Retail Media Networks: What They Are and How They Work

While connected TV (CTV) has dominated headlines in digital advertising over the past few years with its explosive growth and innovative capabilities, another channel is rapidly becoming a leading contender in the space: retail media networks (RMN).

For many, the birth of modern retail media can be tied back to the launch of the Amazon Ads Platform, widely considered the first retail media network of its time.

First launched in 2012, the platform allowed advertisers to purchase Sponsored Product Ads: individual product listings that were promoted by sellers directly within Amazon’s search results. However, targeting was limited. Advertisers selected keywords to target based on relevance to their customer’s search. 

But, as the platform evolved, other ad types were introduced, giving CPG brands more options to build awareness and increase conversions on the platform.

In its first year, it generated over $600 million USD in revenue. In 2023, that figure jumped to a mind-boggling $34.96 billion USD, with Amazon capturing 75.2% of the total US retail media market (and that was before the introduction of Prime Video’s ad-supported tier).

During that time, hundreds of businesses—from major retailers like Walmart and Target to companies from other commerce verticals, like Klarna and Marriott—have entered the fray, developing new revenue streams with their retail media networks while also growing their core business. That, combined with shifts towards e-commerce, advancements in data analytics, the diminishing effectiveness of 3rd-party cookies, and the need to improve pump-to-store conversions in the fuel and convenience sector, has made retail media networks one of the largest and fastest-growing channels in digital marketing. 

With 64% of execs at US retailers telling Deloitte they planned to implement an RMN by the end of 2024 and US retail media ad spending expected to comprise 24.8% of all digital ad spending by 2028, it’s clear that retail media networks are big business for retailers, brands, and advertisers alike.

Whether you’re new to retail media, looking for a quick refresher or want to know where they’re headed, here’s everything you need to know.

What Is a Retail Media Network?

A retail media network is an advertising platform owned or operated by a retailer that allows 3rd-party brands to promote their products and services on a retailer’s websites, apps, and other digital properties. It allows advertisers to leverage a retailer’s 1st-party data, ad space or partnerships to reach a wider audience, expand their digital marketing strategies, and target customers at the exact moment they’re making purchasing decisions.

Retail media networks provide retailers with a unique, data-driven opportunity to enhance the shopping experience for their customers while driving ad revenue and influencing immediate purchase behaviours. 

Although they’ve historically been used as a lower-funnel tactic to reach prospective customers directly at the point of purchase, they’re used increasingly by both endemic brands (companies that sell their products within a retailer’s physical or online store) and non-endemic brands (companies whose products or services aren’t sold in a retailer’s physical or online store) to connect with consumers throughout the buying journey. 

Examples of Retail Media Networks

According to EMARKETER, today’s retail media networks often fall within five main categories:

• Digital Marketplaces or Platforms: These enable seamless, on-platform ad placements for 3rd-party sellers and brands and include e-commerce giants like Amazon, Shopify, and Etsy.
• Mass Merchandise or Department Stores: These large-scale retailers allow brands to reach consumers both online and in-store through targeted ad placements. Examples include Walmart Connect, Target’s Roundel, and Macy’s Media Network.
• Category Specialists: Retailers in specialized industries like home improvement (The Home Depot), pet supplies (Chewy), and groceries (Kroger) can benefit advertisers with more niche customer bases by allowing them to target specific audiences with greater precision.
• Commerce Intermediaries: Companies like Uber, DoorDash, and Instacart allow advertisers to deliver hyper-targeted ads to consumers during trips and transactions. For example, Instacart allows CPGs to showcase their products alongside complementary items in the form of sponsored recipes.
• Other Commerce Industries: Increasingly, companies like Marriott, Klarna, and Expedia are building media networks that leverage their unique customer data and digital ecosystems to offer endemic brands advertising opportunities beyond traditional retail. For example, Marriott allows advertisers from other industries to target ads for products and services that would complement a guest’s travel journey, such as concerts, local restaurants, and live sporting events, through guest room entertainment, emails, Wi-Fi portals, and Marriott’s mobile app.

Types of Retail Media

Now that you know what a retail media network is and the types of players in the space, let’s dig into the different retail media formats available to advertisers and the benefits of each.

On-site Ads

These ads appear directly on a retailer’s digital properties, such as their websites or mobile apps, and are designed to reach consumers while they shop online. Examples include sponsored product listings that appear in search results, display ads placed throughout a retailer’s website or app that target consumers based on their shopping behaviour and preferences, native ads that blend in seamlessly with surrounding content, and video ads that allow advertisers to showcase product features and tell brand stories in more detail.

