Corporations Media

Ad Agencies Need to Innovate to Win in Retail Media

Total digital ad revenue in the US climbed 10.8% to nearly $210b last year, despite a slowing economy and a myriad of other challenges. While the growth rate is a far cry from the 35% figure in 2021, it still shows that marketers continue to spend online to drive purchase consideration. But there was an interesting stat included in that $210b spent last year – 20% was on retail media advertising. 

Retail media refers to ads purchased on retailers’ platforms (think,, etc.) and the channel is very popular with marketers given the proximity to purchase. Retailers have been investing heavily over the last 5 years in new technologies and customer insights to offer brands the ability to advertise on their platforms given the vast droves of data they collect on purchase behavior. Furthermore, it’s extremely profitable for folks like Walmart and Amazon to sell ads on their sites given the notoriously low margins of their core retail business. 

The challenge though for ad agencies is, with retail media increasingly becoming a larger % of total ad spend, finding the right talent to navigate a typically guarded and opaque relationship between brands and their retailers. In late March, Morgan Stanley predicted that retail media will hit 25% of total digital ad revenue by 2025 – representing a $130b opportunity. While ad agencies are great at straightforward media buys with retailers, there are a lot more relationship/economic challenges that they aren’t privy to. Keep in mind that the vast majority of brands that sell online eventually want to sell offline (i.e., in the retailer’s physical stores – if they have). This is because while online sales are large, they still represent only ~15% of total retail sales. The lion’s share of transactions still occurs offline. 

Here are the key elements ad agencies should focus on:

  1. Online Merchandising – when a brand wants to do business with Walmart, for example, usually the retailer will test them first online at While the brand/product team is responsible for building the assortment/pricing/API connections, things get a little fuzzy when you get into designing the PDP, building the ASIN’s on Amazon and determining the merchandise strategy. Because so much of building the product listing on the retailer site can impact how the ads perform, if the agency is just buying the ads, they are missing out on influencing a large part of the purchase consideration. Moreover, if they aren’t acutely involved in helping craft the actual assortment, the efficacy of the ads could be without any chance for success.
  2. Pricing – I’ve had conversations with many ad agencies who build great media plans on various retailer’s platforms – and while the traditional ad metrics like CTR were strong, the program ultimately didn’t work because the unit economics of selling the product online weren’t compatible with the business model. When I talk about contribution margin and price elasticity to ad agencies, I get mixed looks. But that’s a huge part of what makes a campaign successful, is it ultimately profitable. Agencies need to learn how to look at CAC and how it impacts the variable margin of the particular SKU. 
  3. Merchandising/Channels – When I was at Newell, we often would fly to Bentonville to meet Walmart. The store buyers would ask what is your marketing campaign? And almost every time it was a disjointed answer of legacy media tactics handled by our ad agency and then a separate team at the agency who would be responsible for advertising efforts on the retailers’ platform. Ad agencies have a large opportunity to think holistically about fundamental merchandising strategies – building planograms, thinking through retail promotions to even what is the in-store product offering and how does it differentiate (or potentially even cannibalize) across channels. When brands want to sell gift cards in retail, which is a natural extension for many selling physical products, they often must integrate with tech platforms like Incomm/Blackhawk – and these companies primarily aren’t working with agencies today. At Casper, when we started building an omnichannel business selling across Amazon, and our owned and operated retail stores, our agencies couldn’t succinctly help us grasp the impact of channel cannibalization.  I once consulted for a company that makes razors. The brand team had no idea if the blade refills should be sold only on the retailer’s website or also in the store and would advertising be more effective in one channel more than another. During the analysis the agency didn’t even contemplate the fundamentally different unit economics of a durable vs a consumable product.  Even with a platform like Amazon (which doesn’t have brick and mortar stores), many 3rd party sellers struggle to build compelling campaigns that ultimately lead to Amazon taking the program 1p and I haven’t found ad agencies really focused here on helping the brand evolve across these two models. 

Don’t get me wrong, I’m a huge believer in ad agencies – they are tremendous at building large scale campaigns and driving direct-to-consumer sales but given where the growth of digital ads is trending (retail media) it seems a prescient opportunity for them to think more holistically about how they become the CMO’s and CCO’s resource in conversations with large retailers. 

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