Retailers are launching media networks left and right to drive additional revenue based on their strong first-party relationships with shoppers. But tension is brewing beneath the surface—a looming fight between those responsible for a quality user experience and the overriding requirement to drive more revenue.
40% of retailers who have started to build media networks say the biggest challenge they face is balancing their retail business with their media network, according to Forrester. In other words, how many ads can retailers show without compromising the shopper experience? How does the UX team avoid coming to blows with the retail media team?
Imagine a retailer on Main Street that has traditionally prioritized its window displays based on customer feedback. Products in this prime real estate reflect the knowledge gained from thousands of conversations with customers and past observations of what sells. Then, brands start offering the retailer money to place their products in the store window. The retailer takes this money, happily earning sponsored product dollars, but risks ignoring customer interests and sacrificing a more personalized experience. So, the retailer ends up gaining upfront revenue but may alienate shoppers.
This metaphor represents the delicate balance between user experience and retail media revenue. The key is for retailers to create native, personalized media experiences that ensure shoppers are still seeing their most desired products so that retailers do not sacrifice revenue while bringing in media dollars. Let’s review how retailers can do just that.
Case study: Amazon solves the retail media-UX challenge
For an example of a retailer that has solved the user experience challenge, look no further than Amazon, which generated nearly $60 billion in EBITDA with $31 billion in media revenue last year. Given the high margin of media sales, about 40% of Amazon’s profit comes from retail media. From a different perspective, for each $10 in ecommerce revenue, Amazon gets $1 from advertising sales.
Amazon appears to have balanced its media business with its retail and marketplace business. Its sponsored products, which have a strong EBITDA impact, are as relevant as organic products, so Amazon reaps the benefits of its media network without diminishing its core retail business.
Other retailers encounter the UX challenge
Amazon still accounts for more than three-quarters of U.S. retail media spend, according to eMarketer. But with the help of third-party platforms, many of the behemoth’s competitors have launched their own networks. In doing so, retailers are gaining immediate access to media budgets from hundreds of brands. And with these platforms’ help, they get sales and ad operations plus technology solutions that will allow them to maximize the value of their first-party data and equip brands with targeted advertising.
But as the Main Street shop scenario illustrates, retailers still need to grapple with the UX challenge. They need to supplement the control these networks have given them with additional tools that respond to the personalization issue—a combination of the benefits that a high quality experience brings alongside the rise in revenue opportunities.
Solving retail media’s UX challenge
Most retailers have invested a lot of effort into their AI-based search algorithms and personalization. They understand their users’ interests and search intent better than any single partner.
As they build media networks, retailers need to use this same intelligence to optimize the on-site experience and make sponsored product ads more relevant. Sponsored products that are not personalized in a given context can be filtered out, while others that are highly relevant can rank more prominently. So, retailers can take media dollars from a wide array of brands while still showing the sponsored products most relevant to individual shoppers. This is media and commerce working in concert instead of in tension.
The end goal should be to make sponsored products as relevant as organic products. Shoppers should barely be able to tell the difference. When retailers accomplish this, they can scale their existing networks while maintaining the quality of their UX, showing as many native ads as possible because they won’t disrupt the shopping experience.
The benefits of this approach are manifold: more ad revenue for the retailer, an equally strong or even better user experience, more sales for brand partners and additional budget for retail media vendors, who can better scale their offerings to retailers. When retail media builds on the user experience instead of challenging it, everybody wins.