Retail media revenues are existential for retailers. Without profits from ad sales, retailers cannot competitively price their goods on the shelf. This harsh reality has fueled explosion in both the number of retail media networks and their expectations for ad sales growth. 

Retailers essentially have two avenues for driving ad revenue. The first is owned media, or selling on their own digital properties and physical stores. Advertiser demand for these placements is high; they tend to yield a strong ROI, thanks to proximity to purchase, and suppliers earmark trade budgets specifically for these placements. Though demand for these ads is almost limitless, the supply, unfortunately, is not—a retailer can only slap so many ads in their stores before they clutter up the user experience and chase away their shoppers. Larger retailers are expanding their footprint of owned media by developing programming, licensing sports rights, and rolling out ad-supported devices. 

Retailers who aren’t able to build out full-blown media companies rely on a second avenue to grow ad revenues beyond their maxed-out on-site inventory: audience extension ads. These media buys run on third-party digital properties to reach a retailer’s known customers in addressable ad slots across the internet and connected TV. As with on-site ads, closed-loop measurement attributes in-store and online conversion to exposure to audience extension ad impressions. 

The high supply of these ads is ideal for retailers, but the inconvenient truth is that most audience extension ad buys do not meet advertiser’s expectations. With most money in retail media flowing from customer trade budgets, retailers are obligated to use the funds to increase a brand’s sales at their store. Audience extension ads reach shoppers when they’re consuming content, where there is less commercial intent than while in a digital or physical store; that translates to audience extension ads having much lower response rates than on-site impressions. 

Additionally, when retailers overlay their targeting on third-party, off-site inventory, they resell that impression with a cost markup to the ultimate advertiser (the brand) that could range from 30-50% depending on the media channel. Advertisers know they can buy this exact same audience extension ad inventory without the RMN markup if they go direct to the third party who owns that inventory. If they go direct, however, the advertiser loses the customer targeting and the closed-loop measurement.

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