Are Retail Media Networks Lacking Creativity?

The rocketing rise of retail media networks in recent times is nothing short of spectacular, and is expected to continue in the years ahead.

Advertising spend on retail media in the UK was forecast to have grown by 26 per cent in 2022 to more than £3.4 billion, up from £2.7 billion in 2021, according to the IAB.

The trade body estimates that the UK market will grow a further 17 per cent in 2023, to just under £4 billion, before reaching £7.9 billion by 2026. To put that in context, total UK ad spend hit £34.9 billion in 2022, according to the Advertising Association.

Retail media networks are defined as the range of channels offered by a retailer as advertising platforms for third-party brands. Their emergence was accelerated by two forces: impressive innovation from the retailers themselves; and an existential fear provoked by the rapid emergence of e-commerce giants (primarily Amazon) built on customer data.

Innovation took the shape of loyalty programmes, including Tesco Clubcard and Sainsbury's Nectar, which can be traced back more than 25 years and provide retailers with mountains of shopper insight.

Joining the dots between retailers and demand: Lessons from Amazon

"A natural progression is retailers monetising inventory and data more effectively. More want to behave like Amazon and offer brands and agencies the opportunity to buy media, often through a self-serve platform or interface," says Jonathan Lewis-Jones, managing director at Publicis Commerce.

This shift was reflected in the launch of more formal, structured retail media operations. In late 2021, Tesco unveiled Tesco Media & Insight Platform and runs this through its customer data arm dunnhumby. Boots Media Group emerged in the same year, while Asda operates its Media Partnerships division and Sainsbury's has Nectar360.

Agencies also spotted the potential of retail media to provide extra revenue streams. Prominent among the deals hatched in the field was Publicis' acquisition of software platform CitrusAd, which helps retailers deliver ads for brands.

Steve Ricketts, managing partner, head of ecommerce practice at EssenceMediacom, says: "Retail media has professionalised. It's been around in some form for decades... but we're actually beginning to see results."

IAB growth predictions for retail media may look fantastical in light of general doom and gloom in the wider UK ad market (ITV announced recently it expects ad revenues to fall 11 per cent in the first quarter of 2023). But there's a massive factor in retail media's favour. Google's phasing out of third-party cookies in its Chrome browser next year means that retailer-owned first-party customer data will become so much more important to brands looking to target consumers.

Stacy Gratz is the UK managing director, Tesco Media & Insight Platform at dunnhumby. She's convinced that in a post-cookie world brands will "drastically change their approach to targeting, optimisation and measurement". That's why, she says, Tesco Media is so focused on its "onsite" space (website and other digital channels) to ensure consent from consumers delivers better ad performance: "We believe that consumers will expect publishers and retailers to collect consent and then use that for targeting purposes, which is much more transparent for the customer."

Personalising customer experience. But at what cost?

But there's a potential weakness. Retail media networks essentially target shoppable display ads based on people's searches combined with data held by the retailer through their loyalty schemes. The concern is that despite the impressive return on ad spend (Tesco claims advertisers receive 400 per cent return on sponsored search for instance), brands are simply creaming off sales they'd achieve anyway. The low value, discounted stuff at the end of the online sales process.

Many brand owners are happy with this scenario because funding for retail media investment often comes from existing supplier deals with retailers (through sales teams and trade marketing budgets) mostly concerned with immediate sales. Lewis-Jones at Publicis Commerce says: "There will always be investment in these networks because of the sales team relationships with retailers and the supplier-funded deals, reallocating investment that's already in place between a supplier and a retailer."

Creativity is the missing link that can make all the difference

However, innovation is needed if retail media networks are to demonstrate that they can deliver long-term brand growth alongside short-term success. Tesco Media, for example, deals primarily on a direct basis with clients through its self-serve booking platform but is growing its agency team to meet with increasing demand for brand-related activity.

The need for measurement standardisation and the ability to deliver a richer set of results is a large factor here. Consistent formats and reporting across platforms would be welcomed particularly by agencies because they tend to use a wide range of retail media networks to ensure strong coverage for their clients.

Guillermo Dvorak, head of digital at Total Media, says: "It's very difficult to do any sort of true measurement when the only focus is on the bottom of the funnel. You get the conversions from last click perspective, but as soon as you want to start focusing on incremental activity, or to know whether you're capturing the same people you would regardless, or new consumers, then that becomes a very difficult conversation, even now."

The IAB is working on a set of industry-wide measurement standards, and Tesco is among the retail media platforms attempting to move forward on providing results beyond return on ad spend to embrace brand metrics such as desire and consideration.

Integration with other channels, instore and through media partnerships, is expected to transform the situation. And to provide advertisers with more creative opportunities in retail media. For instance, Tesco Media recently announced a deal with ITVX to target ads through connected TV. The retailer is also expanding its instore digital screen network, run in association with JCDecaux.

Steve Ricketts at EssenceMediacom says there's very little creativity in retail media right now because online sponsored ads are standard units displaying only product and price. The real opportunity will come from connecting with channels such as TV and out-of-home: "If we can look at and understand lapsed customers, or at people who buy in specific time periods, then we can stream different TV ads for these audiences. Then we can achieve much better outcomes against our objectives. Plus we can change the creative that goes with that to make it more appealing to that segment."

This type of activity isn't yet common in UK retail media, but taking off in the US (the market is described as "12 to 18 months ahead" of the UK's by Stacy Gratz at Tesco Media). However, EssenceMediacom has worked with Amazon on a UK brand-building campaign for Coca-Cola that points to the future for other retailers. The 'Christmas Night In' advertising ran across several touchpoints, including branded delivery bags, display ads on Amazon Fresh, and commercials on Amazon’s streaming service Freevee.

Greater creative sophistication will undoubtedly be welcomed by agencies. But further growth in retail media networks is predicated to a far greater degree on the demise of the third-party cookie and delivering short-term effectiveness for product suppliers through the cost-of-living crisis. Tesco Media's Stacy Gratz says: "We think we're a safe bet when it comes to purchasing media because we can tell you the exact return on your ad investment."

Agency experts tend to agree that a successful future for retail media networks is assured. Like supermarket shoppers they love the sweet hit of a bargain but their continued loyalty to the medium will depend on improved standards of measurement and innovation. Retailers, it's over to you to elevate the medium beyond mere efficiency.