Retail media has become a significant revenue stream for enterprise-level merchants, but for some, selling ads to suppliers has altered the traditional relationship.
“Because of retail media, the power dynamics have shifted a little bit,” said Drew Cashmore, chief strategy officer at Vantage, a retail media management platform, during an interview.
Retail media has, in some cases, transformed suppliers into advertising clients, forcing retailers to compete for those marketing budgets.
Amazon launched “Product Ads” in 2008, pioneering the practice of online merchants selling advertisements to suppliers, now called “retail media.”
Co-op Advertising
Suppliers have long provided retailers with “cooperative advertising” rebates to promote the suppliers’ products.
Co-op ad budgets are typically 2-3% of a retailer’s total purchases. So a chain that bought $1 million worth of products from a given supplier might receive a rebate of $20,000 or $30,000 to spend on advertising.
Co-op rebates can be a point of negotiation. The buyer at a retailer could, in effect, obtain a discount on product purchases via a higher co-op amount.
Suppliers certainly have input into how retailers employ co-op dollars, including evidence that the merchant spent the funds on advertising. But retailers are typically in charge.
This model gives retailers leverage. Retailers control how funds are spent, and suppliers have limited insight into performance.
But the balance changes with retail media. Suppliers purchasing ads expect transparency, outcomes, and accountability, creating both a challenge and an opportunity for retailers to build stronger, performance-based partnerships.
Retail Media
Co-op ads have not created retail media. Amazon was the catalyst with its 2008 launch of “Product Ads,” followed by a few other ecommerce sites. However, thanks to co-op monies, many traditional retailers seized the opportunity to earn revenue beyond selling goods to consumers.
When it uses cooperative advertising funds to buy magazine ads, a retailer benefits from increased sales, presumably.
If, however, it published a magazine, the retailer could use the same co-op dollars to buy space there. Effectively, this is retail media.
A more formal definition is something like, “Retail media is advertising that retailers sell on their own websites, publications, and in their physical stores.”
Regardless, large merchants view retail media as a way to have cake and eat it, too. The advertising drives the companies’ product sales while generating non-merchandising revenue.
A side effect of moving co-op advertising dollars to retail media is performance.
This shift is significant because it elevates expectations. Suppliers increasingly view retail media as part of their broader digital advertising strategy. They compare it to search, social, and programmatic buys and expect the same level of reporting, targeting, and performance. For retailers, meeting these expectations is key to retaining and growing suppliers’ budgets.
The Dilemma
As Vantage’s Cashmore put it, “The monies that used to go into the retail space … are going to go away unless there’s mutually beneficial value.”
Retailers must prove that their media channels are as effective as competing options. Hence many retailers now act like advertising networks. They provide the tools — reporting, analytics, dashboards — that media buyers at consumer brands are accustomed to receiving, or risk losing the revenue.
Benefits of Winning
Conversely, merchants that excel in retail media can position themselves as critical growth partners to suppliers, strengthening loyalty and unlocking incremental spend that supports both merchandising and marketing goals.
Winning at retail media promises to have several benefits:
- Incremental revenue. Retail media generates high-margin income that complements product sales. Once platforms and processes are in place, the ads deliver recurring revenue with low incremental costs.
- Increased sales. Retail media can help sell more products.
- Strong supplier relationships. Winning at retail media positions the merchant as a key marketing partner, which, in turn, strengthens loyalty and encourages suppliers to allocate larger portions of their advertising budgets to that merchant.
- Competitive moat. A well-executed retail media program helps a seller defend its market position against both rival merchants and digital ad networks.
- Actionable insights. Retail media provides data on shopper behavior, campaign performance, and category trends. Retailers can utilize these insights to enhance their merchandising, pricing strategies, promotions, and supplier negotiations.
- Shopper experience. Thoughtfully targeted retail media offers timely and relevant ads and recommendations, helping to build long-term shopper loyalty.