“Retail Media is a Direct Channel to the Shopper”

Brian: [00:01:16] Hello [00:01:00] and welcome to Future Commerce, the podcast about the next generation of commerce. I'm [00:01:20] Brian.

Phillip: [00:01:20] I'm Phillip. And today we've got Kiri Masters, now the Head of Retail Marketplace Strategy at Acadia. Welcome, Kiri.

Kiri: [00:01:29] Hello. Hello. Great to see you guys.

Phillip: [00:01:34] Your title has changed a bit from Founder of Bobsled. So you've had an exit?

Kiri: [00:01:38] I have. Yes. [00:01:40] I sold my company, Bobsled Marketing, in February this year. And I was just practicing my title. You asked me what my title was. I had to really think about it. But yeah, it's still very fresh. I'm back in the States. I'm in Atlanta. Everything is new. Going for my driver's test on Wednesday. So, yeah, I'm  [00:02:00]like, this is Kiri 2.0 now.

Phillip: [00:02:04] Wow. Congrats. Congrats. It's awesome to have you. Today we're going to, if Brian's Internet holds up, maybe we'll have a three-way conversation. It might be just you and me. I don't know. We'll see how it goes. Retail media. [00:02:20] This is not a thing that we've talked a whole lot about in the Future Commerce world, but you are sort of becoming a definitive voice and sort of measuring that ecosystem and speaking on it. You've just published some research on retail media budget allocation. Tell us a little bit about the [00:02:40] retail media landscape.

Kiri: [00:02:41] So retail media is a very exciting place to spend money right now. It's a direct channel to the shopper. When you think about these retailers, they have so much information about who we are, how we shop, how we behave, what we've been buying, household [00:03:00] makeup, and things like that. So it's a very attractive audience for brands to reach shoppers these days. And for the retailers themselves, it's a very attractive business model because their margins are really tight, and retail media is, once that platform has been built, it can [00:03:20] be very, very profitable. So it's sort of a win-win proposition all around. Brands are excited about reaching shoppers. Retailers are excited about that business model. But the challenge is there are so many of them. And just because there are more retail places to spend that retail media budget doesn't mean you've got any more budget [00:03:40] if you are the brand. And so now you've got more options. Like Ulta just announced, they're launching a retail media network a couple of weeks ago. Marriott Hotels has launched a media network. I put something out on LinkedIn recently with Oprah. You know, [00:04:00] "You get a car. You get a car..." And now it's like "You get a retail media network. You get a retail media network..." It's exploded. And the challenge is that brands don't really have a good way of spreading out their media budgets right now, let alone a future where every single channel that they [00:04:20] sell through is going to be asking for a piece of their budget.

Phillip: [00:04:25] Hmm.

Brian: [00:04:27] Wow. The monetization model on these networks, I would imagine, does it vary much between networks?

Kiri: [00:04:38] Yeah, that's [00:04:40] interesting. They all have a slight, well, there's a couple of things. One is that there are a couple of retail media networks that sort of aggregate the platforms for a few retailers. So you are probably familiar with Criteo, the Trade Desk, and there's another one called CitrusAd. And so for the [00:05:00] retailers that run on those networks, they're sort of using this third-party tool basically to administer their network. And so that makes, to some degree, integration a little bit easier for a brand because you can be if your ad tech tool hooks into [00:05:20] Criteo, then you're sort of set up to run things pretty, pretty straightforward from there. But they all have a slightly different value proposition. The larger retailers, or at least the ones who have really invested in their own platform, have a very different value proposition. I would call out [00:05:40] Instacart as being one who launched their retail media platform at the exact right time. It was like February 2020, and it was a very compelling value prop as well. They just had a very compelling kind of initial set [00:06:00] of advertising options, self-serve advertising options. The return on investment was really good. And so it kind of became the secret sauce for a lot of brands who were jumping on Instacart and really able to see very quick results there. So that's one [00:06:20] example of a platform that launched its own self-serve platform and did really well from it.

