Unfamiliar but familiar, Retail media📺

Search results for "three-year-old toys" reveal retail media ads based on video materials. (Source = Amazon)

When you search for "3-year-old toys" on Amazon, a merchandise banner coupled with a video of a child playing with the toys is exposed across the center of the search results. It's by far an eye-catching product among the many items listed in the search results. Search for "Vacation Summer Dress" or a Short Sleeve T-shirt on Coupang, and the first search result will show a sponsored advertisement. This is Retail Media. 

Retail media refers to placing advertisements on websites and apps directly owned by retail-based e-commerce companies such as Amazon and Coupang. The terminology is unfamiliar but familiar to know. Retail media's advertising formula is simple. Retail companies create an advertising inventory within websites and apps. Brands become advertisers and buy inventory. When customers visit, advertisements are automatically exposed according to data such as taste, interests, and products in the shopping cart.

Insider Intelligence, an American market analysis company, referred to retail media as "the third largest wave in the digital advertising industry, following search engines (first wave) and social media (second wave)". The rationale behind this praise is that retail media can benefit both retail, store brands (sellers), and customers. 

First of all, for retail, you get a high margin of profit from the advertising business. According to Boston Consulting Group¹⁾, a global management consulting firm, retail media can earn margins of at least 70% to up to 90%, while most consumer goods' margins remain at the 20-40% level. Brands can achieve sales conversion with sophisticated targeting ads based on accurate customer data from retail companies. Companies that felt limited to SNS advertising due to the suspension of 3rd party data had a need for channels with high targeting performance. Retail media is an advertisement, but it has the effect of being recognized as information because it exposes advertisements to customers with a clear willingness to purchase them in a timely manner. Customers can also have a pleasant shopping experience by reducing their search efforts and quickly finding the items they need.

Why Retail Media Is Getting Attention in Korea🤔

Although it has recently started to pay attention in Korea, retail media is actually more of a "second-hand rookie." It was already popular in the U.S., with 82 percent of U.S. marketers saying they are using retail media in Survey²⁾ 2022. It started with Amazon Advertising, Amazon's own advertising platform, in 2012. In 2020, eight years after starting the business, Amazon jumped to the third-largest advertising platform in the U.S. after Google and Facebook. Amazon, which reigns as the absolute power of retail media, holds 75 percent of the total retail media market as of 2023. In 2023, advertising sales amounted to $47 billion (W62 trillion), showing a 24.4 percent growth compared to 2022.

Retail media began to gain popularity due to the suspension of support from 3rd party data. Apple's restrictions on cookie collection have greatly reduced the efficiency of SNS advertising such as Meta. As Google has also begun to partially restrict the collection of third-party data, the prevailing view is that advertising products that rely on third-party data will not be able to achieve as much as before. On the other hand, retail media has emerged as a strong alternative in that it can utilize high-quality first-party data held by retail companies and target them according to their interests. In particular, if you analyze customer behavior data in real time and expose it in a timely manner while accessing the website, you can maximize the conversion rate.

Light of opportunity or Shadow of challenge?✨

What is the current state of retail media in Korea? Coupang, which was mentioned earlier as an example, is the most prominent company in retail media among domestic industries. Coupang is applying various targeting by page, including search result pages, product details pages, and main pages. With over 30 million monthly active users³⁾, Coupang is successfully monetizing itself by leveraging its vast amount of traffic and data assets. 11th Street, which is affiliated with Amazon, is also actively utilizing retail media. It offers "focus clicks" that recommend products based on their interests and "branding ads" that expose advertisements by automatically targeting them based on customer data. 11th Street has the advantage of being able to expose itself to the web and app pages of its partner companies. 

Lotte Distribution is also paying attention to retail media as a new revenue stream. Earlier this year, Lotte Members established a retail media network (RMN) division to review business models such as customized advertising solutions. As such, domestic retail and e-commerce companies are also reaching for retail media. Although it is clearly an attractive advertising product in that it is capable of sophisticated targeting and has a high conversion rate, it also has some limitations.

1️⃣The potential to become a monopoly or oligopoly of giant platforms
Walmart, the world's largest retailer, and others are struggling in the retail media market. However, Amazon is almost dominating the retail media market in the United States. This is due to the premise of large-scale traffic and customer data analysis capabilities. Companies that cannot handle traffic and data properly cannot enter the retail media market, so the domestic market is also likely to be monopolized.

2️⃣Balance between supply and demand
Balancing advertising inventory with the number of advertisers is not a simple task. Too many advertisements can negatively affect the customer's purchasing experience, making it impossible to increase the advertisement footprint indefinitely. The format and location must be carefully designed so that advertisements do not inconvenience the customer's journey. Additionally, the advertisement inventory is ready, but there may be insufficient advertiser demand. It may seem like an open market for everyone, but not everyone can succeed.

3️⃣Investing resources to differentiate
Several companies have already started or are preparing for retail media. In order to survive in the retail media market, it is necessary to have a unique differentiation in terms of utilization data and targeting. Depending on the characteristics of your customer data, we need to develop products that can guarantee high performance or products that other retail media cannot easily imitate. To do this, we need to invest a high level of technology. In addition, we need to provide a variety of advertising formats to broaden the choice of advertisers.

Retail media is also called digital shelves. This is because it acts similar to physical shelves in offline stores. It is very attractive in that it is a technology that catches customers' eyes the moment they stay. We will continue to watch with interest how retail media will grow in the domestic market and bring new changes beyond the monopoly of some companies. 

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