Latest / Retail Media Breakfast Club / Agentic Shopping Poses An Existential Threat To Retail Media (Part 1)
Transcript
- How AI poses a threat to retail media - Part 1 === [00:00:00] Kiri Masters: Back in 2015 when I started my Amazon marketing agency, bobsled, the CEOs of the big agency holding companies dismissed Amazon advertising as a passing fad. And I'd speak [00:00:15] with prestige beauty brands who told me that their shoppers would never put skincare in the same cart as toilet paper. Well, you'll know how that turned out. [00:00:25] Today. I'm seeing another inflection point that reminds me of [00:00:30] those early dismissive attitudes. I think that we're gonna look back at 2025 and consider it as the year that agen shopping sprouted its first leaf. And I think that that incoming shift in consumer behavior [00:00:45] could threaten the $60 billion retail media industry that's become retailers Golden Goose. [00:00:53] Today I'm going to share a snippet of an interview that I did on the Retail Gentech Podcast [00:01:00] with Scott Wino, which first aired today, Thursday, August 7th. You should definitely go and listen to the full episode on your favorite podcast app. I'll link up to it in the show notes, but today I'm replaying part of that episode where [00:01:15] I'm gonna share what happens when consumer behavior shifts from browsing retailer websites and apps to using personal agents to augment the process of researching, finding and buying products. [00:01:28] Let's listen to the [00:01:30] conversation. [00:01:30] [00:01:31] Scot Wingo: Retail media networks are a bit of a trap that retailers have put themselves into 'cause they've got addicted to this high margin ad business. And spending more mental energy on that than selling stuff. [00:01:43] Kiri Masters: Yeah. And we're [00:01:43] Scot Wingo: about to enter a world where [00:01:45] selling stuff's gonna be really important and there's gonna be a whole new mechanism, which is a agentic shopping, and they're not ready for it. [00:01:51] Kiri Masters: Yes. Yeah. So I, I'm looking forward to jumping into this argument because, um, I wanna hear what you have to say. [00:01:58] But yes, I think that there [00:02:00] really is an existential risk that ai, or at least a agentic shopping, poses to retail media. So, I'll break down some core pieces of my argument. I wanna hear what you think. The fundamentals of economics in retail media [00:02:15] are how retailers make money. There's a few different buckets of advertising. [00:02:19] One is the surface itself, the onsite ad surface that a retailer can sell. So this would be your [00:02:30] website, your app, that's an ad service that brands wanna be on because if we're spending time. On a Best buy.com or on an Amazon app, then the brands wanna be there where people are making decisions and considering their options. [00:02:44] And so [00:02:45] the estimates vary on this, but let's say that's a 70 to 80% profit margin for running these on site ads for retailers. [00:02:53] Scot Wingo: What's in the cost part of that? Like why isn't it a hundred percent margin? Like what's the cost? Just the cost to serve on that. [00:02:59] Kiri Masters: Yeah, so you [00:03:00] have, different technology partners that play a role in that. So you've got an ad server, you've got a supply side platform, and then you actually have to have a front door to that ad inventory as well, which would be a DSP and everyone takes a cut. [00:03:15] Of that along the way. [00:03:16] Got it. Okay. Yeah, yeah. Um, and then also some of these retailers and publishers, they'll have a direct sales team as well that might handle the VIP sales orders coming in. The other big piece of [00:03:30] retail media is offsite retail media. And what happens here is a retailer will, . Sell is the wrong word. [00:03:36] They would never say sell, but they're essentially selling the transaction and audience data to third party publishers. So Disney, for example, Disney's partnering with [00:03:45] all of these retailers so that an advertiser who wants, you know, let's say you're your hinz and you wanna be selling more ketchup, then you are advertising on Disney and using Albertson's audience data to see which [00:04:00] families live in the suburbs that are getting ready for a barbecue. [00:04:03] So that margin is lower. Let's say that's 40%. Again, it's gonna vary a little bit, but making money off of that audience data. And then finally, we talked a little bit about in store [00:04:15] physical. Digital signage and things like that. The physical environment. This is more of the old school type of trade marketing. [00:04:21] So the end caps and the signs on the carts and things like that. That's trade marketing. And that's where all the retailers are trying to like, [00:04:30] move the budgets over from, from trade marketing into retail media. But that's super profitable. That's pretty much a hundred percent margin because there's less technology involved with that. [00:04:39] And it's really just some humans on the retailer side, managing that. [00:04:45] Shoppers don't think in silos. They bounce between online and in-store without