Phillip: [00:06:29] Speaking of which, to give you a plug, you sort of wrote the book on Instacart quite literally, in that we had you on the show, I think, 14 or 15 [00:06:40] months ago about "Instacart For CMOs." How much has the Instacart model changed in that intervening time? You know, I have to assume that the ad network certainly gives a sort of a basis on which they sort of have these macroevolutionary changes. And maybe even right now, [00:07:00] Instacart is a very different platform today than maybe it was even six months ago, given the state of the environment of eCommerce.

Kiri: [00:07:07] Yeah, well, I knew as I was writing the book with my colleague at the time, Stefan Jordev, I knew that it would be out of date pretty quickly. It's [00:07:20] the nature of that type of content. You could argue that maybe your book wasn't the right format for it because it was out of date pretty quickly. But there's still a lot in there that is useful in terms of there's a very unique relationship between Instacart and retailers because it's sort of putting [00:07:40] a barrier... Well, Instacart has inserted itself between retailers and shoppers. So they're the ones with the data. They're the ones with the advertising platform, and they're the ones who have actually developed a lot of brand loyalty from shoppers rather than the retailer having the direct relationship with the shopper. Now it's Instacart. So there's like a very [00:08:00] interesting relationship there that hasn't changed. There are some tactical things that have changed around the types of ad units that are available now. We're also able to put a little bit more content onto product pages and do things like create brand storefronts. But honestly, those things have taken a little while to [00:08:20] be launched and they're really not at the level of sophistication that I would have thought they'd be at a year on. They've sort of slowed down a little bit.

Phillip: [00:08:33] So there are so many... You have all these brands that were maybe doing price elasticity testing on a platform [00:08:40] like Instacart where they were spending directly on Instacart, maybe saw some growth or some efficacy in that ad spend, does it kind of become a bit of a zero sum game when you have so many ad networks that you could be spending on now? To your point, budgets aren't necessarily going to evolve [00:09:00] so that you can have direct strategies with every one of these retail media networks. Is this just taking smaller and smaller slices out of that share of wallet that everybody's going after?

Kiri: [00:09:13] Yeah. So I'll explain the two methods that brands currently use to allocate, which are limited. One [00:09:20] is with metrics like return on ad spend. And this is I'll probably keep talking about this till the day that I die because I think a lot of brands use return on ad spend as a blunt instrument to measure everything ad-related. And that is not [00:09:40] the right metric if you're focused on growth. If you're focused on growing share of wallet, share of category, if you've got anything remotely growth-related, return on ad spend is a terrible metric because it's always going to place an upper limit there. It is a useful metric if you're focused on achieving a certain contribution [00:10:00] margin or anything sort of bottom-of-funnel profitability-related. That's where it can be helpful. But because ROAS is so it's easy to calculate, it's on every dashboard for advertising, and executives have come to expect to know the ROAS of a certain [00:10:20] platform or whatnot. It's become a default when it really shouldn't. So we found a lot of brands are using metrics, but in particular ROAS to allocate retail media budget. So in that example, the budget would just go to the highest ROAS channel. [00:10:40] And so for example, [00:10:43] in my world at Acadia, in our retail marketplace practice, we focus in on Amazon, Walmart, Instacart, and Target. So out of the three of those Instacart in most cases for a [00:11:00] CPG brand is going to offer the best ROAS. But if you just decided to put all of your ad spend there, you'd tap out of... You wouldn't be able to spend all of your ad budget there. It's just not as big as Amazon, not as many searches. And you're also just not going to reach that many new [00:11:20] customers. So that's why managing to ROAS is a bad idea. [00:11:26] Secondly, [00:11:28] the second model that a lot of brands are using is based on the proportional revenue coming from each channel. So let's [00:11:40] say your Target channel is 80% of your sales, and then Amazon is ten, and Walmart's ten, you would spend 80% of your ad budget at Target, ten at Walmart, and ten on Amazon. And that's an issue because it doesn't sort of get ahead of the curve. It's really [00:12:00] historical-looking. And then it doesn't account for new platforms that come up as well. Like Instacart is not actually, you'll never see sales from Instacart on your PnL. It's not a retailer. So you would have completely missed the boat if that was your model. You're also going to miss the boat [00:12:20] on emerging retailers, on emerging retail platforms as well because it's always backward-looking too. So those are the models that brands are using right now to allocate retail media spend. They're very limited, they're backward-looking. It's harder to get ahead of trends using those models. [00:12:38]

Brian: [00:13:39] So [00:13:20] what's  [00:13:40]your proposed solution?

