Home The Sell Sider The Supply And Demand Challenges Standing In The Way Of Retail Media Growth

The Supply And Demand Challenges Standing In The Way Of Retail Media Growth

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Keshav Parthasarathy, Operator, Advisor & Publisher, Retail Media Insights

The US retail media market is estimated to grow at 25% per year for the next five years to surpass $110 billion. Similar growth is projected in other regions.

However, there are many obstacles to realizing this growth.

Some prevent retailers from advancing their retail media proposition (supply), while others prevent advertisers from buying more retail media (demand). 

Here are some key challenges preventing retail media from reaching its full potential, with some ideas for how to overcome them. 

Supply challenges

It is technologically challenging to set up and scale a retail media proposition. There is a lego land of technologies available, including various on-site and off-site and in-store media modules, customer data platforms, data clean rooms, order confirmation, A/B testing and orchestration layers that facilitate media buying. 

While some very large retailers are able to understand and stitch their solutions, most retailers find the choices daunting. This prevents or delays them from starting their retail media proposition. Those who start end up having multiple, unconnected technologies, making it difficult to scale a retail media proposition. For retail media to grow, more retailers need to offer compelling media solutions. Technology providers can make this easier.

For example, they can have an open API architecture so different vendors can integrate themselves, much like how the Slack software has various integrations built in for the customer to plug and play with. 

Another challenge is that many retailers, including the large ones, are hesitant to open advertisements on their site due to the potential impact on customer experience. 

Retail media’s growth will depend on performance, which is much better on on-site media. Changing this hesitance will require a shift from existing biases toward experimentation to objectively understand which placements work without harming customer experience. And it will require a change in retailers’ mindsets so they stop viewing retail media as a guaranteed cash cow and instead operate it like a media business.

Finally, most retailers struggle to effectively maximize revenue from existing media inventory, especially on auction. This is largely due to insufficient tooling in their ad tech. 

For example, retailers should be able to identify key upsell opportunities and inform advertisers about these in an automated way. Until these supply-side tools develop, many retailers may continue to sell media on a tenancy basis (also known as direct buys), making it impossible for advertisers to self-serve and optimize campaigns in flight. It is unlikely that advertisers would pour in money for such propositions.

Demand challenges

Advertisers have organizational challenges. Trade marketing teams, who work with the sales function, often work independently from performance and brand marketers. This reduces the value of retail media for advertisers.  

For example, it often leads to inconsistent measurement of performance across digital channels. For retail media to win budgets away from other digital performance media, it will need to show that it is delivering superior performance on a like-for-like basis. Another example is when the siloed marketing teams do not align their activation calendars, with different channels activated at different times, sometimes with different messages.

There is also a lack of standardization across retail media propositions, which makes it unnecessarily difficult to understand, buy and evaluate media across retailers. 

Ultimately, with every retailer operating their retail media platform as a walled garden, brands will further struggle to efficiently buy retail media.

Breaking through the gridlock

Retailers hold the key to implementing solutions to these problems. But retailers need to feel that they will be rewarded through increased marketing budgets. And brands may not want to commit additional budgets until they see the new solutions and their efficacy.

Solving this gridlock requires two elements. First, big brands and retailers need to form partnerships aimed at tackling the obstacles, perhaps aided by bodies like the IAB. Once big retailers move forward, other retailers will follow. 

Second, these partnerships need to be underpinned by strong economic incentives. For example, brands could agree on an incentives framework with retailers for how they would increase or decrease marketing budgets based on the presence or absence of desired solutions.

All of this will take time. It might be more realistic to assume that the projected market potential, outside of Amazon, will be realized over the next 10 years rather than the predicted five. That is still good growth.

“The Sell Sider” is a column written by the sell side of the digital media community.

Follow Keshav Parthasarathy and AdExchanger on LinkedIn.

For more articles featuring Keshav Parthasarathy, click here.

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