Off-site Ads

These ads leverage a retailer’s 1st-party data to reach consumers across platforms outside a retailer’s owned digital properties. This includes external websites, apps, social media channels, and even streaming platforms. 

Off-site ads help advertisers boost brand awareness and engage potential customers, even when they aren’t browsing through a retailer’s website or app. For example, DSPs like StackAdapt partner with retailers to extend their reach by providing access to additional programmatic display, video, and CTV inventory. This helps advertisers leverage a retailer’s data to connect with the right audience across a wider range of digital channels, all within the same platform.

Due to its broader reach and targeting capabilities, off-site retail media is expected to account for 18.5% of all US retail media ad spend in 2024.

In-store Ads

According to EMARKETER, physical stores are “the next major mass-media channel.” In-store ads target customers directly at the point of sale by providing advertisers with access to multiple surfaces and screens in-store and on location. Examples of in-store ads include digital signage that can be adjusted based on store location and time of day, in-store audio ads broadcast over a store’s PA system, shelf edge displays highlighting specific promotions and product features, and interactive kiosks that provide sponsored product recommendations and highlight items that may not be available in-store. In-store ads can also be found in non-traditional locations like gas pumps, self-checkouts, and even EV charging stations.

In-store ads aren’t just for CPG brands that sell specific products in a retailer’s store. Non-endemic brands can also use in-store ads to reach consumers in physical locations. For example, a company that creates tax software could use in-store ads to target general contractors who could benefit from claiming business expenses on an upcoming tax return by placing ads in home improvement stores during tax season or leveraging a retailer’s data to target them across other digital channels.

How RMNs Work

Here’s a simple, step-by-step breakdown of how the whole process works:

First, retailers provide access to the inventory on digital platforms—like websites, apps, and in-store displays—that brands can place ads on. This includes those owned by the retailer and other companies that retailers partner with to help extend their reach by providing advertisers with opportunities to promote their products beyond the retailer’s own channels.

Next, an advertiser sets up a campaign. This is either done directly through a retail media network or a demand-side platform (DSP) like StackAdapt, which retailers partner with to provide advertisers with access to the retailer’s ad space or data for targeting, all from a single platform.

Once an advertiser determines the campaign parameters, including the targeting, budget, and chosen ad formats, the ad space is bid on, and ads are served through an automated process that determines the optimal placements based on the set criteria. 

The retail media network leverages its proprietary 1st-party data to show the brand’s ad to the advertiser’s ideal customer. Then, the customer sees the ad. In the case of on-site and off-site ads, if the customer clicks on it and makes a purchase, the brand makes a sale, and the retailer gets a portion of the sale and advertising spend.

But, equally as important, the retailer gains valuable 1st-party insights based on the user’s interaction and transaction that can be used for campaign measurement and improve the performance, targeting, and return on ad spend of advertisers’ future campaigns.

Benefits of Using Retail Media Networks

Now that we’ve gone over the basics, let’s look at some specific benefits of retail media networks compared to traditional forms of digital advertising.

Access to 1st-Party Data

The phase-out of 3rd-party cookies may be on hold, but that doesn’t make 1st-party data any less valuable and necessary for advertisers’ campaigns.

First-party data helps advertisers deliver more relevant and personalized ads to customers who are more likely to convert.

Thankfully, retailers are ripe with information about user browsing history, audience demographics, and past purchases, which advertisers can leverage to deliver highly-targeted ads and messaging to the right people.

Proximity to Point of Sale

Unlike other forms of digital advertising, one of the biggest benefits of retail media networks is that ads appear exactly where customers are already shopping and can buy their products.

Whether it’s on-site or in-store, when customers are actively browsing products, they’re already primed to make a purchase. That gives advertisers an opportunity to deliver sponsored product listings, banner ads, or in-store display ads that are more relevant to the consumer and likely to convert.  

Closed-Loop Reporting

It can be difficult to gauge the impact an ad campaign has on driving a purchase, especially in retail.

Due to their proximity to the point of sale and access to 1st-party data, retail media networks can directly link ad impressions to purchases, both online and in-store, with a higher level of accuracy than traditional advertising channels. This provides brands with insights they can use to optimize campaigns and justify ad spend. According to Deloitte, 71% of retailers say retail media networks are very or extremely effective at conducting closed-loop measurement for brands.