Kiri: [00:13:42] {laughter} Am I really teasing it? Yes. So the solution that we came up with and when I explain it to people, it sounds really obvious. But it's to look at the marketing funnel and the way that we've been using for a very long time. In [00:14:00] Marketing 101, you learn about the marketing funnel of the purchase journey. And when you look at all of the available ad networks in retail or really anywhere else, there's a universe of different advertising options, different ad types, different targeting options, and they all sort of do a really [00:14:20] good job at one or maybe two stages of the marketing funnel. So with Amazon, you've got Amazon sponsored products which are really good at bottom of the funnel, high purchase intent, high ROAS, really good purchase ad unit. [00:14:40] And then you've also got more sort of top of funnel ad units that are good for awareness and they're good for growing an audience. So those things are in different stages of the marketing funnel. Then you layer in ad units from different platforms and you can kind [00:15:00] of see this map emerge of if you're going to focus on one stage of the marketing funnel, your options narrow down. It becomes a lot easier to actually figure out where you should be spending time and money rather than being overwhelmed by hundreds or even thousands of ad units [00:15:20] with different use cases. So [00:15:25] the idea is to identify your objective, which is, in my experience, easier said than done. And that could be at the brand level or at a sub-product set level or at a product level. And [00:15:40] then which part of the marketing funnel are we going to focus on given that objective and then execute for ad types and targeting options within that stage of the funnel and be relatively channel-agnostic. [00:15:59]

Phillip: [00:15:59] So I actually [00:16:00] kind of want to get into some of the meat of the research. You gave us this sort of like the bottom line at the end of the day, this is sort of the strategy that works. Is it too reductive to say that at the end of the day, if in maybe any business, but in particular in retail, there tends to be sort of [00:16:20] a shiny object syndrome and we tend to want to chase opportunities that look like arbitrage but are really just commodified strategies in sheep's clothing? Like in the launch of a new ad retail media network, a new ad network, it seems [00:16:40] to be that maybe if you're in first that you stand to have some sort of like early gains or like an early entrant first-mover advantage. It's not necessarily the case when these are launching like every second week now. Is that right? Or so it comes back to fundamentals, which is you have to have [00:17:00] a proposed goal. You have to outline what is your goal.

Kiri: [00:17:04] Yes.

Phillip: [00:17:04] Does that align to the vision in your business? You're not going to create new budget out of thin air or mid-year because Ulta launched a new product for you to advertise directly to their audience. And then at some point, you have to come up with strategies that [00:17:20] align to the goals that you already established. It seems like these are fundamentals, but for some reason in the world of retail, we tend to set fundamentals to the side for whatever reason.

Kiri: [00:17:31] Yup. For whatever reason is a good way to describe it, because there are lots of different reasons for this and a lot of it comes back to the  [00:17:40]organizational structure within companies that is not really set up in the way that people shop these days. So a lot, especially a larger CPG brand, the setup, and their PnLs, and organizations are set up according to the retailer [00:18:00] that those products are sold through. And that doesn't account for a world where people are not shopping in one particular channel. We're not clipping coupons anymore and shopping in a store. We've got social media where people are [00:18:20] becoming aware of products and display ads where you might see an ad on Amazon's display program network and then actually purchase it on another app. So where manufacturers are still [00:18:40] thinking in terms of channels, when those don't really exist in the mind of a shopper, they don't really think like that. But the organizations are still set up with a national sales team and then a brand marketing team and then a performance marketing team. And there's a lot of discussion recently about brand versus performance. And [00:19:00] now we're in a world where brand is performance and performance can be brand as well. And so  [00:19:07]there are a lot of constructs organizationally within these companies that kind of make it very challenging because of the silos. And then also what's the  [00:19:20]real goal of each team might be they're working against each other because the metrics and what they're focused on don't really align. [00:19:28]

Brian: [00:19:29] That's amazing. Yeah. Another question I had, so sort of on the flip side of this, as retailers are considering launching one of these, I feel [00:19:40] like everyone saw Amazon jump in and grow one of their most profitable business units. I actually know people on this team. It went well. It went really well.

