Why 2023 will be retail media’s inflection point
If the Retail Media 1.0 era was primarily about search-driven ecommerce, then Retail Media 2.0 (with credit to Peter Moustakerski) will be about moving up the funnel and across retail channels.
Retail Media 1.0 has seen unprecedented expansion amid the rise of sponsored product ads, first on Amazon, and then across the landscape as dozens of emerging retail media networks (RMNs) sought to monetize their ecommerce traffic. To date, search has driven the lion’s share of retail media ad spend and fueled the growth of a market expected to reach $45 billion in the US this year. It propelled the retail media market from $1 billion to $30 billion in just 5 years, much faster than it took social media (11 years) and search (14 years) to accomplish the same.
And retail media search is far from done. It still has plenty of runway as the dozens of newer RMN entrants evolve their offerings. But the dawn of a new era is emerging.
We are quickly transitioning into the Retail Media 2.0 era. As RMNs get serious about using first-party data for targeting display, video, and streaming TV ads — often by partnering with third-party publishers and media companies — brand dollars are migrating into these formats. That means retail media will become as much about branding as it is about performance advertising.
Retail media off-site digital ad revenues are hitting an inflection point. This slice accounted for 12.7% of the US retail media market last year, and it’s gaining momentum. We expect it to jump by nearly $2 billion this year to $6.535 billion, rising by 37.7% — about twice the rate of the rest of retail media. Its current exponential growth trajectory points to even larger increases in net new ad spend in the coming years.
As retail media moves into branding ad formats, national brand dollars will follow. The Retail Media 2.0 era will require brands to consider these upper-funnel formats within the context of national media budgets that currently go to places like linear TV, Facebook, and YouTube. In fact, retail media is already starting to give linear TV a run for its money and will likely surpass that ad market in the next few years.
Brands need omnichannel sales data for a complete picture on return on ad spend (ROAS). As ads move into display, video, and streaming TV, brands will be ready to take advantage of closed loop measurement that links ad exposure to sales. With 85% of retail sales happening in stores, they’ll want to know how products on physical store shelves — and not just digital shelves — are influenced by these ads. But they’ll also want assurance that attributed sales are actually incremental to give them a truer picture of ROAS.
The Retail Media 2.0 era — and its evolution across formats and channels — is already underway. Which brands are ready to take advantage?
Andrew Lipsman is an eMarketer principal analyst at Insider Intelligence, focusing on retail and ecommerce. His recent coverage includes retail media networks, direct-to-consumer brands, social commerce, mobile retail apps, holiday shopping, and Amazon Prime Day.