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Retail Media Networks: An Industry on the Rise

What are RMN’s?

With the growing restrictions on how companies can track and use customer data, such as the restriction of third-party data by Law 25 in Quebec, some companies are searching for new and effective ways to understand and reach their user base. In doing so, many are turning to the solution of Retail Media Networks, or RMN’s. Large retailers with access to a wealth of first-party data now have an additional potential stream of revenue through RMN’s. By leveraging their first-party data and their established customer relationships, large retailers have been seizing the opportunity to serve as advertising platforms for those cookie-less companies now in search of ways to target their ideal customers.  

Let’s take the example of a grocery store operating as an RMN. The store already has a knowledge of the customer’s past purchase behavior and preferences and can use this data to show them targeted ads in the form of display banners or sponsored products among search results. In this way, outside companies can reach a customer base that is already interested in the sort of products that they are trying to sell. 

Where are RMN’s heading? 

Some companies who have developed strong RMN businesses include Amazon, Walmart, Instacart, Ebay, and Etsy (Lebow, 2023), but any retailer with an online platform and reliable traffic can take advantage of this advertising boom. One strong benefit of RMN’s is the fact that advertisements, such as display ads, search ads or sponsored products, will be shown to customers closer to the point of purchase which may help increase the conversion rate; access to loyalty program data is also a major benefit in some cases (Lebow, 2023). While RMN’s are growing in popularity, the industry that currently spends most on RMN advertising is that of Consumer Packaged Goods (Baird, 2023); however, one article published by McKinsey & Company argued that, while CPG’s have been major proponents of RMN’s, as of 2022, advertisers in other industries had planned to increase spending on these advertising platforms and consequently, they expected a growth in the diversity of industries taking advantage of this type of advertising (Brodherson, 2022). One Forbes article stated that the consulting firm McKinsey & Company had forecast that ad revenue generated by RMN’s would grow to $100 billion by 2026, double that of the figure forecast for 2023 (Baird, 2023). 

Privacy, personalization and targeting: 

I believe that we are only going to continue to see the rise of RMN’s popularity in the coming years, especially as new industries test their effectiveness. This said, I think that one determining factor for the direction of RMN’s future will be the success with which they balance personalization with protection of privacy. Personalization is an important component of RMN advertisement; if not meticulously managed, the current effectiveness of such platforms could be compromised. For the price tag of personal information, a company can offer tailored experiences to users, suggesting products and services that align with their preferences, as well as making the user experience easier and more streamlined in the process. With RMN’s, retailers are leveraging the relationships they have built with their customers to provide advertising services, but if the relationship is damaged by a breach of trust, so can the retailer’s position as an advertising platform. Bartholomew & Williamson propose three pillars upon which RMN’s should build their personalization and privacy controls: allowing users to opt out of personalization efforts, employing walled gardens to keep customer data secure, and enhancing the customer experience through their targeting efforts (2022).  

Upholding the Pillars

As the second pillar underlines, the protection of privacy and personal data will only become more important as technologies continue to advance. To this end, Bartholomew, Hampton, and Briegel, (2023) discuss the application of several different technologies – such as walled gardens, data clean rooms and homomorphic encryption – by RMN’s to ensure the safety of their customers’ data. One 2023 Forbes article by Nikki Baird critiques the long-term effectiveness of RMN’s, indicating that the advertisements on such platforms are often more targeted rather than personalized, meaning that after a certain time, such ads will result in a customer’s annoyance rather than their appreciation, thus infringing upon the third pillar proposed above. Like the author, I suspect that users will eventually become less susceptible to continued advertising efforts if the benefit of personalization is outweighed by an experience that is no longer optimal; however, I think that this will simply lead to an adjustment of the approaches used. For example, certain ads or sponsored products might include the option for users to indicate whether the content is uninteresting to them as is done on some social media sites, thus offering some input regarding the targeting efforts to users who still wish to opt in to personalization.  In this way, RMN’s can continue learning which users will be most valuable for their advertising partners, all while ensuring an agreeable user experience in which the user feels in control.  