Kiri: [00:19:51] Yeah.

Brian: [00:19:51] And then we saw, I think Best Buy and others jumped on pretty quickly, and now Ulta. And then we can expect to see a bunch more [00:20:00] of these. What about the downsides for retailers of launching a network like this? Is there a flip side to this? Yes, it's profitable, but oh, wait, hold on, if you look at Best Buy, they have two ways that you can sponsor stuff on their site. One is like a sponsored product [00:20:20] that gets lifted to the top of the results page, assuming you have to be selling on Best Buy or through Best Buy or 1P or 3P or however Best Buy works. I'm not even sure. And then the second way is through their ad network. That's like a more traditional ad network down at the bottom of the [00:20:40] search results. You see all those ads and they can take you offsite. And as a retailer, is there a potential for launching these where one, it might not be on brand, like it might be a little bit of you might end up with advertisements that you don't necessarily [00:21:00] want. How are they... Controls are an issue potentially. And then second, is there a chance to lose a sale as a result? Although will they make just as much on the ad click as they get it on the sale anyway? So multipart question there. {laughter}

Phillip: [00:21:18] That's a classic multipart [00:21:20] Brian question.

Kiri: [00:21:20] {laughter} I like it. So I think what you're talking about there is endemic versus nonendemic brands, which is just a fancy way of saying what you're talking about. So if this product is sold on that platform or not. And you're totally right that if you allow nonendemic ads [00:21:40] on your app or site, then you're sending people offsite and losing some attention. And Amazon themselves have trod a very delicate line here. And their approach has been once upon a time they did allow brands to advertise on [00:22:00] Amazon and send traffic off to, let's say, the DTC site or to another retailer's site. And they realized pretty quickly that wasn't going to be worth whatever they were charging per click on that. Today you can still advertise on Amazon as a nonendemic [00:22:20] brand, and I get targeted quite often for things like car insurance on Amazon or college savings plans, things like that which are not sold as products on Amazon. So they do do a little bit of that. But it is a risk. It is. If the goal of your [00:22:40] whole site or app is to convert that traffic into orders, then you may not want to do that. So for some reason, Amazon's made some decision based on whatever criteria they have, that that's worth it. What [00:23:00] other downsides for retailers launching ad networks? One, it's you need to go and hold your hand out and convince some advertisers this is going to be worthwhile. And that does require a sales team and a good sales pitch. And I think that the major downside right now [00:23:20] is that so many retailers are doing it. You have to have a really good story. And yeah, the technology may be pretty easy to deploy at this stage because you've got these networks like Citrus and Criteo, but actually convincing advertisers [00:23:40] to part with their dollars, that's another question. I think that there is a risk in launching something if you're not really ready to either have [00:24:00] that story to tell which to me would be about not having enough traffic or enough qualified traffic. Or if you don't really have a good story to go out there to the market with, you've kind of got one shot with a lot of these advertisers to get into their marketing budget for the following [00:24:20] year. And if you don't have a good story or it kind of gets out that your value prop is not that good, you've kind of lost a lot of traction. So you want to be careful about how you do that.

Phillip: [00:24:40] There's [00:26:00] an interesting cultural thing that happens within brands where we tell... This came up in a recent podcast, but we tell ourselves stories and we sort of create [00:26:20] an oral history around things that happen and we sort of create these truths, these historical truths for us. "Oh, we tried that and it didn't work." And that sort of oral history persists long, long, long, long after anyone who was ever part of that failed experiment [00:26:40] has moved on to some other phase of their career. And so you get these really interesting sorts of generational behavioral traits within the small society or cultural society that is the employees of a brand. And I find that to be,  [00:27:00]it's usually about those first impressions that matter so much. In your report, the example that you sort of use or that you open with is this idea of a tower of champagne glasses and filling the champagne, having enough champagne to fill all of these glasses. And there's [00:27:20] probably an infinite amount of champagne to purchase, but you don't have an infinite amount of money with which to buy champagne. And so therein is sort of like the challenge. I really love this sort of like imagery that you've painted. I think Brian's point here is if [00:27:40] you're late to the game and launching a retail media network you have put yourself as a glass at the bottom of the tower.

