In 2023, Target’s Retail Media Network, Roundel, saw remarkable success, generating over $1.5 billion in ad revenue—a 20% increase from the previous year. The network’s impressive growth is set to continue, with projections suggesting it will reach $2 billion in 2024. Roundel attributes its success to its sophisticated use of advanced analytics, which enables the creation of highly personalized ad content. The RMN engages customers by seamlessly integrating advertising strategies across both digital and physical spaces.
Roundel exemplifies the immense potential of this rapidly growing marketing channel to elevate both digital and in-store shopping experiences. By leveraging highly personalized ads, RMNs turn each interaction into an opportunity to engage customers and build deeper connections. This strategy has paid off handsomely, as evidenced by a more than 50% increase in return on ad spend (ROAS) over the past year.
However, there’s a fine line between engagement and intrusion, as overly aggressive tactics can alienate customers. Brand and marketing managers should note that retaining existing customers is significantly more cost-effective, with acquiring new ones being up to 25 times more expensive. Balancing personalization with privacy is crucial for long-term success.
In this article, we’ll explore how RMNs operate and how brands can leverage them to enhance customer experiences without becoming intrusive. We’ll dive into strategies such as offering personalized recommendations and relevant content, rather than merely relying on discounts, to add value and avoid alienating customers. We will offer actionable insights for brand and marketing managers to help you make the most of your RMNs.
The Appeal of Retail Media Networks
Retail media networks (RMNs) offer a lucrative new avenue for brands to drive high-margin revenue. Their ability to capture shopper’s online and in-store attention significantly boosts the bottom line. By seamlessly integrating ads into the shopping experience, RMNs provide brands with highly targeted advertising opportunities that are more likely to convert into sales.
Additionally, this targeted approach maximizes the return on ad spend while enhancing customer engagement and brand loyalty. Ads placed in a purchasing context often lead to higher conversion rates and increased average order values, resulting in substantial overall profits.
Financial Impact and Growth of RMNs
In 2023, RMNs saw their revenues grow by over $10 billion, reaching a total of over $119.4 billion. The surge reflects a broader trend of shifting ad budgets towards channels that offer more measurable results. A key driver of this growth is the unique ability of RMNs to utilize first-party shopper data, enabling brands to deliver personalized and timely ads.
Analysts expect this momentum to continue, with an anticipated growth of 8.3% growth in 2024. The growing interest in RMNs highlights just how well they connect brands with consumers at critical points in the purchasing journey.
Enhanced Profitability through Revenue Diversification
RMNs are appealing because of their capacity to generate significant income and their high margins. They shift a portion of a retailer’s revenue model from the sale of goods to advertising, positively impacting the cost of goods sold (COGS). Since revenue generated from RMNs is primarily derived from advertising, retailers can reduce costs associated with producing, storing, and managing physical products. The reduction in COGS contributes to higher overall profit margins.
Consider the case of a large retailer like Walmart. Their revenue largely depends on selling physical products, which entails significant storage and distribution costs. The introduction of Walmart Connect, its RMN, enabled a new revenue stream to emerge from selling advertising space to brands.
RMNs capitalize on existing customer traffic and data to generate ad revenue without a proportional increase in operating costs. This efficiency enhances profitability compared to traditional retail models, where high costs of goods sold and operational expenses often constrain profit margins. As a result, RMNs offer a more lucrative business model by leveraging existing resources to maximize revenue.
By shifting a portion of their business model towards media revenue, retailers can reduce their dependence on the traditional retail margin structure to enhance overall profitability. This dual benefit of high income and improved margins makes RMNs an attractive avenue for retailers looking to diversify their revenue streams and bolster their bottom lines.
Strategic Advantages for Retailers
Retailers that successfully implement an RMN give brand advertisers access to highly engaged audiences. Advertisers are especially eager to pay a premium to position their products where potential buyers are most likely to see them—like when browsing online or walking through store aisles at key moments in the shopping journey.
Several retailers have successfully leveraged retail media networks to improve customer relationships. Target and Kroger offer retail media platforms that enable brands to advertise directly to consumers at the point of decision-making, making ads more effective. These networks use sophisticated data analytics to give advertisers precise targeting options based on shopping behavior. The more relevant ads are, the more engaging the ad experience is for consumers.
