With the promise of dramatic revenue growth and attractive margins come a number of challenges — and opportunities — for traditional retailers as they seek to develop their advertising solutions:
Online scale constraints. Digital retail media networks are ultimately constrained by the scale of a retailer’s ecommerce businesses. Working with third-party publishers and other partners to link data and leverage off-site inventory can partially overcome this issue, but many retailers are still limited by the fact that most sales occur in-store.
Underpowered technology and capabilities. Most retail advertising is programmatic and requires deep data, targeting, optimization and attribution capabilities. To build and refine in-house capabilities requires substantial investment, scale and time. While in-house development may be the best path for a major retailer, accessing solutions from vendors and partners may be more realistic and economically attractive for many midsize or smaller retailers.
Lack of 1-to-1 shopper engagement. Despite efforts of leading players like Kroger and Best Buy to drive engagement and establish loyalty programs, many retailers still lack repeat engagement, identity and behavioral/transaction data from the majority of their shoppers.
Inability to “close the loop.” The ability to directly link digital advertising (and in-store) media exposure with sales transactions provides a critical benefit to advertisers. Offering this capability is relatively straightforward when it comes to ecommerce sales but remains a challenge for in-store purchases. While retailers have a range of solutions for linking ad exposure with purchases (e.g., credit card data), a large percentage of in-store transactions typically cannot be linked. A critical aspect of closing the loop is being able to engage shoppers in-store and providing incentives/programs (e.g., loyalty rewards) for sharing identity information.
Opportunities to “activate” physical stores for advertising. Most retailers have in-store signage and advertising inventory. But for the most part, in-store advertising remains nonprogrammatic and disconnected from online and ecommerce advertising businesses. In many cases, merchants still control in-store advertising inventory and manage it separately as part of the merchandising buying process. Advertisers, on the other hand, are increasingly seeking an integrated omnichannel offering and the ability to more precisely target and optimize placements across ad types.