Kiri: [00:27:48] Exactly.

Phillip: [00:27:50] And there's not enough budget to actually fill your glass.

Kiri: [00:27:57] There is another piece to the analogy, which is what if everyone [00:28:00] is sick of drinking champagne? And this is a criticism that I have of Amazon's advertising play is that everywhere is an ad on Amazon. And I'm not sure to what extent that is me being [00:28:20] hyper-aware of what's an ad versus what's not. I don't think that many people are. But there is some commentary from other people as well that there's so much real estate on Amazon that's taken up by ads. And how much is too much and what's the tipping point of maximizing your ad revenue [00:28:40] without ticking customers off? Because everything is an ad and your eyeballs are for sale, essentially. So I think that that is the other paradox that retailers have to account for is how much ad space is too [00:29:00] much. And I think looking at Amazon, how Amazon's actually done things, it seems like that tipping point is a lot higher than what I would expect.

Phillip: [00:29:12] Potentially. One of the things that I'm quite bearish on is that a retailer [00:29:20] like Ulta, sorry if anyone from Ulta subscribed and listening at the moment, but they're really good at retail, they're really good at merchandising, really great at curation, but being exceptional at creating an equitable space for an advertiser on your website [00:29:40] means you have to be a technologist to some degree. And I think we have in times past sort of said some not so nice things about white-labeled technologies that are sort of MeToo efforts and sort of copycat ish [00:30:00] efforts to provide some sort of value, whether that's a product line or a category or some sort of like expansion effort. Can you really say that it's a retail media network or a strategy on behalf of a brand if it's really just a white-labeled service provided by a provider like Criteo? [00:30:20] I guess my criticism there is can a brand or can a retailer really play technologists in a way that drives enough value to warrant its existence in the marketplace over time?

Kiri: [00:30:35] That's an interesting question. There might be some [00:30:40] benefits here that I'm not aware of, but I'm not sure how useful having a proprietary approach would be for a lot of retailers.

Phillip: [00:30:51] I don't think that there is any usefulness to having a proprietary approach. But it also strikes me, as by partnering with a technology [00:31:00] company like, say, Criteo, it doesn't feel like they have a ton of sort of lock in. They could easily abandon the strategy as easily as they adopted i.

Kiri: [00:31:09] Yeah, exactly. Yeah. Reinventing the wheel.

Brian: [00:31:11] Yeah. Are you a technology company, a retailer, or an advertiser?

Phillip: [00:31:16] All of the above in 2022.

Kiri: [00:31:17] Yes. Exactly. Exactly. And [00:31:20] I think that that might actually be [00:31:21] in the short term, a bit of a benefit around adoption for some of these retailers because if it's part of Criteo or another network that has a lot of integrations already with ad tech tools and the big agencies are using it, then it creates less of a barrier for [00:31:40] brands to actually start using those ads. If it's a completely separate platform, then you need to build those API integrations and things like that and then get around to all of the ad tech companies and make sure that they're going to integrate with you. [00:31:56] So I think it's much, much easier to stand up, and I'm [00:32:00] not sure what the incremental benefit would be besides not paying some kind of platform fee for it.

Phillip: [00:32:10] {laughter} You know, what's interesting is we've seen this in the last number of years in the Shopify space. By the way, you're educating us on retail media networks. It's not something [00:32:20] we've covered on the show before other than maybe the existence of it. I'm just learning about this now. Certainly not my area of expertise by any means. But [00:32:30] what I often witness, especially in ecosystems and platform ecosystems, is that in the gold rush it pays to be in the pickax and shovel [00:32:40] business. And I wonder if this is truly beneficial at the end of the day for retailers who have tremendous amounts of traffic coming to their eCommerce sites or if it's mostly beneficial to the ad networks who are looking to monetize it and they are selling  [00:33:00]a retailer on this potential upside gain. And that, I guess at the end of the day, really just comes down to what the market can withstand and how many of these the market could truly support. [00:33:16]

Brian: [00:33:18] Well, interestingly enough, I [00:33:20] feel like we didn't cover retail media networks. I mean, we talked a little bit about advertising on Amazon, but at a really like micro-level the idea of, I don't know if you remember co-op commerce.

