2021 proved to be a landmark year for the global advertising industry. Total global ad spend grew by its highest rate year-on-year since such things were recorded. This was more than just a rebound from the first ever COVID-inspired contraction in the market the year before. Ad spend in 2021 was a cool $120bn higher than in 2019.

Even more significantly, for the first time ever, digital ad spend outpaced traditional ‘offline’ advertising. And it didn’t just tip toe past it. It smashed through the barrier in spectacular fashion, surging by an incredible 29.1% to reach a total value of just shy of $500bn - almost two thirds of total advertising revenues.

So where has this incredible acceleration in growth been concentrated? The markets for paid search, online display, social media and mobile advertising - the most lucrative digital channels by value - have been growing steadily for many years, at a much faster rate than offline media. It’s long been inevitable that digital would take the lead eventually.

But when you take a closer look at how the digital media market has evolved over the past couple of years, the most significant and spectacular growth has come in an unlikely place. Previously considered a niche and easily overlooked corner of the digital marketing landscape, retail media has burst onto the scene almost out of nowhere, and is establishing itself as a force that could shape the entire digital landscape for years to come.

Seismic growth

Retail media is hardly a new concept. It boils down to advertising on retailer-owned ecommerce sites, which has been happening as long as there have been online shops. But compared to the markets for search and, more recently, social media advertising, retail was considered small fry. From the perspective of digital advertising networks, which control the placement of ads around the web, retail is a fragmented, complex market with tens of thousands of ecommerce sites, relatively few of which command especially high traffic.

Why pay much attention there when you can reach millions of users placing ads on the likes of Google or Facebook?

As a result, prior to the intervention of COVID-19, retail media was forecast to reach a global value of £500m by 2028 - a fraction of the overall digital advertising market.

Fast forward a couple of years, and these forecasts have been scaled up by an order of magnitude. According to BCG, the retail media market will reach $100bn as early as 2026 - and that’s just in the US - by which point it will account for 25% of total digital ad spend. Coresight goes even bigger, predicting that retail media spend will surge by a mammoth 80.1% in 2022 to reach $75.1bn.

Growth on that sort of scale in any market is pretty seismic. So, what has changed so quickly to make retail media such a red hot trend?

The pandemic effect

Retail media has always had its benefits. If you run an ecommerce site anyway, monetising the platform through advertising makes a lot of sense. For retailers, encouraging the brands who sell their goods through your site to pay for advertising is a double win - you earn from the ad, you earn from every click through that generates a sale.

That helps to create impressive margins for retailers - selling advertising space on owned channels yields anything in the region of 70% to 90% profit, according to BCG.

With figures like that, you could well ask why it has taken until now for retail media to really catch fire. But it isn’t just retailers who need to buy into the idea. Brands have to see the value of it, too. And that’s where we’ve seen the stars align over the past couple of years, creating the right opportunity at the right time for both retailers and brands.

The influence of the pandemic cannot be ignored. During the course of our annual Future Shopper surveys over the past couple of years, 62% of shoppers told us they would increase their use of digital channels to make purchases in the future as a result of the pandemic. This year, we found 57% of consumer retail spend went online.

The ‘dash to digital’ triggered by the pandemic certainly makes digital advertising more attractive to buyers - you want to be focusing your spend where potential customers see your campaigns, after all. That’s no doubt had an influence on the growth of retail media. More online shopping means more eyes on ecommerce sites. Amazon, which operates by far the biggest retail media network in the West, saw its advertising revenues boom by 32% in 2021.

Yet you could question whether the uptick in ecommerce traffic resulting from the pandemic is by itself enough to explain the scale of retail media boom we’re witnessing. Sure, it makes sense that more and more brands would want to divert their ad spend to Amazon, which can already compete with the likes of Google and the social media giants on reach and which is able to undercut both on advertising rates.

But does it explain why so many other retailers, many of them considerably smaller than Amazon, are queuing up to launch their own media networks? What would draw brands to allocate precious marketing spend advertising on channels that just can’t offer the traffic of an Amazon, a Google or a Facebook?

A new age for digital advertising

There’s another piece to the jigsaw that, broadly coinciding with the pandemic, has proven very timely for the explosion of interest in retail media. And that’s the privacy challenge to the way digital advertising networks have hitherto collected and used consumer data for targeting and personalisation.

Compared to traditional offline advertising, the fact that digital advertising can be targeted at web users based on their online behaviour is of enormous value to brands. It significantly raises click-throughs and conversion rates, making ad spend much more efficient.

But the way user behaviour is tracked for such purposes has come under severe scrutiny in recent years. In the wake of far-reaching digital privacy regulations like the GDPR in Europe, major internet players have taken the decision to clamp down on the collection of personal data. In particular, so-called ‘third-party’ tracking cookies - the type used by ad networks - will no longer be supported by major browsers such as Chrome and Safari.

This has far-reaching implications for the digital advertising industry. But it is by no means the end of personalised, targeted advertising, nor is it the end of behaviour tracking and cookies.

Consumers are not against their digital behaviour being tracked per se. In fact, as far as getting personalised experiences goes, they appreciate the benefits. When shopping online, receiving personalised product selections and offers etc based on previous purchases, or picking up on products you were browsing last time as soon as you land on a site, contributes to higher customer satisfaction. People are generally happy to share data with the sites they visit in exchange for these kinds of benefits.

What they don’t like is the idea of hidden entities - such as external advertising networks - also collecting their data and using it for purposes that are not entirely clear to them.

This all adds a whole new level of value to personal data that businesses collect directly, with informed user consent. Third-party data is out, but first-party data - i.e. that collected by the sites users visit - is in. And retailers are awash with this kind of data.

Arguably more so than high margins, more than the pandemic-inspired dash to digital, this shift explains the meteoric rise we’re witnessing in retail media. It explains why demand from brands to buy advertising on retailer-owned networks is rocketing - retailers now control the consumer data that will allow them to continue targeting their campaigns.

There are other benefits to brands in advertising directly on the channels where they also sell. Running sales and marketing on the same platform shortens the journey from promotion through to conversion. Consumers favour short, simple shopping journeys like this. But from a brand’s perspective, it also makes it easier to attribute sales to specific ads. The more accurately you know which ads are driving conversions and which are not, the better you can optimise your campaigns and your ad spend.

Access to consumer data in the privacy-first age, continued personalisation and better analytics give brands a reason to take the retail media offer seriously. As a result, according to Forrester, between 70% and 90% of brands believe retail media will play a significant role in their future growth.

What to do next

A new era for retail media requires a new approach to strategy, trading and intelligence. At VML Commerce, we’ve developed a modern, forward-thinking Retail Media practice that combines all three. Our aim is to help retailers leverage value from their channels and data, and help brands master an expanding portfolio of channels to win the digital shelf.

Retail media remains a new and under-explored opportunity for many. But with a team that boasts 25+ years of in-house ad-trading experience combined with industry-leading analytics, we can get you up to speed quickly to take full advantage of this burgeoning market.

Connect with the VML Commerce Retail Media team to find out how we can help you with:

  • Planning and strategy, including full auditing of current digital media and campaigns, including digital content. We will recommend an optimum channel mix to support your business goals and craft clear paths to purchase for your campaigns.
  • Implementation and activation of a full range of campaigns on retail media, including new product launches, promotions, seasonal activations, cross-sell and remarketing.
  • In-depth campaign appraisal and reporting via our Commerce Intelligence platform, a leading analytics solution that turns all performance metrics into single view, cohesive visual insights, and can also be extended to report on share of shelf, cut through on shelf, and content performance.
  • A free retail media audit!

For more information on our Retail Media service get in touch today or click here.

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