Retail media surge: revolution or risk?

Retail media networks are attractive to retailers and brands, but the big risk? Losing customers.

ASOS is the latest big retailer to get in on the Retail Media Network (RMN) party, joining giants Amazon, Boots, Tesco, Sainsbury’s, Asda, Ocado and Morrisons.

RMNs monetise customer data by enticing brands to pay for targeted digital advertising on a retailer’s online and in-store channels. RMNs offer a new revenue stream for retailers and a high return on ad spend for brands.

RMNs are being hailed as a new age of advertising, a saviour for retailers looking for new income streams and brands seeking effective targeting after the demise of third-party cookies. It’s predicted that retail media advertising will increase roughly 60% by 2027 and in the UK GroupM forecasts the value of retail media spend could reach £2.4 billion by 2024.

But there are risks that retailers must take seriously, including the very real risk of alienating customers.

Risk 1: loyalty scheme challenges

We’re seeing a ‘loyalty surge’ in 2023, as retailers look for data sources to fuel RMNs. Big players have been upgrading schemes to attract more customers or launching new schemes to play catch-up.

The best loyalty schemes make customers feel part of a club, but that takes clever personalisation and generous incentives, which require deep pockets. Points schemes do little to change customer behaviour, eating away at margins. A badly designed loyalty scheme can trap a company into an endless splurge on perks that aren’t getting customers through the door more often. It’s interesting to note that our big retail customers have all asked us to look at their loyalty programs.

Retail measurement must show whether a rewards scheme makes a brand relatively more attractive than rivals, otherwise the reach of a loyalty scheme may not offer return on investment, even with extra income from an RMN.

Risk 2: damage to CX

Is there a cost to adding more advertising channels to the shopping experience? An insider told us that some time ago Tesco recalibrated their in-store retail media because of perceived damage to the customer experience. This will be a balancing act for all RMN teams. If messaging doesn’t align with brand guidelines, there is a risk that its impact on shopping experience is too great.

Retailers must keep the customer at the heart of everything they do. No retail initiative should be something that you do despite the customer.

Considering friction debt

Friction debt is the concept that anything extra you ask customers to do that is outside of their normal behaviours has a friction impact on the customer experience. It’s sometimes necessary to add friction debt – but if a customer puts in more effort you must offset with reward to avoid losing them. And that reward always has to be disproportionately large to pay off the friction debt.

Navigating a website with targeted ads or a store with digital signage adds friction debt to the customer journey, especially if ads are repetitive or irrelevant. (An ad nagging you to buy something you’re already buying, for example.)

Retailers must ensure that digital media delivers customer reward. If a customer must wade through sponsored results to choose a can of soup, they need a reason to put up with that - two cans of soup for the price of one or maybe discovering a new brand.

Wouldn't it be great if we reduced friction debt by understanding what product curation, meal inspiration and discovery means to particular customers, informing how RMN content is created and deployed?

The more relevant to a customer story any content is, the more rewarding and higher performing that ad will be.

How to manage friction debt

Retailers need to consider how retail media affects the overall friction and reward balance of shopping.

• How much friction debt is added to CX?
• How much reward is added by ad content or offers?
• How do those two figures offset each other?
• Crucially, how do they stack up against those same frictions and rewards in your competitor’s CX?

Customers have all the power in our choice economy. Choosing to shop with a different retailer is trivially easy, and the motivation to switch can be a mass of tiny friction signals that customers themselves aren’t aware of. This means the friction impact of retail media could be the difference between losing or gaining customers.

An opportunity for improved CX

With the right data, retailers can harness RMNs to improve customer experience. For example, if contextual analytics flags discovery and surfacing as weak spots in a retailer’s CX, online or instore media could be used to boost those areas.

Digital advertising can also be used to target relevant customer stories - an apparel retailer who knows they serve a lot of fitness-based customer stories might shift advertising towards health-based products and messages. This requires objective data about profitable customer stories and indexing of negative and positive impact of ad media on those stories.

The future of retail media networks

RMNs look like a shiny new space right now, but to ensure long-term growth in this area retailers must rigorously monitor impact on shopping experience. That can’t be through asking customers what they think – humans are poor at analysing our own responses to advertising.

Instead, retailers should use contextual customer experience analytics to index the impact on their CX. The right retail measurement will allow retailers to quantify ROI in this space, and balance that against friction debt and costs associated with gathering data.

RMNs are an opportunity, but one that needs careful assessment to get right.

Uncrowd's contextual experience analytics can lower friction debt by helping retailers and media owners understand how to navigate the needs of consumers better, through content that promotes curation, inspiration, discovery and price through the lens of profitable customer stories. Our data is objective, empirical, and always shows your next best action.