Addressing Customer Experience Concerns in RMNs
Customers have clear expectations about their shopping experience, whether online or in-store. Online shoppers expect a smooth, hassle-free experience. They want websites that are easy to navigate and offer straightforward processes from search to checkout. In-store shoppers expect simplicity and convenience. They want to find what they need quickly, pick it up without hassle, and avoid unnecessary distractions.
Adding RMNs can disrupt this smooth experience. Their online ads often overwhelm and frustrate customers—pop-ups block content, videos auto-play loudly, and digital banners continuously flash. These intrusions drive customers away and make them less likely to complete a purchase or return in the future.
Aggressive advertising in physical stores also disrupts the shopping experience. Imagine entering a store and, instead of finding a clean layout that lets you browse at your own pace, digital screens and flashing ads are everywhere you look. This bombardment turns shopping from a pleasant activity into a high-pressure environment. The brand’s image suffers, making customers think twice about returning.
While RMNs offer great revenue opportunities, companies should implement them thoughtfully to keep the shopping experience customer-friendly. Their goal should be to enhance the shopping journey, not complicate it with overbearing advertising.
Direct Mail Improves RMN Effectiveness by Reducing Intrusion
Direct mail can enhance your retail media network without compromising on customer experience. Here’s how to optimize direct mail campaigns within your RMN to improve engagement while respecting your customers’ preferences:
- Leverage data insights: You can use rich data from your digital platforms to craft customized direct mail pieces that speak to audience preferences. By digging into their browsing habits, purchase history, and how they interact with your mail and digital campaigns, you can create mail content that feels personal and relevant.
- Implement A/B testing: Employ A/B testing for your direct mail just as you would with digital campaigns. This strategy allows you to test different designs, messages, and offers to see what resonates best with your audience without overwhelming them.
- Synchronize timing with digital efforts: Coordinate your direct mail with your digital campaigns to keep your marketing message seamless and boost the overall customer journey. If you have an online promo coming up, send out a direct mail piece before it kicks off to excite your customers.
- Follow up for feedback: Gather feedback after launching your direct mail campaigns to understand your customers’ thoughts and adjust accordingly. This step lets your direct mail hit the mark by tuning into what your customers prefer and what they have to say.
Balancing Revenue Needs with Customer Experience
Striking the right balance between boosting revenue and maintaining a great customer experience drives long-term retail success.
First, make sure advertising feels like a natural part of the shopping experience rather than an interruption. One effective strategy is to incorporate relevant and helpful ads. For example, if someone is browsing kitchenware, showing ads for cooking gadgets on sale or recipe books enhances their experience rather than disrupts it.
Another strategy is to use data wisely. Retailers can capitalize on first-party data about customer preferences and shopping habits to gain a distinct advantage. They can leverage this data to present personalized ads at the right time so they feel less like ads and more like genuine recommendations. Direct mail is a perfect way to send a personalized advertisement that doesn’t seem intrusive to a browsing experience.
Let’s take a look at some retailers who are mastering this balance:
- Target: Using detailed customer data, Target presents personalized offers and in-store and online promotions. Their retail media blends right into the shopping experience, giving customers deals that matter just when they need them. In 2022, their personalization strategies generated more than four billion dollars in attributable demand and served 169 billion recommendations to guests.
- Best Buy: Best Buy leverages retail media to offer detailed product information and comparisons on its site. Customers can make well-informed choices without leaving the website or app, which improves the shopping experience and cleverly boosts sales. The rich product content on product detail pages resulted in a median conversion increase of 24%.
- Sephora: Sephora cleverly incorporates its ads into its mobile app, letting customers watch product tutorials and read reviews as they shop. This seamless integration increases customer engagement and enables them to make more informed decisions directly from the app. Customers who watch a product tutorial increase their probability of converting by 73%.
These examples reveal how non-disruptive digital strategies boost customer engagement and keep conversion rates high without compromising the shopping experience. While these digital approaches are effective, direct mail is the extra layer needed to further refine this balance. This method complements digital tactics by stepping in where digital ads might be too intrusive or lack a personal touch.
Putting these strategies into play allows your direct mail campaigns to boost your RMNs’ success without messing up your customer interactions. This smart, long-term approach helps you build positive and respectful customer relationships, encouraging loyalty for years to come.
