The challenges facing online advertising
The online advertising industry has seen some significant changes and announcements recently. These changes are creating various challenges and opportunities for the entire ecosystem. Online advertising has to evolve to accommodate these challenges and the rising demands from advertisers. This evolution, combined with the changing user behavior and consumption patterns, has paved the way for a surge in demand for retail media.
Retail media or commerce media or commerce advertising has many names to the latest phenomenon in the digital advertising space.
The biggest question that the advertisers need to answer right now is how they will reach, interact, engage, acquire and retain their desired audience segments while respecting their privacy. Unfortunately, the privacy revolution is also driving third-party cookies to their demise. For a long time, websites and apps have employed third-party cookies to track users across the web and help advertisers follow them around with little repercussions and reasonable success.
Now that Google has announced that it will no longer support third-party cookies on Chrome, it is on the course of releasing alternatives for advertisers in the form of FLoC and other cohort-based solutions. Advertisers are still to find confidence in them, however.
Some are raising apprehensions regarding FLoC missing the mark with no explicit consent-seeking mechanisms and a possibility of misuse of the tool against certain groups of people. Yet, the primary concern among the advertisers remains the relevancy of their campaigns once the third-party cookies are gone.
Advertisement or message relevance is the holy grail of any marketing or advertising initiative. Until and unless the campaign message resonates with the user's needs, wants, or aspirations, it would be a wasted effort on advertisers' part. The relevancy comes from the correct segmentation and targeting, which depend on how accurately advertisers can classify and locate their audiences online. With GDPR, CCPA, and other policies batting for user data privacy and third-party cookies going away, advertisers are in a spot to deliver similar ROIs through online advertising.
How would they target a specific group of individuals with personalized content when they wouldn't know if they are reaching the right people? How would they make sure the individuals are not experiencing ad fatigue if an individual falls into multiple cohorts or no frequency capping in place? These are just some of the questions that will be occupying the minds of most marketers and advertisers.
How does retail media answer these questions?
The data that the retailers and eCommerce players have has explicit consent from the users. This upholds the users' privacy.
Additionally, the first-party data consists of personally identifiable information (PII) like browsing history, demography, location, purchase history, and frequency & recency of purchases. This is the gold standard of data that the advertisers aspire. These customers can easily be segmented into specific cohorts and shown personalized messages and ads. Frequency capping, retargeting, and upselling get easier when advertisers have a clear customer segment visibility. Since retail media works on first-party data, it won't get affected once third-party cookies are a thing of the past.
In short, retail or commerce media stands on user privacy-friendly yet trackable data points, making it an ideal solution for advertisers in the future.
The fact that more and more advertisers are queuing up to get access to media on eCommerce and retail platforms is established by a study conducted by Merkle. The study pointed out that 85% of CPG (Consumer Packaged Goods) Brands are planning to spend more on retail media networks in the times to come. The same study suggests that 90% of the brands see the current retail media ecosystem as a benefit.
What makes retail media enable relevance?
As discussed, the relevance in ads and messaging comes from the understanding of the end-users by the advertisers. The more a brand knows about its customers and prospects, the better they will understand their active and passive needs, wants, and aspirations. This understanding helps them create clear personas for their target audiences. Once the personas are created, advertisers can confidently devise the ad message and offer to avoid delivering inconsistent propositions or altogether reaching the wrong audiences.
Can Advertisers rely on retail media?
This brings us to the next question.
Is the retail media ecosystem big enough to satisfy the needs of the advertisers?
The short answer is not right now. Currently, only a handful of significant eCommerce platforms allow advertisers to buy media on their platforms. For instance, in 2020, Amazon accounted for 75% of all retail media revenue and only 5% of the total digital advertising revenue in the US.
A major chunk of display media buying happens outside of this ecosystem, with Facebook(43% (US)) and Google(10% (US)) getting the significant shares. But does this mean retail media is inconsequential and too small to pay attention to? Again the answer is no.
Let's look at this through a top-down approach. Globally, as per eMarketer's forecast, 57% of ad spending in 2021 would happen through digital channels. At the same time, global digital spending is set to increase by 16% this year.
In a global study conducted by Kenshoo, retail media saw a jump of 89% in the impressions delivered in Q1 2021 vs. Q2 2020. Additionally, it saw an increase of 74% in spending by advertisers.
eMarketer, in another research done in the US, studied data on retail media for the entire year of 2020. The jump in spending on eCommerce platforms was almost 50% YoY. In the same year, retail media made up 12.3% of total digital ad spending. The forecasts for the following years suggest a constant increase in retail media's share.
In simple terms, digital advertising gets the lion's share of advertisers' budgets, and retail media grows at rates much higher than other channels, and overall digital advertising spends for the next few years.
This means only one thing. In the coming years, we will see a massive surge in advertising spends on retail media and the ecosystem evolving into a reliable channel for brands across industries and geographies.
In conclusion, retail media networks will grab more and more advertisers' attention in the years to come thanks to -
- accelerated adoption of online retail,
- deprecating third-party cookies,
- lucrative propositions of first-party data, and
- higher emphasis on user data privacy.
Now it's up to the retailers and eCommerce platforms to build the right ad tech stacks and rise to the occasion.