Coresight Research predicts that by the end of the year, spending on retail media networks will reach $51.9 billion, notching a gain of almost 20% from last year. (That's substantially larger than the $44 billion likely spent on linear TV and streaming.) Amazon is still way ahead, with an estimated 65% share.
But retailers -- and advertisers -- still have plenty to figure out, especially regarding first-party data. John Harmon, Coresight's managing director of technology research, explains.
Retail Insider: News about retail media networks feels nonstop these days. Giant Eagle just announced plans to jump in, and Walmart says it will test product demonstrations and ad placements on Walmart Radio, its in-store audio feed. But not every retailer will do well. What does it take to succeed?
John Harmon: It's all about first-party data. Not to be flip, but it's that simple. Here we are in the cookie apocalypse. Retailers were relying on this customer data, and it's going away. I think that is more of a benefit than a curse because it motivates retailers to collect their data. And the more you know about your customer, the better job you can do personalizing your offers and communications to create more targeted advertising. When you layer that with third-party data and location analytics, it becomes very effective for advertisers.
Retail Insider: What are the risks to retailers of a poorly constructed network? Will that hurt consumer perception of the overall brand?
Harmon: Yes. I get messages from Macy's daily, offering me 30% off jewelry. I've never bought jewelry from Macy's. Those messages are annoying me and wasting my time. So big picture, retail media networks, done right, are a source of incremental revenue, monetizing their brand in a way that hasn't been tapped before. That's more revenue for shareholders to invest in technology or offer their customers better pricing. Those are all good things. But the advertising should be relevant. Otherwise, it won't be effective. Sticking with my Macy's example, it knows I buy Polo dress shirts—it knows my size and favorite colors. But it doesn't send me ads for them. That's not a success.
Retail Insider: Are retailers getting better?
Harmon: They do the best with the data they've got.
Amazon's product recommendations are terrible. They just suggest more of what you already bought, and that's not good enough. If you purchase paint brushes on Amazon, it suggests more paint brushes. If you buy them on Alibaba, it recommends painting lessons. That’s a relevant experience, which is a thousand times better.
Retail Insider: What causes all these misfires?
Harmon: Often, retailers' data is in silos. It's not connected.
Retail Insider: At this point, what is the biggest draw for advertisers? Why do they want to be on these networks?
Harmon: The idea that you're targeting people positively inclined to buy, right at the time they're shopping. And the importance of localization, right down to the store level.
Retail Insider: What's changing the perception about localization?
Harmon: I don't think perceptions are changing. It's just that technology has made it possible to pinpoint advertising down to the town or village you live in. We produced this report in connection with Placer.ai, which can tell where people go after lunch or where they go before they get to the mall. And while most retail media is online, physical advertising -- billboards, screens inside the store, endcaps -- is also important.
Retail Insider: Kroger has gotten lots of attention for its recent rollout of Cooler Screens in 500 stores. These internet-enabled screens change ad messages as people stand in front of freezers, and some people say they are mind-blowing. What other tech developments are you anticipating?
Harmon: So much of the technology already exists -- but that doesn't mean people will accept it. Stores could integrate facial recognition or get the ethernet address off your smartphone to know it's you and say, "Sarah, the frozen burritos you like are over here." Many people would find that creepy. I recently heard a large retailer say they can tell when people are about to run out of milk. But no one wants to listen to that. There has to be a balance.
Retail Insider: Why do you think brands should pay closer attention to these networks?
Harmon: Retail media network advertising is more effective because people show up when they are looking to buy something. It's communicating at the point of purchase and at the time of sale. Advertising to a willing audience is more effective. These ads have the potential to benefit consumers instead of annoying them.