Words: Jim Nichols, Founder of Exclamation Marketing
The rise of retail media networks (RMNs) has been incredibly fast and large. From basically nothing a few years ago, these retailer-led media programs are expected to capture $60B in digital spending in 2024 in the US alone. While RMN maturity is greatest in the US, Group M estimates they will capture £2.4B ($3.1B) in the UK this year. A great deal of money is being sucked out of the tradigital media channels and is surely affecting affiliate investment.
What are Retail Media Networks?
RMNs leverage the vast customer data retailers hold and their proximity to purchase opportunities. Think of them as online versions of the shopper marketing category. These networks allow advertisers to reach shoppers within the retail ecosystem at various stages of the purchasing journey, from product discovery to post-purchase engagement. By offering precise targeting capabilities and access to high-intent audiences, RMNs have quickly gained traction among advertisers seeking effective digital marketing channels.
In addition to buying ads on RMNs from retailers where their products are sold, some brands now buy ads from retailers whose customer bases seem well suited to the businesses. For example, a fast food place buying ads from the RMN of a home improvement store to reach construction and maintenance crews on weekdays.
Why Retailers Love RMNs
Put simply, it’s all about margins. Retail tends to be a very low-margin business; 3%-4% is typical. By contrast, McKinsey reports that RMN profit margins are 50-70%. BCG puts them at 70-90%. The dirty little secret of retail is that much of the profit comes from store credit cards and other “secondary” businesses that are the primary profit drivers. RMN is a fast-growing part of that crazy-profitable secondary revenue.
Working with RMNs
Targeting, reporting, and data available from RMNs tend to be more limited than from sellers of other types of digital media. However, this is changing as the space begins to mature. There are currently more than 200(!) RMNs and most are powered by platforms from CitrusAd, The Trade Desk, and Criteo. They’ve grown quickly because:
- Many brands essentially charge a merchandising tax on their vendors, demanding or strongly encouraging buys in exchange for shelf space and merchandising
- They enhance on-site search rank, which can promote product discovery and immediate sales
- They help advertisers access targeting information unaffected by cookie deprecation
- They drive sales of products by marketing directly on retailer sites to people who are in a shopping mindset
RMN ads take many forms, including sponsored search results and listings, display ads, and video ads. Here’s a tangible example:
A fragrance brand invests in RMN spending from a department store, buying:
- Offering brand videos in tenancies on top-level pages
- Search results for fragrances and other related keywords
- Placing Display ads in the results and in pages for beauty and apparel items
- Delivering Display ads on competitor product pages to conquest the sales
- Offering brand videos in shopping cart pages
In theory, most of the inventory runs on the retailers’ sites, and a few of the largest retailers have enough inventory to consume most or all of the dollars invested in their RMNs. But most retailers don’t have enough regular traffic to consume all the money brands pour into the space. To supplement, many buy ads offsite to resell, targeting would-be shoppers using their first-party customer data.
Challenges and Opportunities for Affiliate Marketing
RMNs bring both challenges and opportunities for the affiliate marketing industry.
Challenges: On one hand, RMNs provide brand advertisers with alternative avenues to promote their products directly within the retail environment, potentially reducing their reliance on traditional affiliate partnerships. Dollars they used to spend with affiliates to drive traffic to their DTC sites may shift to promoting products on other retailers.
Further, many RMN ads are purchased on a CPC basis, putting them in closer competition for performance budgets. While a big chunk of the money currently flowing to RMNs comes from brand trade spending budgets, some is also being siphoned off from other media channels. As a result, affiliates may face increased competition for advertising budgets and diminished opportunities to monetize their content through affiliate links.
Opportunities: On the retailer side, merchants are under pressure to grow their site traffic to enhance the value of their RMN programs. The growing glut of programs with relatively small audiences is making merchants take action to increase their traffic and visitation frequency. While a handful of merchants like Amazon, Target, Walmart, and Kroger have tens of millions of shoppers visiting weekly, other merchants may only attract shoppers a few times a year. Affiliate marketing could help change that dynamic by presenting great products and offers across the web.
For affiliates, that means ensuring your content, page structure, offer presentation, etc., all perform well for retailer programs. Delivering well for merchants may be the key to extraordinary growth for affiliates in the future.
Affiliates may also find it profitable to leverage RMNs to drive traffic to advertiser pages in exchange for commissions on sales. Often, inbound traffic drives search rank, which may make driving traffic to their merchant partners’ sites lucrative. That’s one of the concepts driving the strong growth of brand affiliate programs geared toward driving traffic to Amazon.
That said, RMN also helps brands understand there are alternatives to traditional CPM-based media buying. Advertisers can also engage with affiliates to drive traffic to their pages on retail sites. Many brands, for example, are now doing this to help drive their Amazon sales and search rankings.
Retail merchants are under pressure to grow their site traffic to enhance the value of their RMN programs. While a handful of merchants like Amazon, Target, Walmart, and Kroger have tens of millions of shoppers visiting weekly, other merchants may only attract shoppers a few times a year. Affiliate marketing could help change that dynamic by presenting great products and offers across the web. Affiliates may also find it profitable to leverage RMNs to drive traffic to advertiser pages in exchange for commissions on sales. Often, inbound traffic drives search rank.
What’s clear is that RMNs are driving major changes in our industry. Affiliate marketers tend to thrive in changing environments because we are willing to adapt and experiment to find new sources of revenue and profit. As we move into the second quarter of 2024, take the time to learn more about RMNs to discover your own ways to capitalize on this fast-growing phenomenon.
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