What’s behind the collaboration push?

Retailers watched as brands heavily invested in major digital platforms, like Amazon and Google, for paid ads and shopper insights. Now, as they face an inflationary market and other cost pressures, they’re determined to get their fair share.   

Manufacturers are also eager to take advantage of these new opportunities. Retailers can deliver large, relevant audiences to brands through targeted media placements at key purchase decision milestones. Suppliers can then see the direct return on their investments with retailers’ first party insights, tracked across websites, loyalty apps, and point of sale logs. Such data access also comes with a fee, a reminder that retailer-supplier collaboration must be a mutually beneficial relationship.

Why compartmentalize monetization from merchandising?

It is understandable why retailers have disconnected their alternative revenue businesses from merchandising. While merchandising teams sit at the receiving end of delicate brand negotiations, monetization teams are focused on capturing pre-set revenue targets with quick sales cycles. Most retailers have chosen not to burden merchants with new responsibilities that could complicate their already-complicated buying process.   

An executive we spoke with at a large chain described their organization’s intent to “keep it pure,” meaning they want to make certain that brands’ buying decisions have validity on their own — without the confounding influence of merchandising negotiations. In the beginning days of retail media, annual planning meetings could be tangled in discussions of allowances and program designs to boost merchandise volumes. Today, retailers must eliminate any perception that retail media is a “cost of doing business” and not a legitimate growth opportunity for brands.

The dangers of a disconnected retail team

While retailers have a good argument for completely separating merchandising from monetization, restricting collaboration and connection poses a risk. These two groups are sometimes at odds, chasing competing objectives.   

One retail executive observed that alternative revenue teams are typically incentivized to sign up as many suppliers and send as many offers as possible, without necessarily planning to reach the right shopper segments or support the overall merchant goals. These sales are not driven by the merchandising organization, but they still require closed-loop reporting. This is not an easy task.  

An article published by Total Retail describes the challenge:  

If retailers want to capture $150 million in retail media network revenue, they’re going to need a team in the mid double-digits to do campaign planning and sell the additional inventory, and to provide return on advertising spend (ROAS) and measure incrementality once it is sold.   

Hilding Anderson, “How Retailers Can Capture the Full Potential of Retail Media Networks in 2023,” TotalRetail, January 24, 2023  

  The issue is the same for other forms of collaboration and monetization. Each retailer must manage data transfers, privacy laws, advanced analytics, marketing, sales, contracting, training, support desk, software development or work with a partner that aids in some/all of these areas.

Where the connections need to happen

The conundrum, of course, is that every program of this kind is intended to influence shopper take-away at the physical and digital shelf. This brings two interlocking consequences: an increase in demand and transfer of demand, raising several important questions:  

• A retail media campaign by an endemic brand will naturally require coordination of sufficient inventory to support expected increase in demand. This planning step is routine in trade marketing, but can it be linked to the media buying process?  
• In joint business planning or category strategy review meetings, data and insights are the foundation for big decisions. Which insights and data sets will serve as the single version of the truth? Will merchants be well-versed on the analytics and data sets that suppliers are paying to access?  
• Promotions often cause transfer of demand among similar items. Partners must plan for inevitable interaction effects, such as cannibalization of alternative items and post-event fall-offs due to pantry-loading. What data science will help them anticipate and respond to these effects?  
• Retailers typically activate multiple campaigns across their physical and digital assets, including display ads, messaging touchpoints, promotions, and other tactics designed to appeal to one or more of their customer segments. Does a particular paid advertisement complement or conflict with these other efforts?  

Put simply, a retailer’s insights platform democratizes analytics and data science, so it becomes the truth used by merchants and retailer teams. It must be accepted, adopted, and embedded into the retailer’s category management and marketing processes. When this does not occur, suppliers may suspect the data isn’t worth the investment.  

If monetization is rightly siloed from merchandising, how will retailers overcome these challenges? Four key practices apply:

Retailers should adopt these guidelines and consider how they can unlock joint value with their trading partners.