Digital advertising is constantly evolving, and professionals in the advertising ecosystem need to stay on top of the changes to understand how to remain competitive in the current climate. The retail sector is one aspect of the industry whose participants can benefit almost immediately from investing in their first-party digital commerce media programs.
To dig into the details of what retailers need to know to stay competitive, we spoke with Eric Brackmann, Head of Commerce Media at Koddi. Brackmann helped illuminate why it’s important for retailers to invest in digital solutions, how to form partnerships, and how to stay ahead of the competition. He also offered some insight into how this sector will likely grow and change in the near future.
Investing in Media Networks
Kacey Perinelli: Why is it important for retailers to invest in commerce media in today’s climate? What benefits and competitive advantages can retailers expect to see after investing?
Eric Brackmann: Companies that have built their own media programs or networks have seen that these programs are a huge driver of profitability. It will get harder and harder to compete with these companies, because they enjoy a margin advantage. For example, Amazon has the world’s largest private commerce media network, which delivered over $35 billion in revenue last year. When you look at Amazon’s profitability, nearly two-thirds comes from ads. Delivering something to your doorstep is not what makes Amazon money. Selling ads is what generates the profit they use for promotions and discounts, to acquire new customers, and to invest in their infrastructure.
With media and through digital channels, retailers can improve profitability starting tomorrow – especially compared to the risk and glacial pace of the traditional retail playbook of merchandise mix, store footprint, promotion strategy, and so forth. By adding media to your business, you’ve taken the prospect of losing money on an order to now making money on an order. You make a margin on media even when customers don’t buy a product from you. That’s super powerful. And, it’s what makes the kind of work we’re doing and the initiatives we’re working on C-level imperatives. This is what it takes to be able to manage the future of the retail business.
Driving Value & Fostering Organic Partnerships
KP: How are today’s retailers, commerce sites, and marketplace operators building media programs? Are there best practices for utilizing different types of digital ads based on company size, intended audience, etc.?
EB: We’re starting to see an evolution in the experiences that publishers offer to their shoppers or that marketplaces offer their visitors. Standard IAB-type ad units remain interesting because they’re what powers the public networks, but as consumer and advertiser expectations evolve, private network publishers can offer unique experiences and align those experiences with the value they’re driving for the folks visiting their site.
When you think about the best practices, first take a step back and figure out what you are trying to do for your users. What are you trying to do for your shoppers? What kind of experiences do you want them to have? Don’t just put advertising in front of them because you think you need to or because that’s what you are supposed to do. Focus on curating better path-to-purchase experiences for your users and shoppers and let that drive your advertising decisions.
What are your suppliers asking for? What return metrics are important to them? How could you use media commitments to enrich your supplier and vendor relationships? These are important questions that commerce media raises, offering you the opportunity to deepen your ties with your best business partners.
When advertising is done right, everybody wins. The shopper has a better experience, as evidenced by their purchase behavior and feedback on the site. The advertiser is delighted because they’re seeing additional returns, and the publisher is seeing additional revenue. A rising tide indeed lifts all boats; if you’re doing better advertising, you can improve the whole business. This result holds true regardless of what your annual revenue is.
KP: How can retailers build relationships with a publishing partner to further their commerce media strategy?
EB: We’re seeing retailers and marketplaces become publishers. So, how are you building strategic relationships to build better media networks? It comes down to if you can harness the power of your first party audience as a publisher to use that to drive better outcomes. And honestly, the fit is organic.
Think of a grocer, wherever you shop. They have a lot of information about you; they know what you buy, how you buy it, and when you buy it. Their ability to predict what you will put in your cart is insanely accurate. They’re placing ads on their sites so they themselves are publishers. They’re also using their audience data to enable non-O&O (owned and operated) media. Now, grocers are engaging other publishers worldwide to use their audiences to run campaigns across various mediums — both digital and physical.
A toothpaste company like Crest may come to a grocer and say, “Hey, I want to run display ads against people who buy Colgate.” That grocer can create an audience of people who buy Colgate and put ads on their site targeting that audience. They can also go to the wider internet publishers and target ads on behalf of Crest to the same audience to influence their purchasing decision and encourage them to switch brands.
Publishers should consider how to build those partnerships when it comes to commerce media. As a media publisher, you should be partnering with commerce sites to take the first party data and advertiser relationships they have and combine it with your audience and first party data to build something bigger and better.
The Future of Digital Media in Retail & Beyond
KP: As more of their competitors invest in digital media, how can retailers stay ahead of the curve and set themselves apart?
EB: There’s been much research on this topic recently. It comes down to advertisers asking for transparency, access to data, and really moving into a value add space versus a pay-to-play space. One of the biggest knocks on commerce media over the last couple of years is that it has become pay-to-play (a “tax”) in some places.
Today, the industry is progressing to a position where there’s an immense value add. It comes in the form of not just sales but data, partnerships, and transparency as well. If you want to set yourself ahead, it’s all about transparency, access to data, and new and innovative experiences you can provide to your shoppers through your advertisers. Again, this can improve your supplier relationships if you do it right.
KP: What do you see as the future of how digital media will grow and change in the retail space over the next few years?
EB: Commerce media networks will double down on their investment. There’ll be a ton of hiring, technology investment, training, and skill-building. Analysts are predicting that 20+% of digital media will be in the commerce media space by 2026. So think of all the people employed within digital media — 20+% will have to gain competency in commerce media. This is going to be a seismic shift for agencies and brands.
We should also expect growth in the demand side solutions, especially in the retail space. It used to be that you could log into Google and create a campaign, and as an advertiser, you would probably hit most of the internet. That was the way Google worked. On the other hand, if all of these marketplaces and publishers have built private networks, logging into each one and running campaigns will make managing all of them inefficient.
What we’re seeing on the other side of the equation is that there are demand-side solutions that are building an aggregation of demand. There is now enablement of technology on the publisher side and aggregation of demand on the retailer side. The system is efficient when the two connect. I think those companies will do quite well.
Retailers should be prepared for larger advertisers to start considering how they build competencies. Some companies, as a strategic imperative, will probably build their own commerce media centers of excellence where they will internally figure out the best way to manage these private networks, as well as how they will go to market across all new publishers. From the publisher’s side, the question will be how to tap into that. We’re going to see an accelerating new source of revenue that isn’t just Google and isn’t coming from agencies but instead from these new centers of excellence within the advertisers themselves.
Growth will also slow down. The last two years have been a little bit crazy. There are only so many years an industry can sustain 30-50% year-over-year growth. We’ll see 20-30% growth over the next couple of years to hit the analysts’ projected $100 billion revenue by 2026. Additionally, there will likely be some consolidation of players in the space.
Overall, it’s going to be an exciting few years ahead in retail and commerce media.