Tag Archive: ecommerce

  1. The future is retail – but buy carefully

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    For much of the last decade, Google and Meta have shared a duopoly of the online advertising sector, controlling the market with a share of more than 50%. But that changed in 2022, with the two tech giants grabbing 48.4% of the US digital ad market. That’s compared to $54.7% at their 2017 peak. Their share is expected to drop further, to 44.9%, in 2023. That is of course still a lot – especially considering the vast size of the sector. However, the fall illustrates how crowded the market is becoming and a shake-up of the companies that have long dominated online advertising. The same story is playing out across the world. Google and Meta are projected to accrue about a 40% share of the worldwide total in 2023.

    The challengers are diverse. They include TikTok (which arguably gets the most attention and is sucking ad dollars away from Meta), Microsoft and Apple. But possibly the biggest threat – and the one that Meta and Google are likely most worried about – comes from the Retail Media Networks (RMNs). Investment in US retail media advertising is expected to reach $28.9 billion in 2023, up from $17.4 billion in 2021.

    What’s behind the meteoric growth of retail media networks?

    With initiatives such as data protection legislation and Apple’s app tracking transparency, online advertising has posed more of a headache to advertisers, while simultaneously becoming more important than ever. Limits to behavioral targeting and measurement have ‘kneecapped’ the likes of Google and particularly Meta. This means that advertisers have been looking for places to invest their budgets where they have more certainty about return. They’ve woken up to the treasure trove of customer purchase data and behavior that retailers – particularly online retailers – have access to, especially now that data is more difficult to obtain. Customers are normally logged in using personal credentials when they shop online. That makes it easy to collect details about shopping habits, interests and behaviors without running up against data regulation restrictions. What’s more, the ability to reach shoppers near the point of purchase allows marketers to track the effectiveness of a particular ad more easily. That’s the ‘holy grail’ of advertising. These capabilities are even more appealing in inflationary times, when advertisers want more certainty around ROI.

    The appeal of advertising on the RMNs goes even further. Consumers frequently view online advertising as annoying or even creepy. However, customers on retail websites are more likely than not in a shopping frame of mind, so ads are less likely to be seen as a distraction or nuisance. They could even be perceived as helpful.

    The key retail media players

    Any retailer that has a website or digital loyalty card has the potential to become a retail media network. Indeed, the loyalty cards that became popular during the 1990s are a gold mine of customer purchasing insights. But there are two players in this sector who dominate.

    It will surprise no one that Amazon is by far the largest of the retail media networks. It is a distant third behind Google and Meta in the online advertising sector, but its share of the market is growing. In 2024, it is expected to account for 12.7% of all US digital ad dollars, compared to 17.9% for Meta. The fact that its ad revenues soared by 23% in Q4 of last year (vs Q4 2021) – and that this happened in an ad slowdown that is battering its rivals – demonstrates Amazon’s strength and the appeal of its product. The e-commerce giant now refers to its ad business as one of the company’s three ‘engines’, alongside retail and cloud computing. Indeed, its ad revenue is bigger than its Prime, audiobooks and digital music revenues combined. And it’s twice as high as that of its physical shops, including Whole Foods.

    Walmart, the world’s largest retailer, is another key player in the retail media sector. Its retail advertising revenue is significantly smaller than Amazon’s as it was relatively late to the e-commerce party. The size of its e-commerce marketplace is significantly smaller than Amazon’s – the latter’s Q4 e-commerce sales were more than Walmart’s for the entire year in 2022. 61.8% of Americans say that Amazon is the site they use most often for online shopping, versus just 8.6% for Walmart. However, the cost of advertising on Walmart is attractive. The average CPC was $0.38 in Q4 2022, compared to $0.85 for Amazon. This is largely down to the fact that Walmart has far fewer sellers than Amazon, so there is less competition for ad space. Walmart’s increased focus on its ad business created a bright spot in its otherwise gloomy Q4 results. Its ad revenue saw growth of 30% year on year, increasing to $2.7 billion in 2022.

    How should advertisers approach retail advertising?

    In straitened times, the appeal of the easily trackable nature of retail advertising is easy to understand. McKinsey found that around 70% of advertisers see somewhat or significantly better performance on RMNs than on other digital channels. However, it’s important to proceed carefully, and not get swept up in the hype that currently surrounds retail advertising. Because, inevitably, there are still factors that need addressing. The sector lacks a set of standards and measurement protocols. This makes it difficult for advertisers to assess the effectiveness of ads on one network versus another. Large brands such as Unilever have called for the RMNs to unite and create a framework for increased transparency. Until that happens, brands need to exercise caution, and invest only if they are looking to target consumers on their shopper journey. WARC warns that retail media is a potential ‘performance plughole’ for advertisers. It cautions against the temptation of allocating an increasing proportion of branding budgets to bottom-of-funnel channels such as retail media.

    The future is retail, but buy carefully

    The RMNs and other smaller online ad players like Apple don’t pose any immediate threat to Google and Meta in terms of the size of their ad revenue and the sheer quantity of ad dollars they attract in the US and globally. However, they have upended the long-standing duopoly, and that can only be a good thing. Increased competition drives innovation and decreases prices. Futhermore, the measurability of retail media will shine a light on channels that don’t deliver similar levels of sales results or business outcomes for brands.

    These networks are undoubtedly a great opportunity for brands, allowing them to reach customers at the point of purchase, when they’re in a buying mindset and likely to find ads less annoying. And of course, there’s the fact that they don’t come up against the data regulation restrictions that so beset Meta. But caution is crucial. With such a challenging economic context, it’s tempting for marketers to invest more of their budgets in bottom-of-the-funnel activities, at the expense of branding campaigns that build longer-term resilience and aid post-downturn recovery. Transparency, careful planning, precision and optimization are the keys to enduring success. RMNs certainly play an important role, but they aren’t the whole story.