New Revenue Streams

For retailers, one of the biggest benefits of a retail media network is they can monetize their 1st-party data and digital assets to create new revenue streams on top of their core businesses.

According to Bain, retailers with retail media networks often see profit margins of over 50%. That’s good news for retailers in verticals like grocery, convenience, apparel, e-commerce, and consumer electronics, where margins are often slim. 

Retail media networks can also increase product visibility and cross-selling, increasing the overall transaction value of individual purchases.

Overcoming Key Challenges

Although there are many benefits to retail media networks—from access to 1st-party data and precision targeting to enhanced brand visibility and new revenue opportunities—there are still some hurdles preventing retailers from building them and advertisers from upping their ad spend.

Barrier to Entry

Despite the overwhelming interest from retailers, many companies, especially small to mid-sized retailers, don’t have the infrastructure, technical expertise, and capital needed to build a retail media network entirely in-house. 

According to Forrester, for a retail media network to work, a retailer ideally needs a dedicated sales team to promote the solution, an easy-to-use interface that makes buying ads seamless for marketers, and detailed reporting that provides advertisers with actionable insights on how their ads perform.

That may be easy for Amazon, but even a niche regional chain would require a sizeable team to compete with major retail media networks, making it necessary to find the right strategic partners to help level the playing field.

Cost

One of the biggest downsides to retail media networks—particularly the more popular ones—is that small and medium-sized businesses (SMBs) are often unable to compete for ad space against more established brands.

For example, as mentioned in one of our previous articles, a large retailer could work with over 10,000 suppliers, but its retail media network may only prioritize the top 10%. That’s because larger brands often have gigantic advertising budgets, making it easy to outbid competitors. At the same time, retailers want control over how their data and supply are leveraged and ensure that advertisers are following creative guidelines. This forces retailers to take on more of a hands-on approach, limiting their scale while ultimately leaving thousands of smaller suppliers, mid-market agencies, and non-endemic brands with limited advertising opportunities. 

Lack of Standardization

According to the IAB, inconsistent metrics and reporting standards across different retail media networks and the walled-garden approach that most retailers take to data sharing have made it increasingly difficult for advertisers to evaluate and compare campaign performance.

Timeliness is also a major concern, with only 23% of retailers sharing data in real time (and 56% only doing so at the end of a campaign).

IAB research found that consistent “measurement standards and transparency around attribution windows, incrementality, and viewability… [would] significantly help propel ad spend.”

Market Fragmentation

According to a Forrester CMO Pulse Survey, 45% of advertisers said the biggest challenge with retail media networks is how many they have to manage. 

There are hundreds of retail media networks in the market, with the average brand working with four to six of them at a time. For an agency, that number could be even higher. That, coupled with complicated buying processes, differing ad formats, and a lack of standardization, is overwhelming the majority of advertisers, according to the IAB. A 2024 study also found that 44% of advertisers didn’t have plans to work with additional retail media networks over the next two years.

Rather than force advertisers to learn a new interface and manage an entirely different system every time they want access to a specific retail media network, retailers should integrate with DSPs that advertisers already rely on to simplify adoption and make it easier to access inventory and data while still having oversight and control over how it’s being used.

Trends, Insights, and Opportunities

Retail media networks are at an inflection point. Demand has never been higher. At the same time, retailers are hitting a ceiling, opening doors for new partnerships and opportunities in the space.

With over 88% of US households having access to at least one internet-connected TV (CTV) device and ad-supported streaming on the rise, Marketing Dive reports that many retailers are moving towards CTV to diversify their advertising options and execute full-funnel campaigns. As a result, EMARKETER predicts that US retail media CTV ad spending will increase 335.5% in 2024 and reach $8.67 billion USD by 2027.

Meanwhile, with fears of generative AI increasing the cost of search ads while decreasing the amount of inventory available in Google and Bing, retail media search is expected to grow more than twice as quickly as non-retail media search through 2028, with retail media expected to comprise nearly 42% of all US search ad spending.

Despite new opportunities and expanded reach for both endemic and non-endemic brands, it’s clear that many SMBs are still waiting on the sidelines and unable to participate due to a lack of access and other limitations.

Retailers can reduce the barrier to entry, provide more measurable results, open up new revenue opportunities, and help create a more inclusive and efficient advertising ecosystem for businesses and brands by partnering with a platform like StackAdapt. 

Whether you’re a retailer looking to monetize your data, measurement, and inventory or an advertiser wanting to expand your reach and target the right customers, book a demo to learn more about StackAdapt.

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