Memo: All About RMN

First-party data is defining this era of advertising and sales. Companies are now in a race against time: they’ll build, acquire, or market to the platforms that have it.

When Facebook revolutionized advertising for early direct-to-consumer brands in 2011-2014, a volume of eyeballs preceded its advertising technology push. Facebook was built atop its user volume, human capital. For Google, a volume of searches preceded its advertising technology push. Google was also built on the byproduct of its user inquiries. But this is the era of user privacy and the end of third-party data – both were commonly used by Facebook and Google. Today, retail sales data is what supplies first-party collection. It is the most important asset in digital marketing today. First-party data precedes today’s advertising arbitrage.

Advertising is being transformed by commerce media, a new form of advertising that closes the loop between media impressions and commerce transactions to improve targeting, provide new audience insights, and deliver more relevant and valuable experiences for consumers.

Consider the following analogy. Crude oil is collected and sent to a furnace, heating to 750 degrees. Then, a refinery separates that asset into useful substances like: diesel fuel, gasoline, kerosene, motor oil, asphalt, and candles. That raw substance is refined in what’s known as a distillation column. As we explained in 2PM’s first foray into the study of first-party data: “it is the substance that fills the distillation column of today, retail media networks process that oil-like first-party data into key assets.” For a retailer seeking new demand generation, ad platforms supplied by first-party data are like the oil refineries of today. Yes, this is a play on British Mathematician Clive Humby’s 2006 proclamation: data is the new oil. In this case, it is.

Retail media networks (RMN) are finding themselves in position to attract the advertising dollars that might have previously been spent with platforms like Facebook and Google. They are accomplishing this massive growth by way of droves of first-party customer data troves.

We’re going to focus on the number one RMN: Amazon. It has been able to develop its own self-serve advertising business and in doing so, it’s inspired other retailers to do the same. Amazon’s is the blueprint, raking in $31 billion as of 2021. Walmart brought in a paltry $2.1 billion in ad revenue and Apple’s RMN has recently eclipsed that of Snapchat and TikTok with similar fundamentals.

Expect that RMNs will grow in popularity as Meta’s workarounds for data collection falter; we are already seeing this with Meta’s in-app browsers. In “Trojan Ad Data,” we explained: “Instagram, which has been building up its own shopping capabilities and lets users swipe up on ads to shop from inside the app, can track user data when they’re using the in-app browser by injecting code into URLs that tracks your searches by recording your keyboard inputs, a practice called keylogging. This workaround skirts Apple’s own ATT feature, as well Safari’s third-party cookie security.”

Retailers are dealing with supply chain backlogs, inventory challenges, recessionary forces, and unpredictable consumer demand. For mass market marketplace retailers like Amazon, Walmart, and (in its own way) Apple: advertising revenue is a reliable way to carry high margin revenues to the bottom line. On the other side: brand marketers are grappling with the ramifications of Apple’s privacy restrictions, which have cut off third-party data via apps like Facebook that used to inform high-return advertising strategies.

In a sense, today’s market and economy have influenced the perfect storm for the rise of the retail media network, which has up until now been growing quietly. From Fast Company:

A recession is bound to affect ad budgets across the board. But tighter tracking rules might make the data that retailers amass even more valuable to advertisers.

Retailers stumbled upon a gold mine; there isn’t better targeting data than a retail conversion (or an acquisition of the company with troves of their own first-party data). And now what Amazon has is worth even more to brands who are reconfiguring their performance marketing strategies in light of Apple’s privacy changes. DTC companies were built with the hope of growing independently of America’s largest retail marketplaces but retail media networks like Amazon’s, Target’s, and Walmart’s have already begun to contribute to many of these same brands setting aside idealism for growth. Amazon is already a top three advertiser with Facebook’s current ad model degrading by the quarter. Apple was a surprise entry and the Cupertino-based company will soon have an advertising business that is larger than Twitter, Snapchat, TikTok, or Pinterest. Apple’s privacy practices are to thank:

Within these retail media networks, brands can research consumer brand preferences, demographic data assigned to product loyalty, or what products and brands customers are searching for within their categories. Brand marketers can then programmatically buy their ad positions.

As the cookie crumbles, brands believe the modern retail media network can offer strategic change in the commerce experience (both online and offline) by: Influencing customers at the “digital shelf” point of consideration, offering lower-funnel advertising opportunities to fill the gap left by cookies, and delivering performance insights to improve their return on media investment. (via Broadsign)

In the best cases, retail media networks can make the online shopping experience more relevant to customers. Avoiding the sacrificing of integrity as ads become more prevalent will become the balancing act for these retailers-turned-advertisers as they find themselves on the receiving end of larger and larger marketing budgets.

Apple’s privacy practices may push more brands into the arms of Amazon (see: Peloton, who will now be able to appear in search results) as retailers of its size and scope look for first-party solutions to third-party data shortfalls. Walmart, who is much earlier along in its path to becoming a big three advertiser, released a statement to Fast Company:

Marketers want and need to connect more directly with customers. To do that – they need to know their customers better, the key for that is first party data. […] Large retailers, like Walmart, sit on a gold mine of first-party retail-powered data.

Thirty years ago, a brand needed a mass-market retailer like Walmart to be seen by consumers. Twenty years ago, a brand eschewed this relationship to go direct-to-consumer with the help of demographics data from platforms like Google and Facebook. Now, these DTC companies may be doing away with the need for independence altogether. It was mostly a façade anyway. Brands may or may not remain (exclusively) direct-to-consumer as the market continues to evolve away from that decade-long strategy but the advertising data used by these brands will be direct-from-consumer. We’re just beginning to see how impactful retail media networks may become for retailers looking to reignite growth after a turbulent, post-pandemic period of reversion.

By Web Smith | Edited by Hilary Milnes with art by Alex Remy and Christina Williams

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