Retail media advertising spending will reach $160 billion in the U.S. alone by 2027. Combining robust first-party data on shoppers, exclusive inventory, and engaging ad formats, retail media is now the third-largest digital channel in the world—and to put that number into context—it will likely overtake social advertising in the next five years to become the second-largest digital channel behind just paid search.
Today, we speak about the evolving role of retail media with a true expert in the space, Skai’s executive vice-president of strategy, Nich Weinheimer. Skai is a leading omnichannel marketing platform integrated with over 100 retailers as part of its retail media solution, including Amazon Ads, Walmart Connect, Target/Roundel, and Instacart Ads.
What do you think are the key benefits of using retail media channels for advertising, and why?
Retail media provides several key benefits for brands looking to advertise. First and foremost, it drives a fantastic return on investment. In Skai’s 2023 State of Retail Media survey, 96% of retail media marketers reported successful programs last year. In fact, only 4% of marketers didn’t at least achieve their desired brand impact with their campaigns.
The channel also offers control and transparency over digital shopper dollars, enabling brands to track the effectiveness of their advertising spend and adjust their campaigns accordingly. For many traditional CPGs who have historically invested most of their advertising offline, this level of accountability, control, and transparency has helped ease the transition of investments online.
Finally, one of the less heralded upsides of retail media advertising is how it fits into the native environment of retailer websites seamlessly. In a recent Skai study of 1000 U.S. consumers about Amazon Ads, 47% didn’t notice any ads! And 3 in 4 didn’t mind that Amazon served targeted ads. This contrasts with most online advertising that consumers can find distracting and irrelevant.
With the rise of retail media, what changes do you see happening in the advertising industry, and how can brands stay ahead of these changes?
The marketing industry faces a big challenge with data deprecation trends, including phasing out third-party cookies and changing data privacy laws. This makes it harder for businesses to track and analyze customer behavior and provide personalized experiences. Hyper-targeting has been key to online advertising success, but marketers may struggle to meet performance goals without it due to shrinking data pools.
Retailers with logged-in user bases offer valuable customer data and audience targeting. For example, most Americans have an Amazon Prime account, providing a large pool of targetable shoppers for brands to reach through retail media.
One of the ways brands can stay ahead of these changes is to better connect operations on their side—in platforms that unify assets such as data, audience definitions, creative libraries, and analytics reporting. With a centralized source of truth, marketing organizations can stay nimble to take advantage of short windows of market opportunities.
I can’t stress this enough: it is imperative that brands be prepared to test and learn and have systems and technologies in place to ensure they don’t lose market share to the competition.
What marketing shifts and trends have you noticed recently, and how have they impacted the way companies approach advertising and marketing?
As the macroeconomic conditions have worsened, marketers are under scrutiny to prove the real impact of each advertising dollar, channel, and strategy. This has resulted in spending declines to mid-funnel, costly ad types, which are harder to measure. In contrast, highly measurable strategies, like low-funnel, and high-intent retail media, have shown significant year-over-year growth.
Companies are also working hard to attract the Gen-Z demographic and cord-cutters who search online differently than previous generations. A recent Prosper Insights & Analytics survey shows that 28.6% of Gen-Z and 30.3% of Millennials rate mobile websites and apps (on smartphones and tablets) as the biggest motivator for starting an online search.
The biggest shift is that marketers are finally prioritizing an omnichannel strategy. To adapt, marketers are moving more of their budgets to walled garden publishers like Google, Meta, Amazon, and Apple. In fact, almost 80% of U.S. digital ad spend goes to these closed ecosystems, according to eMarketer. Marketers are flocking to walled gardens because they offer powerful first-party data, engaging ad formats, and full-funnel ad opportunities.
What are your thoughts on the resurgence of paid search? Is it a valuable marketing channel, and how does it fit into an overall advertising strategy?
Beyond its ability to deliver the right message to the right person, paid search is regarded by marketers as the ultimate “assist channel.” Every other marketing program drive users to search—social, TV, radio, print, and even email. Search is a must-do for retail brands because it acts as a giant net to catch traffic from other channels drive to search engines.
Marketers are leveraging the combined power of paid search and retail media. In our 2023 State of Retail Media report, 76% of marketers use paid search to drive traffic to—and sales through—retailer partners as part of a holistic advertising strategy.
The emergence of generative AI is set to propel paid search even further ahead, revolutionizing the consumer search experience and transforming the advertising industry. This innovation is poised to attract the next generation of searchers and help brands compete using digital advertising in today’s ecommerce landscape. Generative AI will impact almost every aspect of paid search campaign lifecycle, allowing marketers to focus on high-value work by automating repetitive tasks.
How important is it for brands to have a strong online presence in today’s retail landscape, and what role does retail media advertising play in building that presence?
In today’s economy of attention and non-linear consumer buying patterns, winning in retail requires first winning in digital. It’s not just important, it’s existentially imperative. Online retailers offer the most nimble and granular opportunity for brands to directly compete with their peers, down to the product and shopper level. The industry is rapidly expanding the interplay between digital investments and their effect on offline sales and conversion with the advent of BOPIS and other digital-first consumer interactions.
Retail media is both a new and old concept, all in the same breath. Brands have been investing through retailers to gain an edge in how their brands are presented or marketed to the end consumer for over 100 years. It’s not new for brands to think about investing to compete, nor for retailers to leverage their real estate as part of the broader brand negotiations. However, converging this historical narrative with the fundamentals of digital marketing has ushered in an iteration in its infancy, with variety and complexity across dozens of retailers regarding how this is managed.
The technological shift in how brands go to market is huge and is being addressed by technology players who have built their stacks with retailers, addressing the challenges and opportunities head-on. This is where companies like Skai come in, offering solutions to manage the complexity of retail media, and helping brands leverage this new opportunity to compete in the digital space.