    Header image: 13_Phunkod/Shutterstock

  2. How smart speakers are changing the way we search and shop

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    Its Black Friday at the end of this week and bargain hunters across the US and Europe are readying themselves and their wallets to snap up bargains both online and in store. One thing that we can comfortably predict is that many will have their eye on a new smart speaker. The rise of the smart speaker over the last few years has been remarkable: in the US, an estimated 43.9m Americans used a smart speaker at least once a month in 2017, rising to 61.1m in 2018 and expected to increase to 76.5m by 2020 (source: eMarketer, 2018). This proliferation of smart speakers has inevitably fuelled a spike in voice search and voice commerce – and those, of course, have implications for marketers.

    Who’s using them?

    In May this year, eMarketer released its report,‘Hey Alexa, who’s using smart speakers?’. In it, the research firm points out that ‘not since the smartphone has any tech device been adopted as quickly as the smart speaker’. In fact, growth has been so strong that they predicted that the number of smart speaker users would surpass that of wearable users this year. The typical user is still the classic early tech-adopter – affluent, older millennial male – but the device is gaining traction in other demographics, particularly younger generation X women with children. What’s driving this surge? As eMarketer’s co-founder and Chief Content Officer Geoff Ramsey pointed out in his ‘Emerging Trends’ session at the ANA Masters of Marketing last month, it’s easier to talk to a device than to type into one and – crucially – smart speakers adapt to our voices and behaviour, not the other way around.

    The new battleground for the tech giants

    As is to be expected with any major technological development, the smart speaker has become the latest battleground for the tech giants, Google, Amazon, Facebook, Apple and Microsoft. Facebook and Microsoft are still to make waves in the field: the former delayed the release of its smart speaker due to user privacy concerns (understandable, given the year it has had), while Microsoft has partnered with another hardware maker instead of creating an own-brand speaker. Apple released its HomePod speaker, but the high price point and less-than-glowing reviews means it is yet to be a major player, in this space at least. That leaves Google and Amazon as the undisputed kings of the smart speaker arena. Google’s Google Home has a 29.5% share of the market, but eMarketer projected that Amazon Echo – of Alexa fame – would claim 66.6% of the smart speaker market in 2018.

    Transforming how we shop…

    As we discussed in an earlier post, Amazon is well on its way to adding a third leg to the Facebook-Google digital duopoly by increasing its advertising revenue – and its Echo smart speaker is a key way in which it will achieve this. eMarketer points out that voice is the next frontier for online commerce, and while the number of people who shop using their purchases is small (28.2% of US smart speaker owners), they predict that the number of US smart speaker buyers will double to 17.2 million between 2017 and 2018. And it is of course Amazon that benefits from this, thanks to their success in the smart speaker space and their dominance of the general ecommerce space. Echo owners can and do shop using Amazon Prime: indeed, they spend an average of $1700 a year, according to a CIRP report. That’s $400 higher than what ‘regular’ Prime customers spend annually on Amazon and 66% higher than non-Prime Amazon shoppers. CIRP’s co-founder Josh Lowitz said “We’ve long thought that Amazon is keenly focused on building increasingly loyal and frequent shopping customers, and Echo seems to promote that goal.” Brands can also create third-party apps; however, many are choosing to do this with Google Home rather than Alexa so they don’t have to compete with Amazon’s inventory.

    …and how we search

    That’s not the only way that Google may have an edge over the thus-far dominant Echo. The second most popular way that consumers use their smart speakers, after music, is search. Ramsey noted that 72% of US smart speaker users who have a smart device use them to search – it’s the second most popular activity after listening to music, and that doesn’t even include the news, weather or traffic. One third of users use them every day to search for something that they would previously have typed into a device. The implications of this for brands are particularly important. Why’s that? Because voice search usually only yields one result: consumers don’t want to listen to reams of results, and that actually could be a reason that they are choosing to use their smart speaker rather than traditional methods, so that they don’t have to sift through results. Furthermore, they don’t have to stop what they are doing.

    A voice search optimisation strategy

    The fact that there is only one search result on smart speakers means that brands either get first position or no position: it’s critically important that they start developing a solid voice search optimisation strategy to take them to the top of the search results. Econsultancy suggests that an effective way to do this is to help people when they need support with a specific task, such as cooking or trying to remove a stain – what Google has termed a ‘micro-moment’. That fits in with Ramsey’s view that voice is not just another ad vehicle – it’s a utility, and advertisers need to see it as a personalised experience that will bring consumers closer to their brand. Voice can be used to literally start a conversation with a consumer and ultimately set them along the path to purchase. As far as paid search is concerned, sponsored ad words aren’t yet available but that can surely only be a matter of time.

    Will mobile ads be impacted?

    Something else that brands need to bear in mind is that, as consumers are increasingly drawn consumers away from their mobile devices by smart speakers, they will be exposed to fewer mobile ads. We believe that it is unlikely that Amazon and Google will allow brands to ‘broadcast’ ads via their smart speakers; could this mean that digital advertising will start to see a decline?

    Agility and readiness are critical

    As the tech giants look to implement their voice assistants into other gadgets, household appliances, furniture and even cars, the opportunities for brands to become intrinsically valuable and useful to the consumer grows. With that opportunity comes complexity that will need to be navigated. As Ramsey pointed out, even the pneumonics of brand and product names will need to be considered! There is much to be gained by those who are most agile and can stay ahead.

    Thumbnail image: Shutterstock

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