Retailers and brands have long been the dynamic duo of the marketplace, collaborating to achieve a singular goal: increasing sales. In this symbiotic relationship, brands generated awareness and demand for their products, while retailers filled their shelves with sought-after inventory. This harmonious partnership not only fueled growth but also gave rise to the iconic advertising district of Madison Avenue, embodying the essence of mass consumerism.
However, the digital revolution changed everything. With the advent of the internet, addressable media, first-party data, and mobile applications, retailers began to recognize new revenue streams beyond mere product sales.
They ventured into advertising, generating profits from ad sales on their digital platforms. This seismic shift transformed retailers into hybrid entities, part retailer and part media company. Reports indicate that nearly one-third of Walmart’s profits now stem from advertising, while Amazon’s revenue largely hinges on advertising and web services rather than traditional retail margins. This emergence of retail media demanded that retailers develop robust advertising strategies to stay competitive.
The Retail Media Revolution
As a result of this transition, the once-aligned incentives between retailers and brands have begun to diverge. Retailers, focused on maximizing ad revenue, often prioritize extracting advertising budgets from brands over selling physical goods. Many have established aggressive retail media network (RMN) divisions populated by skilled sales teams striving to hit ambitious revenue targets.
One tactic frequently employed by these RMNs is leveraging shelf space as a bargaining chip. Brands often find themselves facing a “shakedown” dynamic, compelled to invest increasing sums into retail media, sometimes without a proportional return in sales. This critical misalignment not only frustrates brands but also jeopardizes the long-standing retailer-brand partnership.
While retail media offers impactful advertising products, such as advanced targeting and in-store experiences, the rapid pace of investment can outstrip the sophistication necessary to quantify sales impacts accurately. Consequently, many brands express a preference for their marketing strategies, as opposed to being coerced into retailer-led media buys.
Rebuilding Harmony
So, how can retailers reconnect and rediscover the balance that characterized their partnerships with brands? Despite current turbulence, there remains a silver lining: both retailers and brands share a common goal of driving product sales. To realign their interests, we propose three key strategies.
1. Embrace Transparency
Rather than imposing arbitrary investment demands, retailers should offer **data-driven recommendations** that clearly outline how much brands should spend on advertising—backed by insights on potential gains. Effective planning tools that consider factors like target audience reach, market demand, competitive share, and digital shelf analytics can rationalize these requests.
A transparent, long-term approach creates trust and clarity, allowing both parties to focus on what truly drives incremental sales.
2. Measure the Right KPIs
Retailers must shift from superficial share-shift metrics to a focus on **incremental growth** in category sales. Brands want to see tangible results from their investments—that’s how they gauge success. Yet, our research reveals that only 66% of brands fully grasp the KPIs reported by their RMN partners. Streamlined, straightforward reporting can bolster confidence in retail media investments across the brand spectrum.
By expanding the overall category sales pie rather than merely increasing the brand’s slice, both retailers and brands can win together.
3. Enhance the Shopper’s Journey
Equipped with an abundance of shopper data, retailers are in a prime position to craft **relevant experiences** that resonate with consumers. Engaging in-store activities, mobile interactions, and content-rich marketing (like cooking podcasts or gamified promotions) can add substantial value for both brands and shoppers alike. The rush towards category growth requires more than e-commerce search, sponsored product ads, and programmatic audience extension. It calls for **true engagement**.
The Path Ahead
Amidst fierce competition from industry titans with established advertising empires, retailers must navigate the fine line between generating ad revenue and maintaining essential supplier relationships. The most sustainable route for both parties lies in **collaboration**. By uniting to establish fair media investments and shopper-centric strategies, retailers and brands can position themselves for enduring success.
The adage rings true: if you want to go fast, go alone; if you want to go far, go together. By fostering genuine partnerships and aligning incentives, retailers and brands can ensure that retail media remains a powerful, mutually beneficial force, rather than a battlefield of conflicting interests.
