Developing a Winning Strategy for Digital Advertising in Retail

2020 marks an important milestone in the advertising world. It is the year that digital ad spending surpassed traditional ad spending worldwide. The trend is expected to continue, with over 60% of ad spending predicted to be through digital channels by 2023.

Digital Ad spending

Source: eMarketer, February 2019

In addition to the shift from print and television to digital, another important shift is taking place. Within the digital advertising space, advertisers are shifting their focus more and more towards the point of purchase. Online ad giants Google and Facebook still dominate in absolute terms. But advertisers are more and more looking for partners who can give them data not just on what customers search for or share with their friends, but data on what they actually buy.

At the forefront of this shift is Amazon. They have recently refreshed their ad solutions offering and are quickly growing their advertising business based on the fact that when customers come to Amazon.com, they are ready to buy.

But traditional bricks and mortar retailers are jumping into the game too. Retail giants such as Walmart, Kroger, Target, Ahold Delhaize, and Albertsons have all made key moves in the advertising space in recent years, with many of them spinning off full-fledged media companies. If actual purchase data is what you want, they argue, we are the place to get it. After all, even with eCommerce rapidly on the rise, more than 80% of retail sales still come from bricks and mortar stores.

This has other retailers – many of them mid-size players without the scale of Walmart or Kroger – asking how they can get in the game. With this in mind, we offer four key areas that retailers need to focus on if they want to leverage their customer data to attract digital advertising dollars.

 

1.Understand what advertisers want

It is easy to think that the only thing that matters is the size of your customer database. After all, if advertisers want to reach, the bigger the better. But the savvy in the CPG marketing world know this can be misleading. A better metric is to look at the number of highly engaged customers.

Imagine a scenario where Retailer A and Retailer B both have 5 million identifiable cardholders. At Retailer A, loyalty members receive 1% of their purchases as cashback, and most swipe their card when they shop. But Retailer A does not have a well-developed app, and their email open rates are low. Retailer B, on the other hand, has extremely high engagement. Members have the app, and many use it regularly to load coupons to their card. Response rates on digital coupons are extremely high. As an advertiser looking to promote your products, which audience would you rather advertise to?

This means that retailers looking to build their ad business must start by building their audience. Not just by acquiring more members, but by driving engagement among the members they already have.

 

2.Get better at targeting

Even in 2020, much of what goes under the heading of targeted advertising is still relatively simplistic. I recently had the experience of buying a new suitcase online and watching the effect it had on the ads that were presented to me. Suddenly, suitcase ads were everywhere. The problem with this is that I only need one suitcase. And, assuming I chose well the first time, I am not likely to need a new one for many years. As the owner of a shiny new suitcase, I am possibly the worst person to try to sell a suitcase to right now.

This kind of customer experience is not uncommon. Precision marketing is about more than selling more of Product X to someone who has already bought Product X.  We can do better.

Retailers that can offer advertisers more sophisticated targeting tools – especially in the Consumer-Packaged Goods space where purchase frequency is high and cadences can be predicted will have a more attractive proposition for advertisers. The potential upside here is huge. A Nielsen metastudy showed that purchase-based targeting delivered almost 3X ROI for CPG advertisers and significantly outperformed all other targeting methods.

 

 3.Measure the impact

The holy grail of marketing is to be able to measure exactly how many purchases were made because of your ad, and exactly what it cost you to get them. Given the choice, advertisers will always choose the method that lets them attribute sales back to the ad.

But even in digital channels, this is easier said than done. Unless the customer directly clicks the ad and buys online, advertisers are left guessing. And with 4 out of 5 sales dollars still coming from bricks and mortar stores, advertisers tracking online clicks are still blind to the majority of purchases.

This is retailers have a huge advantage. Not only do they have a wealth of purchase history that can be used for intelligent targeting. They also have the ability to attribute offline purchases to views of online ads. Retailers that get this right could become the advertising channel of choice for many brands.

 

 4.Get serious about transparency and permission

Finally, retailers looking to get into the media business must take seriously the concerns of their customers about privacy. Complying with all the local laws is a good start. But it’s not enough. Retailers who want to monetize their customer data must never do so at the expense of customer trust. Even in purely financial terms, it will never be worth it. Earning and keeping customers’ trust means going well beyond the bare minimum required by the law. Keeping customers clearly informed of how and why their data is being used – and giving them complete control to opt-out in part or in whole – are essential.

 

There is a huge opportunity in front of retailers right now. Those who move quickly and are guided by the principles above will benefit greatly in the years ahead.

 

For more information about the topic, you are welcome to watch the Big Ideas session at NRF 2020 where we discussed with our partners Rema, Nielsen, and Facebook on How Retailers Can Develop a Winning Strategy to Attract Digital Advertising Dollars.

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