The Marketplace Opportunity Extra: Retail Media and Marketplaces

Many Retailers are launching marketplaces. Retailers’ existing customer base and traffic to their existing website means that they are in a great position to operate a marketplace. They also have existing brand loyalty and trust.

Boston Consulting Group give the examples of three European retailers who have launched marketplaces in the last few years. According to BCG,

• The Douglas marketplace launched in Germany in 2019 and revenues have doubled since 2022.
• Decathlon Belgium launched a marketplace in 2021 is forecast to reach the equivalent of $1.1 billion in sales by 2026.
• B&Q, the UK-based DIY marketplace launched in 2022 was profitable from day one and now accounts for 41% of the company’s total e-commerce sales.

How Retailers are Leveraging their Marketplace Traffic

In previous weeks, we talked about Retailers that add a marketplace to their overall proposition.? ?

As mentioned in Week 3 of our four-part series on marketplaces, marketplaces follow a different financial model compared to traditional eCommerce models like B2C retail or B2B distribution. In a typical eCommerce setup, the business purchases a product at a cost of $A, sells it for $B, and the gross profit is calculated as $B - $A. In contrast, a marketplace model usually means charging a commission, as a percentage of the sale price, but there are other revenue sources for marketplaces including advertisements.?

One of the most important advanced services being added is retail media. Marketplaces generate valuable data. Marketplace operators can use this to detect emerging trends and shifts in consumer preferences. However, the most valuable aspect of the data is that it can be leveraged to create a retail media network.

Margins for retail media networks can be upwards of 60% to 70%, a lot higher than typical retail margins.

What is Retail Media?

Retail Media is digital advertising within a marketplace or retailer’s owned and operated assets – for example, their website or apps - as well as on social networks and third-party publishers’ properties – all powered by the marketplaces or retailers first party data.?

Retail Media in online marketplaces uses real-time behavioural data to display highly targeted advertisements which are sold to sellers on the marketplace. Sellers can reach consumers at the point of purchase through a variety of ad formats such as sponsored search ads, sponsored display or banner ads and even offsite on third party websites.

Think of Retail Media as any communication and marketing techniques used on consumers' purchase journeys online that can be packaged and sold to third parties such as brands to drive sales.? If a marketplace has shopper searching for a particular product, and can map media assets to that product, retailers are equipped with the capabilities to become media platforms.

Seven Benefits of Retail Media for Marketplaces

Putting in a retail media network in a marketplace has a number of benefits for the marketplace operator:

1. Diversify: Marketplace operators can diversify their revenue streams, improving the shopping experience for customers by providing relevant products.
2. Increase Revenue Per User: Unlike traditional advertising, where contextual relevance is often missing, retail media advertisements are based on searches coming directly from the shoppers – and this ‘shopper intent’ increases both the chances of conversion for brands and the revenue per user for the marketplace.
3. Data: Marketplaces have a scale of digital attention that allows us to monetise data in a whole new way. Their combination of first-party data as well as SKU-level transactional data as their customers who sign-in to use their site or app is incredibly powerful. Shopper data from marketplaces means operators can create segments such as previous category buyers, loyal customers, and high-value shoppers. This level of data means that the marketplace operator can monetise reporting on audiences, or charging for shopper insights.
4. Ad Yield Opportunity: Advertisers compete for visibility on site as competitors are vying for the same digital shelf space. Most retail media networks use auction-based advertising models, similar to Google’s AdWords. This competition increases the potential ad yield.
5. Capitalising on existing marketplace Investments and assets: Walmart use the phrase ‘leveraging our assets for B2B opportunities’. Their retail media network, Walmart Connect, is a monetisation ‘layer’ over existing Walmart eCommerce assets – which includes the Walmart Marketplace. Walmart CEO, Doug McMillon, describes retail media advertising as a flywheel: “selling advertising is another important piece of the flywheel because it helps suppliers and Marketplace providers sell more while creating a new profit opportunity for us.”
6. Privacy and Brand Safety: Retail media bypasses the issue of privacy as an issue as there is no reliance on third party cookies. There is little risk of brand safety issues – increasing the attractiveness to advertisers.
7. Attribution: Brands can connect demand creation to demand capture and attribute the money spent using Retailer Media with actual sales performance data to measure campaign effectiveness.