Phillip: [00:33:34] Oh, sure. Yeah.

Brian: [00:33:35] There was like this idea of like sort of partner-driven sales [00:33:40] on even like smaller DTC websites. In my mind, kind of similar to a retail media network just at a much, much, much more targeted and smaller scale. And I feel like this idea... I feel like right now [00:34:00] we're treating these spaces, these opportunities as traditional advertising networks. And as we get better at them, they're going to get a lot more targeted and a lot more native. [00:34:20] I think that's probably an opportunity here. Maybe the scale of this actually hasn't even been touched yet.

Kiri: [00:34:27] Yeah, well, I think there's a really great report from eMarketer a few months ago which delved into why does a brand select a certain retail ad network? [00:34:40] And it comes down to the size of the audience. It has to be big enough to be worth my time and the quality of the audience as well as it relates to your brand. So if you're a CPG company, it's no point in buying ads on Wayfair, even [00:35:00] though there's a lot of traffic on Wayfair. And so I think that's really what there could still be a place for these really niche networks for the right type of brand, and it will just be a marketplace for retailers and  [00:35:20]brands to come together.

Phillip: [00:35:26] Well, one thing we're going to have to all contend with is that something we covered in Nine by Nine in our reporting on sort of our return to defaults last year is that this [00:35:40] idea that the world and direct to consumer as sort of a theory meaning the world could support millions of brands all going direct seems to be a narrative that's coming back around to well, actually, there's  [00:36:00]a lot of aggregation in the world of retail around the things that we tend to frequent in real life. And then we're coming back to those and those are our defaults when it comes to online shopping as well. And they're amassing massive audiences. They're showing tremendous eCommerce growth, post-pandemic. If [00:36:20] anything, Target and Ulta, and the rest are the true beneficiaries of any eCommerce growth or digital shift that happened in the last two years. Perhaps the way that the in-store experience has worked for many years is, I mean, there are ad units everywhere [00:36:40] you turn... End caps and activations in stores. These are physical manifestations of the things that they're now implementing in digital. Perhaps I'm not giving it enough credit that this is actually some sort of reverse skeuomorphism. It's like we're actually going to take the thing that we've been doing for [00:37:00] years in the retail, physical retail model, and we're going to bring that online, and that will be a way that we continue to grow because that's what they do. That's how stores work, right?

Kiri: [00:37:14] Yup.

Phillip: [00:37:14] Okay. Well, I feel like I've learned a whole lot. Where can we point people to go get the report and actually [00:37:20] learn how to make the best use of this and prioritize budget and organize teams around this brave new world?

Kiri: [00:37:26] So you can go to BobsledMarketing.com, and you'll find the report there. And we've got a section of resources on the site where you can find the report.  [00:37:40]I'm very proud of it. It's a new kind of model. We share some examples, and lots of tips from brands who are trying to, who have already started to incite some change within their organizations around some of the things that we talked about, about [00:38:00] org structure and limitations of KPIs and things like that. So it's quite practical as well as providing that more theoretical framework. So yeah, check us out, BobsledMarketing.com, and just look for the resources section.

Brian: [00:38:17] Thank you again.

Phillip: [00:38:18] Beautiful. Kiri, you're the best. [00:38:20] We love having you on the show. Thank you so much.

Kiri: [00:38:24] Thank you, guys.

Phillip: [00:38:25] And if you are looking to fill out your eCommerce content diet, Kiri has a fantastic podcast that you should subscribe to. Kiri, where can we find your podcast?

Kiri: [00:38:36] Yeah, it's called ECommerce Brain Trust, and you can subscribe [00:38:40] on any podcast app. Yeah, I would love to have you join us there too.

Phillip: [00:38:47] Fantastic. Kiri Masters.

Kiri: [00:38:48] Thank you.

Phillip: [00:38:50] Thank you so much. Thank you for coming on the show. Thank you for listening to Future Commerce. Hey, we believe that commerce is a catalyst for change in whose world? Your world. And maybe [00:39:00] we can change the world while we're all at it. Thank you for listening, and we'll see you next time.

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