#5: Retailers are rushing towards offsite media
Is the case so obvious?
Introduction
My previous post provided a primer to understand the rising demand for offsite media. Increasing number of retailers, with Macy’s and Schwarz Group most recently, are rushing to fulfil this demand by partnering with adtech companies and publishers (e.g., Pinterest). Recently the Grocer Retail Technology of the Year award was given for partnerships in offsite media. Why are so many retailers rushing towards offsite media, and is the case for it so straightforward?
The immediate benefits to retailers are obvious
Many retailers are hesitant to open advertisements on their site due to their potential impact on customer experience. Limited media inventory is a major constraint to the growth of their retail media business. Offsite media offers a solution to this problem. Retailers can help advertisers put ads across the entire internet as well as on connected TVs. Other publishers provide their digital estate for placing these ads, and retailers provide data for targeting and measurement.
The other big constraint for retailers has been that most of retail sales still happens in store.1 So far in-store media has attracted limited demand from advertisers due to the difficulty in targeting and measuring results. This has limited retailers in monetising their in-store traffic. However, as long as retailers can collect significant customer data from in-store transactions, via loyalty programmes, they can now monetise that data via offsite media.
.. but the long-term implications are less obvious
Retailers should balance their excitement of short-term gains from offsite media with a healthy paranoia of long-term implications, for ‘only the paranoid survive’. 2
Monetising data provided to third-parties can dilute the core proposition of retail media in the long-run. Adtech, both in programmatic open web and walled gardens, is opaque. Adtech companies could easily use the first party data to better understand the audience they can reach. Their understanding of the audience would be stronger than a single retailer’s because they collect data from multiple first-party data holders and can form a more holistic view of the customer. In the long-run, I would not be surprised if adtech companies reduce the value they place on data from first-party data holders. This thought has been echoed by others - see this for example.
The opaqueness of programmatic also raises concerns on whether retailers are being appropriately paid for their data. Retailers can either allow advertisers to use their audience data on a self-serve basis (i.e., if the advertisers have an account with the adtech company) or retailers can activate campaigns on behalf of their advertisers. In the former case, the retailer needs to rely on the adtech partner to understand how many times and to what value their data was used for activation.
Retail media leaders should also think about the implications of offsite media on their core retail proposition. In this, they should think about two issues. First, they need to ensure sufficient checks on all offsite campaigns. These checks would help, for example, to avoid any offsite campaigns targeting their customers but directing them to either a competitor’s website or to the D2C website of a brand to make the purchase. Second, they need to assess the impact on CPMs3 for the marketing campaigns of their retail arm. Since retailers use re-targeting campaigns, they can end up targeting the same audience as those being targeted by brands for offsite media. This can very quickly lead to a CPM escalation, with retailers having to pay a lot more to activate their own audience. Solving this requires close coordination between retail media team and retailer’s own marketing team.
Retailers should also plan for scenarios where customers better understand how cookies are used and decline them more often or if further regulations are introduced that give customers control over their data. This does not seem very far off as Meta discovered recently. In all of these scenarios, one could expect more customers rejecting non-essential cookies, which includes cookies for marketing and analytical purposes. This would significantly reduce the amount of data that retailers can monetise for offsite media.
The effectiveness of offsite media still needs to be proven. There is not enough evidence from brands yet to assess if the increased efficiency of ad targeting using data provided by retailers outweighs the premium paid by brands to use such data.
Finally, over time, retailers will need to assess the size of incremental revenues from offsite media, including any existing revenue they could have lost without providing offsite media. My hypothesis is that the size of the incremental revenues is going to be very small for most retailers. This is because retailers might already have an onsite media proposition, which attracts significant trade marketing budgets4 , and/or the size of their audience segments are not big enough to drive meaningful revenue, and/or they are constrained from charging a high value for their data because of its limited impact on improving ads efficiency.
Closing thoughts
Offsite media is a low hanging fruit for retailers. Myopic views can make it attractive to all retailers. But the long-term case is not so obvious. Retailers should experiment with it to learn more including how brands are responding, but they should avoid spending disproportionate time on it. They should think through the above concerns and potential solutions, and develop a strong narrative for why their offsite media is a long-term winning proposition. Until then, contrary to much of the news on retail media, retailers should focus on how to make their onsite media more attractive.
Despite my arguments above, there are some conditions under which offsite media could be an attractive long-term proposition, for some retailers. I will discuss these conditions in my next post.
<12% of grocery retail sales is via e-commerce in the UK, and even less so in other European countries.
Name of the famous book by Andrew Grove (ex. CEO of Intel Corporation)
CPM is the Cost per Mille or Cost per Thousand Impressions
This is not to say that trade marketeers may want to re-allocate some of their existing onsite media investment to offsite media. But this would not be incremental revenue for retailers, and will in fact be decremental from a profit perspective.