Many retailers were already suffering from eroding margins over the lockdown period, with some reporting 70-100% reduction in sales.
For grocery and online shopping, however, it’s been a different story, with an overall 26% increase in sales across the board. For the tech sector — which analysts predicted would fall furthest in a recession — the big four global tech giants, Google, Apple, Facebook and Amazon (GAFA) have managed to prove the doubters wrong. Even as the US reported one of its worst quarters ever on record, The Big Four reported a combined $205 billion in revenue and $28 billion in profits in the second quarter.
Amazon in particular has been the leader in agility when it comes to innovating its business model, reporting a revenue increase of over 40% overall. True, covid and consumer shift to online shopping has played a part in this, but the growth of its advertising business, up 41% in revenue alone, has given its closest competitors cause for concern. A recent Fortune Report suggested that Amazon is now bringing in $10 billion a year from ad sales, predicted to increase to $40 billion a year by 2023.
Amazon’s success and recent growth is in a large part, down to the way it has achieved this: by building its retail media business, leveraging its 1st party data and sharing it with brands — in effect bridging the gap with direct-to-consumer brands. There has been a huge increase/shift in dollars to retail media in recent months — an acceleration of a trend that was already happening in the market, driven by the deep purchase data held by those selling products.
In today’s world, it is more important than ever for retailers to have one-to-one relationships with their customers, and this is where Amazon has invested wisely in its expertise and innovation. In terms of advertising spend, throwing budgets at ineffective channels, not knowing who or if anybody has seen or engaged simply does not work.
The rise of Amazon as a media business is a clear demonstration that there is an opportunity to open a new, more profitable revenue stream for pureplay and multichannel retailers, as they have something unique which brands desperately need. If retailers explore a similar path to Amazon, investing in retail business and delivering real value to brands, they have an opportunity to open new revenue streams and rebuild their position.
There is a growing trend focused on the monetisation of retail assets or retail media, but what does it really mean? At mediarithmics, we look at helping retailers create new revenue streams by leveraging their valuable data assets in order to augment their value proposition for advertisers. Consumers expect personalised shopping experiences and brands expect one-to-one communication opportunities at the core of this customised experience.
This is a win-win Trade Marketing opportunity for retailers to receive investment from brands to promote their products, as well as driving incremental margins through increasing the overall sales for the brand. Retailers understand what brands and categories people will buy and at what frequency, and all of this insight (not just data) is what can be made available to the market at a premium.
To illustrate this, as an example
The decline of 3rd party data as a result of changing customer behaviour and the pressure from GDPR legislation, means that the current trend for a shift in budgets to retail media is here to stay. Some agencies are reporting upwards of a 45% increase in Retail Media spend in recent weeks, and this is set to rise as more advertisers return to the market.
This sounds great, but I’m not Amazon, so where do I start?
Define your objectives - what do you want to achieve in building a retail media proposition for YOUR brand?
Step 1: Identify what makes your audience special: who are your customers? Why do they choose you instead of your competitors? What are the biggest audience segments you could build? Do you have a critical audience size and/or niche audiences that would bring value to brands or agencies?
Step 2: Prepare your sales team. Building a new revenue stream also requires building a value proposition that will be pitched by the sales team. You can either train your current team or hire new people that are experts in the subject matter.
Step 3: Begin by testing your value proposition with your current suppliers. A good way to validate your value proposition is to test through trade marketing. Here you can focus on a specific vertical. Hone an understanding of customers and prospects with an interest in a specific vertical and provide campaigns for a given supplier.
Once you are ready you can create your data sales house and offer your data assets to any brand or agency. Your teams will be able to sell multi channel campaigns and audience insights to maximise your ROI on currently unused assets to achieve huge margin levels exactly as Amazon Advertising does.
If you would like to hear more about creating your very own Retail Media proposition to grow ad revenue and enhance relationships with brands, contact us with the form below!