Retail media networks (RMNs) represent a clear opportunity for pharmacy retailers. RMNs are advertising businesses set up by a retailer that allow CPGs to buy advertising space that reaches in-market buyers. CPGs get the benefit of first-party consumer data. Retailers get a new revenue stream.
The market is growing, and is estimated to reach $50 billion, or 18% of all digital ad spend in the U.S. by next year. Leading retailers — including (in alphabetical order) Amazon, CVS, eBay, Home Depot, Instacart, Kroger, Target, Walgreens, Walmart and Wayfair, to name a few — have all created or partnered to establish RMNs.
But how should retailers think about retail media? How do RMNs fit into the bigger corporate strategy? And what place do RMNs have in the existing organizational structure? These questions are still unclear for many organizations. We see RMNs as a tremendous opportunity, with much room to improve and expand. In this article, we will explore that opportunity and consider how to answer some of the still-hazy questions about retail media and its place within the larger retail organization.
Define your strategy and value proposition
First, it’s important to set a clear strategy for retail media. What are you trying to achieve with RMN? Is your objective to grow revenue, increase CPG stickiness, or achieve a differentiated value proposition from your competitors?
Next, consider your customers — the CPG companies and other suppliers. What is your ultimate value proposition for the supplier? How will you set up your RMN so it’s appealing to the organizations buying the ad space? What capabilities, data and pricing strategy will you offer to appeal to CPGs? Fundamentally, CPGs become customers for your RMN and are no longer just your suppliers. A significant mind shift is required to create a win-win situation.
When you’re considering how you could set your RMN apart, consider what CPG ad buyers are looking for. Understand how they spend across trade and online media. For CPGs, the ideal retail media network:
- Generates sales.
- Makes it easy to get campaigns launched.
- Offers good value and a strong return on advertising spend.
- Has aligned teams to manage the CPG’s needs, set goals and optimize campaign inventory.
- Has diverse and exhaustive inventory options, both on site and off site.
- Includes detailed measurement data about campaign performance.
- Offers the ability to link digital ads to sales (both online and in-store).
- Provides diverse targeting features.
- Allows advertisers to build custom, bespoke and co-mingled audiences at pace.
Too often, retailers have an attitude that their data is superior so the media network will work. Smart retailers will create a strong value proposition to encourage brands to spend more advertising dollars with them (giving them access to real-time results, special pricing mechanics, etc.).
It’s also important to look at the comprehensive relationship with CPG customers. Retailers that are able to say how much a supplier spends with them across areas, and quantify their performance seamlessly, will have a clear advantage. The data exists for all retailers, but few are monitoring or analyzing it comprehensively. As media becomes a more important part of retailers’ profit contribution, building a comprehensive view of the CPG relationship and the total value proposition will be crucial, and it will be important to confront delicate topics such as data sharing and ease of maintaining online content.
Retailers’ relationships with suppliers may have been adversarial in the past. But the RMN model offers a chance for a more collaborative, supportive partnership. It also requires a mindset change on how retailers could work with suppliers.
Acquire your capabilities: build or buy?
Once you have defined your value proposition, create an operating model that will deliver. Spend time weighing the options for building the RMN. What model makes the most sense for your organization?
Will you build it yourself? Partner with an existing provider?
Some larger retailers have chosen to develop home-grown models. Building the capability in-house could ensure the fit for purpose, likely secure a lower cost to serve, and potentially grow a competitive advantage. On the other hand, some retailers have worked with partners to build a more plug-and-play capability. Working with a vendor provides benefits, too, including quicker scaling, the ability to leverage tested platforms and limited in-house development costs. No two technology partners are exactly alike, and it’s worth reviewing each vendor’s suite of capabilities to find the right match.
Thoughtfully operationalize the RMN within your organization
Finally, how will the RMN fit into the existing organization? How will it be funded, and how will you track results?
Currently, there’s no clear consensus on where retail media sits inside organizations (see figure). Depending on the organization, retail media may span across customer, brand marketing, e-commerce and shopper groups. Some retailers have yet to carve out any dedicated retail media resources. The danger? If retail media doesn’t have a clear owner, the RMN has multiple touchpoints across the organization but no holistic strategy.
No matter where retail media sits in the organization, it is key to align the stakeholders, metrics and P&Ls, particularly between merchandising and retail media. This alignment will head off counterproductive behaviors and tensions that can result in lost revenue.
Embrace the opportunities
Pharmacy retailers have a number of unique opportunities in establishing a retail media operating model. For example, retail pharmacies have a built-in subset of subscription and refill customers. Retailers have a unique opportunity to understand more about their customers and benefit from their repeated and predictable shopping patterns. The connection between the pharmacy and the center store creates interesting cross-selling opportunities as well.
There is significant room to grow in retail media. While some of that growth will come organically, simply by having the inventory, the real potential is in shifting to a much greater proportion of algorithm-driven media, optimizing the number and placement of ads relative to consumer experience, and creating strong media and client management capabilities. As important as retail media is, it’s not the only way to deliver value to CPG brands. Giving brands more room to build out robust product pages, with space for rich descriptions, images, videos and reviews, is just as important as a way for brands to differentiate their proposition and drive conversion from the traffic they are getting from retail media. It’s also important that retailers integrate real-time inventory data with their retail media technology so no wasted spend goes against products out of stock.
The call to action to retailers: Retail media is still in its early stages with significant growth potential; however, as this market matures, retailers need a clear value proposition to compete. Articulating a clear strategy and optimizing operation to support it is critical. Even among the existing RMNs there is no gold standard — yet.
The opportunity is open, and the retailers who make thoughtful choices about strategy, value proposition, platform and operations will reap the benefits.
Katherine Black is a partner in the consumer industry and retail practice at Kearney, a global strategy and management consulting firm. She can be reached at [email protected]. Nora Kleinewillinghoefer is an associate partner in Kearney’s consumer industry and retail practice. She can be reached at [email protected]. Laura Bowen is a principal in Kearney’s health practice. She can be reached at [email protected]. Alex Wang is a manager in Kearney’s consumer industry and retail practice. He can be reached at [email protected].