Retail media networks: the next big thing in digital advertising

Retail media networks are set to create the biggest paradigm shift in digital advertising since the move to programmatic advertising. This is the opinion of consulting firm McKinsey & Company, which notes that in the US alone, the growth of retail media networks could represent as much as $100bn of ad spend in 2026. 

It was made famous by Amazon Ads, and an increasing number of retailers have realised the potential of commercialising their own assets as an additional revenue stream. The principle is easy enough: your online store already reaches thousands of visitors looking to purchase – why not allow merchants to advertise, to drive customers to specific products?  

It’s certainly a winning formula for Amazon, which is now one of the fastest-growing digital advertising companies, sitting right behind Alphabet and Meta in terms of advertising sales.   Amazon’s advertising services clocked $11.6bn in the first quarter of 2022. It comes in just below 7% of its overall revenue. And it’s not just Amazon that is doing this; Walmart, eBay, Target, Macey’s and Tesco are all in the retail media network game.  

How did we get here? 

From a marketing perspective, while it’s easy to point out that a retail media network is an obvious revenue stream for retailers – monetising their already existing customer traffic – there are certain factors driving the growth.  

Let’s start with the deprecation of third-party cookies, a previous mainstay of the programmatic market. While Google might have offered a year of respite for third-party cookies on its platform, it’s clear that advertisers would need to look elsewhere to retarget consumers in the near future. 

The second trend offering a tailwind for the growth of retail media networks is the emphasis on the protection of personal information. Internationally this is driven by the General Data Protection Regulation in Europe and the California Consumer Privacy Act Stateside, and locally we have the Protection of Personal Information Act.  

Thirdly, Apple’s push for privacy changes in its iOS operating system means that users can now opt-in or out of being tracked by apps. It played havoc on advertising-reliant social media apps such as Facebook and Instagram, with 62% of iOS users who can make use of App Tracking Transparency opting out of tracking.   

Given these three major trends, it’s becoming increasingly difficult to retarget customers in the wild from a digital advertising perspective.   This is leading to a rise of anonymised first-party datasets being uploaded into the likes of Meta, plus more and more additional opt-ins pushed onto customers from brands to enable retargeting of customers. Globally, ad spend is being diverted from traditional social channels (Meta’s networks and YouTube showed a Q4 2022 year-on-year decrease in advertising) into retail media networks, while TikTok has also entered the chat. 

And no wonder, since these networks are walled gardens, a safe environment where there is not only a deep understanding of customer purchasing behaviour, but also incorporating key personal insights to drive efficacy in marketing campaigns. 

Business impact and return on investment 

But while these factors do play a role in its growth, perhaps the biggest benefit of retail media networks is the ability to target customers at the moment of truth. Customers are shopping, not doom scrolling Twitter, responding to email or eyeing the Kardashians’ latest look, doing so while comfortably ignoring the display ads on the       side. 

With the customer in buying mode, you know they are searching for a product or considering different options, so when an ad appears, it’s delivered on the doorstep of conversion. Purchase intent is converted into direct fulfilment - without the extra step required with other means of digital advertising to fulfil the created demand.  

This is a dream for   advertisers, and from an attribution perspective, the focus is less on vanity metrics like eyeballs, and more down to brass tacks - return on investment (ROI) and return on advertising spend (ROAS). This is especially true for the sponsored ads product which is bottom of the funnel and focused on conversion. 

As one of the judges of this year’s MMA South Africa SMARTIES Awards, an annual competition looking for the best modern marketing campaigns, the emphasis was time and again on the business impact of campaigns. Each submission had to explain the campaign’s return on investment, with qualitative and quantitative data to support claims of success, and business results counting a stiff 40% of the judges’ total score.  

The MMA’s emphasis on actual business impact is certainly justified, particularly given that both client and peer conversations indicate that the current business environment is simply not able to support vanity projects or innovation without success. 

From Takealot Group Advertising’s perspective, 40% of merchants who are advertising on our network have seen a return on investment equal to 20%, with 17% of merchants recording a return on investment of 50% or more. And they are doing so through a number of different avenues. From top of the funnel offerings such as banner ads, fly-outs and product page ads, through to bottom-of-the-funnel activities including search-based sponsored product ads (much like Google’s sponsored ads), keyword strategies and personalised pop-ups. Takealot will soon be announcing developments that will make it even easier to collaborate with us in future in order to make the most of our network.   

From the rise in prominence of retail media networks in the digital advertising space, through to its impact on return on investment and ROAS, this phenomenon offers results too good to be ignored. For those looking to drastically improve their marketing performance going forward, retail media networks could be the sea change required. 

Odette Van Wyk is group head of Advertising at Takealot and a judge of the MMA SA SMARTIES Awards 2022/2023. The SMARTIES Next Conference takes place on 30 March at the Maslow Hotel in Johannesburg. The 2023 SMARTIES finalists can be viewed here.