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Case Study: Amazon

Amazon Advertising is the name of the Amazon retail media network. It is expected to deliver $56B+ in advertising revenue in 2024, up 21% from 2023. In 2022, Amazon's advertising revenue reached $37.8 billion.

This remarkable $56bn figure is 2x larger than the revenues earnings of the entire global newspaper industry and almost $20bn more than the Netflix’ annual revenues and not far off twice the revenues of the global music industry.

The primary driver of this growth is Sponsored Products, which dominate marketers' budgets on Amazon and continue to yield positive returns. Amazon exceeded the broader digital advertising market by 2.8%.

Amazon only broke out the Amazon Advertising business in its 2021 numbers. $38bn is a small percentage of Amazon’s overall $500bn+ revenues, but as is the case with most Retail Media businesses, it has 50% operating margins, which mean Advertising delivered as much profit as Amazon’s much touted cloud business - AWS (estimated at $20-25bn) but without the billions required in capex.

So, the Amazon Advertising juggernaut is not stopping – and, indeed, it looks like it is increasing as brands and sellers are spending more money on Amazon ads as inventory has increased. The advertising business is the make or break on getting the business to breakeven.? As analyst, Russ Deiringer of Stratably writes, improvements in targeting and leadership around measurement, particularly with Amazon Marketing Cloud, along with growing ad inventory are allowing it to continue to maintain the lion’s share of the retail media market. "

What’s more surprising, according to Stratably research, is that brands are shifting more of their retail media budget to Amazon than alternatives despite it owning 70-80% of the market already.

Stratably point out that in the US, “there is a gravitational pull of Amazon when it comes to retail media. Most agencies and brands I speak to say that while there are a ton of potential retail media networks to expand to, they continue to devote nearly all of their attention and resources to Amazon because of the rapid pace of innovation and large opportunity.”

In other words, despite their scale, Amazon Advertising continues to be the benchmark that all others must look to.

Retail Media in B2B

The term "Retail Media" naturally evokes images of consumer brands like Amazon Advertising or Walmart Connect. However, even in a B2B marketplace, Retail Media allows suppliers and manufacturers to advertise directly within the marketplace. Just like with consumer-based marketplaces, the operator monetises their site traffic beyond just transaction-based revenue.

This mean sponsored search, sponsored display (banner) ads, and even sponsored video even in more obscure marketplace verticals such as industrial machinery, SaaS solutions, wholesale goods, etc.

For example, Alibaba offers suppliers various advertising options. SAP/Ariba Discovery offers priority rankings for suppliers for a fee within their procurement marketplace. The Faire B2B marketplace for retailers and brands offers advertising opportunities.

Why do Sellers like Retail Media on Marketplaces?

All of the benefits for Retail Media are not just for the marketplace. Marketplace sellers can capture value as well:

1. Sellers can target shoppers when they are looking to buy and in a buying frame of mind.
2. Sellers can link media investment to the sale, and, as a result to measure and optimise effectiveness of this specific channel in driving KPIs.
3. Sellers can target consumers who are looking at competitor products.
4. Dynamic product feed creative can be used to match the native marketplace customer experience, making conversion more likely.
5. Messaging can be personalised to specific shopping occasions in the year, e.g. Back to School.

Retail Media in Action

Most marketplace operators with advertising networks offer advertising self-serve tools to manage campaigns directly. They are supported by advertising technology vendors, such as Mirakl, Criteo, Epsilon and Zitcha who have created Retail Media capabilities for marketplace to monetise their websites and apps.

