Latest / Retail Media Breakfast Club / Retailers Hit 99% Ad Coverage Without Killing User Experience, New Report Shows
Transcript
- Pentaleap report for retailers === [00:00:00] It's the old adage of actions speak louder than words when it comes to consumer behavior. Shoppers say they don't like ads. Yet new research from retail media tech provider Pentaleap finds that retailers like Amazon, Walmart, and the Home Depot already serve sponsored products on virtually every search result from 97% to 99% of queries while still maintaining shopper engagement in terms of click through rate and conversion rate on par with organic product listings. [00:00:36] With more retailers now increasing their depth of ad inventory, it's proving that ads don't necessarily detract from the retail experience. Last week I shared a brand point of view on this new research from Pen Leap, and today I'm going to dive into the implications for retailers building and growing their own retail [00:01:00] media network. [00:01:01] Let's jump in. [00:01:02] Good morning and welcome to the Retail Media Breakfast Club. I'm your host, Kerry Masters, and every weekday at 6:00 AM Eastern, I bring you candid and real discussions in the world of retail, media and marketplaces in just 10 minutes. So bring your own cup of coffee and we'll get smarter about retail media together. [00:01:22] The Retail Media Balancing Act, Pentaleap's Biannual benchmarking study reveals a clear segmentation in the market market leaders with nearly complete sponsored product coverage versus mid-tier retailers still scaling their programs. Amazon, Walmart, and Home Depot, as I said, have a 90%. To 99% coverage of search results having, uh, sponsored product listings, while others like Best Buy have 80% coverage. [00:01:55] Staples has 74% and Macy's [00:02:00] 66%, all representing a middle segment, still expanding their sponsored product presence among the fastest rises. Kroger stands out with a dramatic leap from 41 to 55% coverage since the previous report six months ago. Signaling a focused effort to strengthen retail media capabilities in the grocery sector. [00:02:26] Meanwhile, CVS and Lowe's have each reached the 50% threshold while Albertsons holds steady at 46%. [00:02:35] Those who are leading the game in retail media are very, very strong with onsite advertising. Andreas Reiffen, CEO of Pentaleap told me there's a general misconception, which is, ads are bad, we have to keep them short, and still you want to make money selling ads. Those two things don't really fit together. [00:02:56] And I should note by way of disclosure, that Pentaleap is a client of [00:03:00] mine. this disparity in sponsored product coverage directly correlates to retail media revenue potential. Sarah Marzano, principal analyst, retail and e-commerce at E-Marketer says that search on a retailer's site remains one of the highest intent moments. [00:03:18] In the shopper journey, yet even across mature retail media networks, a large share of that search inventory is still under monetized, [00:03:28] and Andreas from Pentaleap is even more cutting. If you don't want to show a lot of ads on site, you will not build a substantial retail media business. It's that simple. He says. [00:03:40] So what prevents high ad coverage from degrading the user experience? The answer is relevance. The most successful retail media networks ensure their sponsored product listings maintain click through rates comparable to organic listings. Andrea says, your sponsored product [00:04:00] relevance has to be in line with your organic product. [00:04:03] Relevance. The click-through rate is a proxy or KPI for relevance. If sponsored products fall below the organic click-through rate, there's a substantial gap, and then that's a very dangerous game. This kind of explains why retailers like Amazon can show more ads without sacrificing user experience. [00:04:24] It's because they've developed sophisticated ad targeting technologies that maintain relevance even at high coverage rates. [00:04:34] This approach kind of mirrors what Google achieved in search advertising up until the pandemic by increasing the available ad space On search result pages year after year, Google was able to create a generous supply of advertising opportunities, and this generous supply helped to moderate price inflation. [00:04:56] While the sheer volume of available clicks drove [00:05:00] overall revenue growth. [00:05:02] Andreas from Pentaleap confirms that this same pattern is evident in Amazon's approach. While Amazon's CPCs have indeed risen over time, they've increased far less dramatically then what would have occurred had the company maintained limited inventory by expanding available ad placements across more search results and grid positions. [00:05:25] Amazon has moderated price inflation while capturing greater overall advertising spend. [00:05:33] The benchmark report also highlights how leading retailers are evolving. Their grid placement strategies for sponsored products. Walmart, for instance, began adding ads to more rows of product search results in Q1 of last year, pushing sponsored ad tiles deeper into the grid, a strategic approach to increase inventory while distributing ads throughout the shopping experience. [00:05:57] In contrast, staples [00:06:00] concentrates its ads in positions five to eight. Distributing them evenly across the mid grid. CVS takes an even lighter approach anchoring ads, mainly in positions four and eight, showing that even within the mid-tier group of retail media networks, placement philosophies vary significantly. [00:06:20] What's particularly striking is how these approaches can backfire when relevance isn't maintained. We've sometimes seen a gap where organic click-through rate is two or three times better than sponsored. CTR says Andreas from Pentaleap. In such an instance, you better stop running these sponsored products. [00:06:39] It's damaging in every sense. You damage the retail business, you annoy people. [00:06:44] [00:06:47] despite the attractive ad revenue, upside, retailers are still correct to be concerned about ramping up a slots at the expense of shopper experience. Andreas from Pentaleap says if the [00:07:00] click-through rate of a sponsored product is only 30% of an organic product, you need a CPC [00:07:05] of more than $2 just to break even and to make up for the damage on the retail side. And so this for retailers creates a clear decision framework. If you go from zero ads to 10 sponsored products on a page and you track both the margin from your retail business and the margin from your ad sales, and in the scenario with 10 ads, you make more money, then that indicates you're doing the right thing, he says. [00:07:32] [00:07:35] Looking ahead for retailers, the report's implications are clear. Sponsored product coverage can be dramatically increased without necessarily harming user experience. Provided the ads maintain relevance parody with organic listings. This approach can significantly expand retail media revenue while protecting the core shopping experience. [00:07:58] For retailers, [00:08:00] this analysis addresses the knowledge gap around how retailers actually monetize sponsored product ads and how various approaches impact advertising revenue. As retail media continues to evolve from a nascent opportunity to a core profit center, these benchmarks provide a roadmap for retailers seeking to maximize revenue without compromising user experience. [00:08:24] More ads aren't necessarily bad ads, but are relevant ads always are. [00:08:29] This post originally appeared for my column on forbes.com. I'll link up to that original post as well as to the research from Pentaleap for [00:08:39] further reading. [00:08:41] That is it for today. I hope you enjoyed this episode of the Retail Media Breakfast Club. We meet here every day at 6:00 AM Eastern, so be sure to subscribe and get your daily dose of insights, trends, and hot takes in the world of retail, media and [00:09:00] marketplaces.