% higher conversion rate compared to standard display ads.

Retail media also faces the risk of inadequate protection of consumer data. As privacy concerns grow and regulations tighten, retailers must carefully balance leveraging customer information with building and maintaining buyer trust. This challenge is intensified by the potential phase-out of third-party cookies, making first-party data even more essential.

Competing with tech giants for advertising budgets is another significant challenge, especially for smaller players. With heavyweights like Amazon, Google, and Facebook dominating the digital ad space, it can be difficult for other platforms to capture advertisers' attention. For smaller retailers, the key might be in their ability to specialize and provide unique insights into shopping behaviors, turning them into a competitive edge.

How to succeed with retail media?

Implementing a successful retail media strategy demands significant investments in cutting-edge technology and data analytics. Platforms need to gather, analyze, and utilize vast amounts of data in real-time, which requires robust technological infrastructure and skilled professionals. Companies that excel in retail media put great emphasis on the quality of data and advanced analytics.

Working closely with brands to craft ads that are both valuable and contextually relevant is equally important. Take eBay Ads, for example. In 2022, they saw a 19% year-over-year increase in ad revenue. Sponsored campaigns on eBay delivered an average 30% higher click-through rate (CTR) compared to standard display ads. This success stems from their tight-knit collaborations with advertisers to create ads that seamlessly fit within the greater context of the customer journey.

Constant testing and optimization of ad formats are also crucial for success. Amazon continually experiments with new ad formats, such as video ads and promoting products during live streams. According to Feedvisor, 73% of sellers on Amazon use paid ads, and 58% of them see a return on investment (ROI) exceeding 400%.

Last but not least, investing in talent and skills is essential for staying competitive in retail media. For example, Walmart boosted its ad revenue by 30% year-over-year in Q3 2023 by focusing on its Walmart Connect platform. The company is actively recruiting data and AI specialists to further enhance its retail media capabilities and competencies.

The key to retail media success? Building a balanced ecosystem

Retail media isn’t just a passing trend; it’s a transformative force in digital advertising with tremendous potential for increasing retail profits.

But to really make it work, you need a strategic game plan, smart tech investments, and a savvy balance between revenue and customer experience. With rising competition and shrinking margins, retail media may soon become a necessity rather than an option for staying competitive in the market. Regardless of your business size, understanding and effectively leveraging retail media dynamics could be crucial for success in the coming years.

Retailers who strike the right balance between financial gains and customer satisfaction have a golden opportunity to boost profitability and build strong, loyal relationships with digital-native consumers. At the same time, they must be cautious of potential pitfalls, such as invading customer privacy or compromising the shopping experience.

In the near future, success in retail media will depend on creating an ecosystem where retailers, brands, and consumers all benefit. Platforms that offer valuable, relevant ads while respecting consumer privacy and preferences will be in the best position to stand out and maximize their revenue.

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