The IAB US Guide to Retail Media explains all the various Retail Media types as follows:

1. Sponsored Search / Products: Onsite retail media includes as ads triggered by shopper searches. These appear on search result pages, product pages, and category pages. These ads can be highly targeted based on the customer’s search history and purchase behaviour, making them more likely to convert.
2. Sponsored Display: Onsite retail media includes as ads triggered by shopper searches. These appear on search result pages, product pages, and category pages.
3. Offsite Retail Media involves displaying ads on third-party websites and apps, (i.e. Google Display Network, or on Programmatic), which are used to increase brand awareness and drive traffic.
4. Social Media driven retail media means social media platforms like Instagram, Facebook, and Pinterest to promote products and drive sales using the Retailers 1st party data. Retailers can create shoppable posts and ads that allow customers to purchase products directly from the platform. Social Media could also be classified as "offsite".
5. CTV Retail Media involves displaying ads on streaming TV services like Roku, ITVx or Amazon Fire TV. CTV offers retailers the opportunity to reach shoppers who are increasingly shifting away from traditional cable TV and towards streaming services.
6. In-Store Retail Media involves displaying ads and promotional content within a physical store, for example, digital screens and signage. In-store retail media can help increase product awareness, promote new products, and drive sales.

Amazon Advertising Example

70% of Amazon shoppers never click past the first page of search results. This is due to the platform’s homogenised product listings page: title, price, photo, and rating all have a standard layout, making it challenging for individual brands to stand out when shoppers have searched for product.

The platform’s homogenised product listings page is one of the reasons why Amazon Advertising has been so successful.

Amazon have been increasing the type, scope and capability of their advertising options at pace.

There are five main Amazon Advertising solutions available that most use are Sponsored Products, Sponsored Display, Sponsored Brands, Sponsored Display, Video Ads and Amazon DSP.

Most brands start their Retail Media advertising journey with a Sponsored Product (also called Sponsored Search) campaign and then move to Sponsored Display.

The key advertising unit within Amazon Advertising – and most retail media networks is called a “sponsored product”.

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Sponsored Products make up more than 75% of all Amazon Advertising’s huge advertising revenues. Most sellers start their Amazon advertising journey with a Sponsored Products campaign because they are the most straightforward to set up.?

Amazon has an extensive set of advertising reports that show impressions, clicks, and return on ad spend metrics.?

1. Clicks: the number of times advertisements were clicked. Amazon adjusts your report for invalid clicks – for example, accidental clicks
2. Impressions: how many times the ad was displayed to a customer on Amazon.
3. Spend: how much a brand has spent per campaign.
4. Sales: the total amount of product sales generated within one week of clicks on your ads.
5. Advertising Cost of Sales (ACoS): measures the efficiency of the advertising campaign and represents the percentage of ad-generated sales spent through advertising. ACoS is the total amount of money spent on advertising divided by the revenue generated.
6. Return on Ad Spend (ROAS): ROAS is the inverse of ACoS. To calculate it, divide the revenue attributed to advertising by the spend. For example, a ROAS of 5 means for every ￡1 spent on ads, the campaign delivered ￡5 in revenue.

Summary

More and more retailers are setting up marketplaces. They are a win-win for the retailer because the shoppers like increased selection and prices. Retailers like the marketplace opportunity as it enables to scale faster and utilise a retailers’ existing brand, strengths, and customer loyalty.

One of the ways that these marketplaces can succeed is to layer on new monetisation opportunities, such as a retail media network. This can help create a virtuous circle or ‘flywheel’ whereby existing customer retail traffic enables the success of a marketplace, which, in turn, enables the creation of an advertising network – with both combining to increase the overall margin profile of a retailer.

I will leave the last words that we already mentioned above, from the Walmart CEO, Doug McMillon. He describes retail media advertising as a flywheel: “selling advertising is another important piece of the flywheel because it helps suppliers and Marketplace providers sell more while creating a new profit opportunity for us.”

FINAL IN SERIES

Read the other four parts of the series here:

https://www.dhirubhai.net/pulse/marketplaces-understanding-opportunity-retailers-brands-colin-lewis-iyzde/ ?

https://www.dhirubhai.net/pulse/marketplaces-internet-scale-colin-lewis-gwzre/ ?

https://www.dhirubhai.net/pulse/marketplaces-retailers-rationale-business-models-financials-lewis-cwoze/ ?

https://www.dhirubhai.net/pulse/winning-marketplaces-across-platforms-continents-future-colin-lewis-abmie/ ?