What UK retailers can learn from the US to turbocharge their retail media revenues

Rob Webster
6 March, 23

As recession looms, retailers are looking to retail media to boost their profits. So how can they do that effectively?

Digital retail media is an opportunity for traditional grocers and ecommerce companies to make more money in tough times, as well as to make up ground on powerful platforms such as Amazon.

It has become a big talking point. Arguably Amazon has pioneered the category, making an incredible $111 per customer in 2021 – according to a recent eMarketer/ Live Ramp study. Now increasingly more retailers are looking to this new space to boost revenue and competitiveness.

Few can aspire to these kinds of commercial metrics but even 5% of this sum would be a significant return on the investment it would take a company with, say, 1 million customers to create their own retail media network.

Little wonder, then, that any company with significant online reach and good audience data will be considering how digital advertising could feature in their business model.

The progress being made in the US should give UK and European retailers cause for optimism – especially as the revenues can help take the edge off any recession or cost of living-driven decline in consumer spend.

You don’t have to be a grocer, but you do need scale

Retail media, both traditional and digital, is mostly thought of around grocery. Yet any ecommerce retailer or advertiser could launch a retail media offering, though they may struggle to scale it alone.

The problem of scale can be overcome through connections to larger marketplaces. Your retail media network can work both on your own sites, but also be extended offsite. So for example, if you have 500,000 unique visitors per month, you can sell ads to a far larger audience by connecting this to programmatic and social networks. Doing this effectively requires you to have effective technology to manage the process as well as a powerful first party consented audience.

Providing this scale allows you to maximise the value of the audience, making it more attractive and easier to activate for advertisers. Scale, of course, is also relevant to the space that the retail network lives within, with more niche audiences. Without this scale advertisers are unlikely to make the effort to connect.

The US is leading the way, as its market is both larger (benefiting scale) and far more sophisticated. A larger single market means bigger audiences and driven investment and innovation – simply put, there are more retailers selling ads, more advertisers buying, more networks to buy from and more technology to facilitate that buying and selling. 

This is a general truth in technology and why the US is usually at least 18 months ahead of the UK and Europe, but we are catching up and as not only Amazon, but also companies like Sainsbury’s and Boots are showing, early mover advantage can pay off.

The opportunity is broader than grocery. A computer retailer can sell space to accessories or software advertisers, an airline can sell opportunities to a car hire business or a food delivery company can sell opportunities to drinks brands. Lyft, for example, is now following Uber in selling media opportunities as it helps them monetise and spread the investment of media and technology and acquiring customers. A key driver is not letting a rival get a competitive advantage.

Due to the market size, UK firms will have to work extra hard to make sure their products are scalable. Operations are still being built out, but that much-needed scale will come in six months to a year as more buyers get used to transacting in these new environments, data works seamlessly across environments and automation makes the experience smooth for buyer and seller alike.

Apply behavioural lessons from physical retail to get digital data

Much of the talk about “retail media networks” is referring to digital, not what you might call traditional retail media which has existed offline and instores for decades: think adverts on shelves, billboards in car parks or snacks by the till.

Retailers understand deeply how customers move around the physical space, where they look, and even the behavioural mindsets like bulk-buying, impulse purchasing at the end of an aisle and pester power – this is why most have since stopped selling sugary snacks at the till.

Such data is also important for success within digital retail media.

Data is the key to user experience, particularly when retail media networks are served offsite. It keeps the customer at the centre and allows retailers to balance the needs of the media network with their core commercial operation.

Whether media is run onsite or offsite, data is at the heart of optimisation efforts as well as measurement and attribution. The space is evolving quickly and I think it will boost how all media is run. This data spine can be used for programmatic display but also the new spaces of connected TV and digital out of home. This can be particularly interesting for FMCG brands, who have long been big buyers of such channels to have superior data from their retail media partners.

Strong data infrastructure and first-party data orchestration enables traditional broad reach channels like TV and OOH to be plugged in and offer huge scale. Why would an FMCG brand spending millions on TV not shift to buy advertising informed by shopper data which would enable targeting by propensity to buy?

Lay the groundwork by setting up your technology spine

Brands need a strong marketing technology spine as well as a strong data strategy for retail media to be effective and drive growth.

Advertisers that are strong in this area utilise technologies like analytics, CRM (Customer Relationship Management), CDPs (Customer Data Platforms), Data clean rooms and consent platforms. Crucially, these platforms will be well installed and aligned to a broader marketing and data strategy. 

It is this spine that is crucial to being able to scale retail media and it’s also vital for effective marketing, particularly in the current privacy and data era we are in. Without a good data spine, scale, automation and ultimately revenue growth will be constrained.

Tighten up privacy even further, standards are higher in Europe

Digital marketers continue to prepare for a world beyond third-party cookies, as legislation makes it harder to buy data from others for the purposes of targeted advertising.

Technologies such as Customer Data Platforms, data clean rooms (or data collaboration systems) and identity vendors make this process easier – they allow for your own first party data to be commercialised in more places, and in a way that’s compliant with the law and respectful of your customers.

US regulators are yet to impose tighter privacy laws, and certainly not to the degree that Europe has with GDPR, but the lower standards in the US have also contributed to their market being further-developed from a technical point of view… it’s easier to commercialise data there.

Europe is much further ahead in building out privacy solutions with the creation of new IDs that are fit for purpose for a privacy-first world.

An example of this can be seen that UID 2.0 (a new unique identifier), which is well used in the US but is yet to get out of Beta in Europe – due to concerns over GDPR. So this is an example of where identity-based targeting, vital for execution on Apple browsers amongst others, has much more scale in the US.

It may well be that Europe becomes the petri dish that launches a new breed of privacy-first data companies that come to dominate the market globally and are acquired by the big US operations. Change is constant and being agile is vital, so UK companies need to move fast on this. Yet actually these shifts can then come back round and have EU firms show the US how to execute in a privacy first world.

Ultimately all these factors offer retailers a chance to take ownership of their data and compete with the giants of Amazon, Google and Facebook that dominate the retail and the media spaces. Local retailers have loyal audiences and connections with brands that go beyond this space. The real opportunity is to use advertising to generate high margin incremental revenue and also drive up basket value when it’s used smartly to nudge shoppers. Retail media can be the mechanism by which they strike back and in turn create the media opportunities and data partnerships consumer brands are looking for.

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