The Supply Side: Retail media networks reshaping digital marketing

In the hyper-competitive retail world, the rise of media network platforms such as Walmart Connect or Target’s Roundel continues to grow amid ever-changing consumer expectations.

Researchers at the Sam M. Walton College of Business at the University of Arkansas recently studied the rise of retail media networks (RMN). They published a white paper on their findings. The group also recently spoke at the Plug & Play Supply Chain Expo in Bentonville on mutual benefits to retailers and suppliers who partner in RMN advertising.

RMN involves retailers using their assets to reach the consumer and ultimately be able to market personalized solutions that fit their needs, according to Brent Williams, UA associate dean of strategy and one of the project researchers.

At its core, RMN can provide opportunities to market products to customers through a retailer’s offline and online platforms using data owned by the retailer and shared with suppliers. The researchers found that approximately 600 retailers now offer media networks to suppliers, including Walmart Connect, Walgreens Ad Network, Target’s Roundel, Lowe’s One Roof Media and Sam’s MAP.

The researchers found that smaller retailers could benefit from partnering with third-party companies and traditional agencies. The researchers said RMN could yield opportunities for brands wanting to optimize relationships with brands and consumers.

The RMN market is expected to top $50 billion in global revenue next year. Forecasters predict the market will grow by 25% per year to $100 billion over the next five years, accounting for 25% of total digital marketing spending by 2026, according to a 2022 report from the Boston Consulting Group.

Retailers benefit from RMN because they provide additional revenue streams that may offset the compressed margins now plaguing the industry. UA researchers also found that RMN can deepen their connection with customers and allow brands and retailers to focus on their same customers in a strategic and personalized manner regardless of where or how they shop. The Boston Consulting Group said customer expectations and actions have never been harder to capture, adding that the space’s first and second movers will reap the most significant rewards.

Walmart re-launched Walmart Connect in January 2021 and planned to become a top 10 U.S. advertising platform over the next five years. Insider Intelligence data indicated Walmart’s U.S. digital ad revenue growth would outpace Google, Meta and even Amazon this year.

“You know about crawl, walk, run? We’re getting to that walk/run phase now where our platform is maturing,” Rich Lehrfed, general manager at Walmart Connect, said at a recent eMarketer virtual summit.

Lehrfeld said Walmart Connect underwent an upgrade in mid-2022 to enhance the search relevancy and transitioned to a second-price auction model where the highest bidder wins but only pays 1 cent more than the second-highest bidder. Walmart reports that the updates led to 41% growth in the Connect business in the fourth quarter of 2022 and helped push ad revenue to $2.7 billion last year. According to Lehrfeld, the retailer also grew its U.S. advertiser base by 136% year-over-year.

“When more players are on the platform, the customer will see more options. So discovery will go up, and hopefully, inspiration will go up. And your relevancy will go up because more players are in that second-price auction and more people are bidding on keywords,” Lehrfeld said.

Walmart has built multiple media connectivity through partnerships with TikTok, Snapchat and Roku. Lehrfeld said marketers want more options to reach customers wherever they are on the internet. But Walmart also uses its 4,700 U.S. store locations for in-store marketing because most sales are still made at brick-and-mortar.

He said Walmart is building out new experiences, like demos, events, in-store screens, and other interactive ways to engage with consumers, but doing it in a customer-centric way. He also said retail media is brand safe, and suppliers don’t have to worry about the environment in which the ad will be placed or how the data will be collected.

While the case for retailers is clear, according to the UA researchers, there are also benefits for suppliers. The UA report outlined three themes around the benefits which emerged in their study: building deeper partnerships with retailers, laying the foundation for future relevancy and making the most of closed-loop metrics such as sharing data to enhance the shopping experience and ultimately drive more sales. The research found that RMN investments offer brands a direct return on investment with increased and targeted sales. The report stated that the granular data owned by retailers and suppliers would continue to enhance targeted marketing based on consumer search, shopping behaviors and purchases.

Rod Thomas, UA professor of supply chain and researcher, said Facebook and Google know what consumers search for but don’t know what is always purchased. Retailers have that data. He said the data is micro-targeted and provides a better understanding of the shopper.

“It is SKU or item-specific, person-specific and location-specific down to the store level. I think this has tremendous supply chain implications,” Thomas said during the recent Plug & Play event.

Thomas said the full potential of RMN offers suppliers the opportunity to dial up and dial down sales based on inventory or supply chain constraints.

He said that when combining metrics, brands have a powerful demand-shaping tool that could be used to rebalance supply and demand. He said brands would typically send the product out and flood the media about the promotion. It is easy to turn off promotional marketing by using retailer sales data down to the store level and inventory data.

That allows brands to optimize their investment to areas with enough inventory to drive additional sales and save money on stores with low inventory levels.

Thomas said more brands are getting good at forecasting demand for specific items, particularly consumables, and prompting customers to repurchase or reorder. Thomas said shopper attitudes remain mixed about being stalked, followed or prompted to repurchase, but the younger generations seem to like it.

The UA research found there is still the occasional mishap, such as when a 27-year-old consumer sees ads for retirement or minors see ads for alcohol. RMN can offer upside earnings for retailers and some additional lift for brands, but the researchers said there are still kinks to be worked out before the full promises of RMN are fulfilled for brands and consumers.