skipping a beat. Acosta Group's. Connected Commerce agency helps brands [00:05:00] unify trade and retail media budgets to invest where shoppers are most likely to convert, whether that's on mobile or in the store aisle. Learn more about acoa Group Connected Commerce at ACOA Group and let [00:05:15] them know Retail Media Breakfast Club sent you. [00:05:17] That's A-C-O-S-T group. So then we get to this question of what happens as consumer behavior starts to shift from. Using a retailer [00:05:30] website or app to just now using chat, GPT or perplexity or whoever to research, find and buy. You're not going to that retailer.com or the app. [00:05:40] Kiri Masters: I'm not sure who's gonna have the transaction data on that if the retailer is gonna [00:05:45] capture that or if it's gonna be on the agent side. That was one thing I wanted to ask you about. [00:05:50] Scot Wingo: Yeah. The, um, so there's no FBA. It gets complicated if you have a third party shipping piece in there, but like, let's say there's no FBA option in there. [00:05:59] [00:06:00] And the way it has to work is kinda like the way eBay works, where you receive an order that's been paid for, and in that order you're gonna get the bill to information and the ship to, but you're not gonna get the pay information. So I'm gonna know, I'm sending a. Bottle of [00:06:15] Heinz ketchup to Curri masters in Atlanta, and I'm gonna know her address and I may know her phone number, but that's it. [00:06:23] Right? Yeah, so, I think it will most likely work that way. There have been marketplaces proposed. This is one of the things [00:06:30] jet.com did to be very differentiated. Is they basically said we're a merchant aligned marketplace, so our customers, your customer, we're, we're sharing that, all that information with you. [00:06:40] So they would send downstream, they still processed it, it still showed up as merchant of [00:06:45] record, it was jet. But then they would share downstream a lot of the information. And what they were trying to do is get the merchant aligned with, um. Uh, they kinda had like a Shopify vibe, like, we're arming the rebels kind of thing. [00:06:58] We're arming you to [00:07:00] sell to these customers, and the more we tell you the better. And then they were trying to incent the merchants to offer lower prices. They would even share kinda like how the merchant was doing in the auction, basically. Um, kinda like the buy box, like auction. And then they would also incent the merchant to [00:07:15] take. [00:07:16] A CH payment, um, and encourage customers to do that so that then, uh, the payment processing fees were lower and all these kinds of things. So we don't know until they launch this thing, I imagine. It'll look more like, [00:07:30] they'll probably, the fast way to build this is using Stripe actually as a platform for this. [00:07:34] It's a marketplace platform and it's gonna probably be built on that and then they'll have Shopify sitting next to it if you're a Shopify merchant. So I imagine it's gonna look like what I said. You're gonna get a paid for order [00:07:45] and it will have all the shipping information and it'll be, you know, a fulfillable order that's been paid for. [00:07:52] Kiri Masters: So that is gonna put this whole offsite retail media business at risk for retailers because they don't have [00:08:00] the transaction data and the signal data as well as what's really important too. [00:08:03] Scot Wingo: Have the transaction data, so they would know that Kerry bought the Hinz SketchUp for eight bucks or two pack or whatever. [00:08:09] Kiri Masters: Yeah. Oh, okay. All right. [00:08:11] Scot Wingo: They don't have traffic on their site. Yeah, the consumer, they don't know [00:08:15] the consumer journey. They just get like an order that came back. [00:08:18] Kiri Masters: So I think E, even in that scenario, when the retailer has the transaction data, the agent's gonna have the transaction data as well, right? [00:08:28] Because they actually went [00:08:30] and did the transaction. So now you've got two parties that know that Kiri went and bought the ketchup, and that degrades. The scarcity of that data from the retailer. 'cause this is a huge thing that they, it's a huge [00:08:45] advantage for retailers is that they cover, you know, different value props. [00:08:49] Oh, we cover all of Texas, or we, you know, we're the number one electronics retailer. And so that first party data that they can allow advertisers to activate [00:09:00] offsite. Now chat, GPT can sell that data to advertisers as well. So it degrades the value of that. And then finally, yeah, I think this, [00:09:08] Scot Wingo: Sam Altman has said pretty publicly, he doesn't want to do ads. [00:09:11] [00:09:13] Kiri Masters: I wanna thank Scott for having me on the [00:09:15] Retail Gentech Podcast. If you enjoyed this conversation, definitely go check that podcast out on your favorite app. And next week, on Monday, we're going to play a little bit more of the conversation where we talk about how brands and [00:09:30] retailers should prepare for this new agentic shopping journey. [00:09:35] Future catch then.