Yes, Retailers Can Get Value From Audience Extension Ad Buys

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.

There is much tension on this off-site inventory because sophisticated brand advertisers often have targeting segments of their own that can predict purchases in addition to the retailer’s data. But the reporting and the strategic relationship with the retailer are what ultimately drive audience extension media buys. 

Four investments to improve performance

What if audience extension ads were funded by brand dollars, with perception-focused KPIs rather than direct response ones? Even if that retailer dream became reality, it’s still hard to make a compelling case for a brand advertiser to justify the RMN markup on audience extension inventory. 

The only way to resolve this tension is to improve the performance of RMN audience extension inventory such that the RMN markup is justified. There are four ways to do so: 

1. Better data: Append more attributes to what a retailer knows about their customer to build audience segments that are more likely to buy the advertised product. This requires clean rooms, data enrichment, data science, and machine learning to do it right. 
2. Better inventory: Run audience extension ads in more contextually relevant locations with commercial intent where impressions trigger a purchase. 
3. Better measurement: The dirty truth is that most claimed conversions from on-site RMN impressions would have happened anyway. Filtering for incremental sales rewards ad impressions that create demand and don’t just harvest it. 
4. Better creative: On-site impressions need to trigger an add-to-basket. Off-site audience extension impressions also need to trigger a shopping trip. Today’s “Available at Retailer X” tags in creative do not stimulate trips. Creative that speaks to why a customer shops at a specific retailer, as well as why they would buy a particular product, work better. 

We still have much work to do to make audience extension inventory perform to the level that earns the amount of revenue retailers depend on. For retailers that can’t build a scaled media footprint of their own, investments in measurement, creative, inventory, and data will help create a more attractive scaled option for brand advertisers.