Small businesses and RMN’s 

In the wake of third-party cookie restrictions and as marketing efforts shift towards centralized advertising hubs like the RMN’s, I question how small businesses in competing industries will fare against more financially stable brands who can afford to secure the most desirable advertising spaces.  Because ad spaces on RMN’s are distributed through an auction approach, small businesses might find it difficult to compete for strategic advertising placements on influential platforms. On another note, some have argued that even smaller-scale companies can expand into the business of RMN’s, as it is the quality of client engagement that matters over the size of the business itself (von Hoffman, 2023). In 2022, one Forbes article by Vlad Gozman, entitled The Slow Death of Third-Party Cookies suggested that the collection of ‘zero-party data’ — that is, data that has been shared directly with the business by users, with their consent and for the purposes of personalization and contact — is another way that small businesses can continue to thrive despite the loss of their previous data channels.  The question remains of whether strategies such as this will be sufficient to combat the advertising power that larger businesses wield through RMN’s.    

Conclusion

RMN’s remain, for the time being, a hot topic in the world of advertising, especially in the wake of third-party cookie restrictions. RMN’s can leverage their first-party data and customer relationships to benefit advertisers, all while providing an efficient and personalized online experience for their users. In the years to come, maintaining their customer relationships through good data security practices as well as an adaptable approach to personalization will be key for their continued success as more industries direct their funding into advertising on such platforms. 

So, if Retail Media Networks are indeed the “next big thing”, the question that always remains when it comes to the online landscape is: What’s next? 

Bibliography of Consulted Works:

  1. Adgate, B. (2022, December 1). Retail Media Networks Are The Next Big Advertising Channel. Forbes. Retrieved from https://www.forbes.com/sites/bradadgate/2022/12/01/retail-media-networks-are-the-next-big-advertising-channel/?sh=6af981a5346c 
  1. Baird, N. (2023, February 23). Retail Media Networks Are Having A Moment, But It Won’t Last. Forbes. Retrieved from https://www.forbes.com/sites/nikkibaird/2023/02/23/retail-media-networks-are-having-a-moment-but-it-wont-last/?sh=513e9fe98bd3 
  1. Bartholomew, D., Hampton, S., & Briegel, H. (2023, May). How Are US Retailers Protecting Their Customer Data While Growing Their Ad Promotions Business? In National Brand and Private Label Marketing Conference (pp. 50-56). Cham: Springer Nature Switzerland. 
  1. Bartholomew, D. E., & Williamson, M. (2022). Retail media networks. Journal of Retailing and Consumer Services, 69, 103119. https://doi.org/10.1016/j.jretconser.2022.103119 
  1. Brodherson, M. (2022, June 7). Busted: Five myths about retail media. McKinsey & Company. Retrieved from https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/busted-five-myths-about-retail-media 
  1. El Hana, N., Mercanti-Guérin, M., & Sabri, O. (2023). Cookiepocalypse: What are the most effective strategies for advertisers to reshape the future of display advertising? Technological Forecasting and Social Change, 188, 122297. https://doi.org/10.1016/j.techfore.2022.122297 
  1. Gozman, V. (2022, September 12). The slow death of third-party cookies. Forbes. Retrieved from https://www.forbes.com/sites/theyec/2022/09/12/the-slow-death-of-third-party-cookies/?sh=14d99b294026 
  1. Lebow, S. (2023, November 14). Retail media networks: What they are and why they matter to marketers and retailers. eMarketer. Retrieved March 6, 2024, from https://www.insiderintelligence.com/insights/definition-retail-media-networks/ 
  1. von Hoffman, C. (2023, July 10). How a small chain is going big with a retail media network. MarTech. Retrieved from https://martech.org/how-a-small-chain-is-going-big-with-a-retail-media-network/ 
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