The Premium Inventory Opportunity Amid the Retail Media Surge Retail media is the future -- this new approach will improve profitability by reducing costs.

Retail media is one of the fastest growing segments of media. Spending is expected to rise by 26.3 percent to reach $30.2 billion in 2022. The industry is undergoing a shift from third-party models to first-party ones. As it undergoes this change, owned media marketplaces will be important in driving revenue growth while protecting the integrity and privacy of customer data. This evolution is not without challenges.

What is retail media?

Retail media occurs when businesses market their products or services to customers at or near their point of purchase. Or, their point of choice where they compare different brands and products. Typically, retail media is done through online advertising, in-store advertising, sampling, coupons or vouchers and loyalty cards. Retail marketing is an important component of shopper marketing campaigns.

Retail media cannot be left out of promotions of goods and services, at, near, or further ahead of points of sale and consumption.

A retailer's ecosystem may have many retail media channels. But that does not mean those channels are owned or even operated by those retailers. Many channels are actually independently operated by specialist media companies who own other media properties outside the retail environment.

What privacy concerns are customers worried about?

As Ben Thompson has argued, the inherent nature of the internet is that data is propagated and collected. This, he says, is at odds with how things work in the physical world, where data collection is an explicit act and anonymity the default state.

In that world, data has often been sold to third-party vendors, or parsed through third-party models. For instance, when you go on Facebook. Facebook will not only track your activity when you have exited the Facebook ecosystem, they will also sell that information to third-parties. These third-parties will use that data to build models and target their ads more precisely.

The implication is that people are party to agreements that they do not know about. In other words, by being on one website, you are unwittingly agreeing to being tracked and having your data sold. And, for that third-party to target ads aimed at you through their models.

Apple's decision to blow up the digital ads business by changing its default settings to prevent tracking and data collection by third parties is the biggest step toward protecting consumer data.

Publishers in retail media are faced with the same difficult decisions that other publishers have faced: how to protect customer data in an environment whose default state is data propagation and collection. This is especially difficult. Because, by going against the inherent nature of the internet, publishers have to assume costs that they will have never assumed before. The rules and infrastructure to achieve this while maintaining profitability are still being worked out.

Retailers are privileged because they have access to data that other publishers usually do not: first-party shopper data. This data is superior to the data that publishers have: publishers only know the range of options that customers are willing to consider, whereas retailers know what customers typically buy. With a superior data set, retailers are in a better place in terms of unearthing insights. But, they still have to ensure that customer data privacy is maintained without losing profitability.

Why Is retail media set to grow?

The pandemic forced physical stores to permanently shift at least some portion of their business online. Even in a post-pandemic world, it is hard to imagine stores that do not have an online business. What was first driven by health concerns will stay because customers have seen the convenience that shopping online brings.

In addition, digital transformation makes retailers more robust by diversifying their revenue sources. Digital transformation is occurring at a time when privacy concerns are at their highest. The European Union's General Data Protection Regulation (GDPR) has forced many tech companies to adopt more privacy conscious policies. Plus, lobbying by consumer groups and the general public has upped the ante.

Retail media is important because it is not dependent on third-party data. First-party shopper data secures the privacy interests of consumers while actually offering a more insightful data set than other publishers are used to.

Retailers such as Walmart, Amazon, Instacart, Kroger and Lowe's have scaled with first-party shopper data. Their spending on retail ads included raising the percentage of digital ad spending. Their rise is due to their ability to leverage first-party shopper data to unearth unique insights and deliver more targeted ads.

As regulators work to protect customer data privacy and businesses move toward more privacy protection, retail media is set to grow.

Related: 3 Reasons Why Privacy Matters to Your Business, Your Brand and Your Future

Making the most of premium inventory

It is essential to drive down costs while increasing revenue, in order to increase profitability. According to Adsense Media Group, a merchant on Amazon needs to reduce their Amazon advertising cost of sale while also increasing revenue. Typically, retail media has to optimize cost-per-thousand-impressions (CPM). This has usually been done while monetizing ad inventories through open markets. However, open markets are not very good at monetizing ad inventories.

Furthermore, open markets are in danger, given concerns over data privacy and restrictions on data sharing — either through regulations or business actions such as those of Apple's. Consequently, open markets are not a sustainable foundation for a business model.

Sustainable business models with rising revenues will have to be built with better transaction capabilities for programmatic deals. The world has moved on from human-driven, manual deals. Programmatic deals will drive revenue generation going forward. What this means is ceding deals to algorithms that will execute all your preferred, private auction and programmatic deals. This will add value to your business and ensure that your business model is more controlled and well-managed.

Costs in this new regime will be much lower than older models. Programmatic deals and the use of automated processes will reduce the cost of direct sales, while improving efficiencies. Cost reductions stem not just from automation and a shift away from human-driven processes. But also from the ease of use and deployment that such technology entails. The result will be smaller, lighter teams and faster execution times. Profitability will be higher because the lower cost of sales means that more revenue is left over as profit.

Related: 6 Tips for Turning Shoppers Into Buyers

Conclusion

Retail media has a lot to offer. At a time when privacy concerns are high, retail media offers a way to take the good about the internet —the propagation and collection of data — while leaving out the negatives. These include the use of data by third-parties and subsequent harm of data privacy. Traditional advertising is being disrupted. It is essential to diversify revenue streams and make the business more robust by embracing retail media. The beauty of retail media is that businesses start off with a piece of data real estate that is more valuable than what other publishers had: first-party shopper data. This data is much more insightful. Because, rather than simply saying what choices shoppers are prepared to make, they show what shoppers are ready to buy.

The purpose of a business, as Peter Drucker once told us, is to create and keep a customer. Retail media brings us closer to that because it shows the making and keeping of a customer. This new approach will improve profitability by reducing costs and making teams smaller. Also, by making processes quicker and more efficient. Retail media is the future.

Related: Retail Will Never Go Back to Normal. That's a Good Thing.