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Retail Media is now on every board meeting agenda. No longer a nice-to-have, it's a necessity for retailers. Retail Media revenues are an important addition to the bottom line.

Why Marketplaces Internalize Their Retail Media Operations
Why Marketplaces Internalize Their Retail Media Operations Pixabay

Combatting tightening margins with new revenue streams

According to the Federation of E-commerce and Distance Selling, Q1 2022 saw a sharp decline in online sales of physical products, down 15.5% from the same quarter last year. Recent inflationary pressures on household budgets and long-term supply chain risks linked to climate change are squeezing retailer margins. As a consequence retailers are cutting costs where possible. So with difficult times ahead, it is unsurprising that many are integrating other sources of revenue such as Retail Media.

Retail Media can provide a high-margin incremental revenue stream. But it is not enough to implement a Retail Media technology platform alone. To realize its full promise, retailers must start with a structural change that puts Retail Media at the core of the company's business strategy.

Choosing an organizational approach

Retailers and marketplaces will choose one of two commercialization strategies: outsourcing commercialization to an intermediary such as Criteo, or building this function in-house as the cornerstone of a holistic approach to media monetization. When Retail Media was a promising but still nascent model, externalizing operations was a low-risk way for retailers to offer brands reach and to realize advertising revenue for a minimum of effort and disruption. Intermediary Retail Media Networks offer benefits, such as; a network of brands with a committed budget; and for larger brands, a single point of negotiation provides them with reach across multiple retailer e-commerce sites.

However, for a retailer, there are two major downsides to entrusting Retail Media commercialization to a third party.(i) media inventory value is undervalued. (ii) the retailer can monetize only the largest advertisers.

1. An advertiser's goal is to sell product and a high-performing ad campaign should trigger higher stock purchases from the retailer. However, externalizing Retail Media commercialization breaks the link between the campaign results (ROAS) and the ordering of future stock (ROI). As Retail Media is disassociated from negotiations on stock order volumes, the result is to depress the value of the media inventory.

2. Managing an advertiser network is a high-touch, high-cost operation. For this reason, intermediaries work with only the largest brands that systematically invest in e-commerce platforms and bring the biggest budgets. However, big brands only represent a third of the total potential ad revenue.

A retailer or marketplace relying on an intermediary is ultimately leaving money on the table by underdelivering value to brands and failing to monetize all potential advertisers.

Retail Media at the heart of the retail organization

While a retailer with an externalized Retail Media model can achieve incremental revenues of 1% of GMV, the most successful organizations deploying an internal integrated model can realize up to 5% at an 80% margin.

Retail Media as a core business is an extremely profitable investment.

Retailers and marketplaces such as Walmart, Amazon and French retail giants such as Cdiscount and Fnac-Darty, have realized the potential of Retail Media. Each has fully integrated the retail media business into the company strategy, training existing brand relationship teams to manage both Retail Media and Trade.

This approach provides multiple benefits:

1.The revenue opportunity grows by a factor of 3. Sales teams benefit from the existing touch points with brands and resellers to engage profitably with the untapped long-tail of advertisers

2. Annual negotiations between parties now benefit from a 360 view of the partnership. The proximity of sales and support teams to the purchasing teams lends coherence to the brand/retailer relationship. ROAS and ROI are now linked.

The Retail Media organization acts as an internal champion for the brand by surfacing successes and ensuring stock keeps up with demand. This provides real value to the brand and protects the value of media inventories.

The Choice of Enabling Technology

Internalized Retail Media models require advanced enabling technologies that can support the creation of high-performing campaigns. They also need to work equally well for large brands and small marketplace resellers.

Addressing the long-tail of potential advertisers is as much a technology challenge as it is an organizational one. The chosen technology needs to guarantee ROAS and fair competition across thousands of advertisers regardless of their size or experience. Retailers should prioritize an approach that automates the advertiser onboarding and campaign creation.

Retailers are becoming media businesses in their own right and fortunately, they don't also need to reinvent themselves as software houses. They can rely on existing proven technologies such as relevanC, a key enabler of Cdiscount's Retail Media success.

The piece was Co-written by Cédric Chamoux Deputy CEO CoSpirit Commerce & Grégoire Flatin - Head of Retail Media Solutions at relevanC

RelevanC is: at Relevanc, a global company headquartered in Paris, France. RelevanC is digital marketing platform that enables companies to increase sales, create a loyal customer base, and encourage suppliers to be more involved in promotional campaigns. The company works with more than 150 well known partners around the world and recently helped Franprix achieved a Turnover of €1.5 billion.