Latest / Retail Media Breakfast Club / Building Retail Media Federations: Foundations and Barriers (Part 3)
Transcript
- Building Retail Media Federations: Foundations and Barriers === [00:00:00] Kiri Masters: Building retail media federations sounds like a no brainer. Retailers pool their audience and inventory assets to attract a bigger share of our dollars while retaining their unique value proposition. But in practice, it requires solving [00:00:15] technical governance and competitive challenges. That go far beyond good intentions. [00:00:20] Yesterday I explored the retail media federations that are already taking shape from values users success in Europe to Ripple's consortium approach in the us. But [00:00:30] as industry interest grows, the harder questions emerge. What does it actually take to make these collaborations work? And why do some experienced operators remain skeptical? [00:00:40] This is part three of my series on retail media, alliances, federations, and [00:00:45] consortiums. I'll link up to parts one and two in the show notes. Today we are gonna cover what it actually takes to build a retail media federation. Let's jump in. [00:00:54] [00:00:55] Kiri Masters: Let's start with the technical foundation, which is data, clean rooms and [00:01:00] identity spines. [00:01:01] First off, I spoke with Prath Nana Seti, who is the global head of retail technology at Snowflake. And Snowflake spans a wide range of use cases including data collaboration when we're talking about retail media federations and [00:01:15] auth explained the core infrastructure challenge here. He said, you can't ask retailers. [00:01:21] To rip out systems they've invested millions of dollars in just to participate in a federation and that makes a lot of [00:01:30] sense to me. These retail media networks that have been stood up, they've come at a great cost , in.. Either cost of capital to implement this technology and also the teams involved with selling these ad slots. [00:01:44] And ProPath [00:01:45] explained that successful federations create a unified analytical layer that connects to the existing systems without replacing them. [00:01:53] And this is exactly the role that Snowflake is here to fulfill, which is providing the environment where others can [00:02:00] build. [00:02:00] I have a couple of handy diagrams that I've put into the blog post version of this episode in case you want to see, visualize what this looks like. [00:02:08] But one of snowflake's most significant roles here is this data clean room. Concept where multiple retailers [00:02:15] and advertisers can share their audience data in a privacy safe way and use it to begin to activate on audience building. So I'll walk through a quick example of what that could look like in a second. [00:02:27] The other major piece of the infrastructure here [00:02:30] is identity resolution. So each retailer tracks customers differently. And this can be from your credit card scans in store, it can be from loyalty programs online logins, store visits, things like that. And so what is really [00:02:45] important here is. For retailers not to expose their personally identifiable information or PII for all of these transactions. [00:02:52] This is where identity resolution technology comes into play. So I spoke yesterday about Bridge and Bridge is [00:03:00] an identity resolution company that operates the Ripple media network. Bridge's identity spine spans more than 240 million US adults combining partner data with proprietary transaction information. [00:03:13] And so this is a really important part of [00:03:15] this tech stack is the data clean room interfacing with identity resolution providers like Bridge and like LiveRamp's own identity resolution framework to. [00:03:26] Match audiences and bring them back into the clean room so [00:03:30] that they can be activated by the advertiser. I mock up a quick example of what this workflow would look like. Let's say an advertiser like Kraft Heinz. Craft wants to advertise to health focus. Millennial moms with [00:03:45] cats. And so they would build out that query in a data clean room. [00:03:48] The data clean room would interface with an identity spine like bridge or live ramp, and then that. Matched audience would, it's all [00:04:00] pseudonymous IDs that are then able to be activated on through an activation layer like a DSP, like the Trade Desk or DB 360 or LiveRamp's Safe haven. [00:04:11] And so then that. Pseudonymous, uh, matched [00:04:15] audience can then be pushed out to CTV platforms to different retailers, let's say Kroger and Target, or other publishers as well. [00:04:24] And finally all of that campaign and performance data from the data clean room, from the [00:04:30] activation layer and from the publishers can be shared back to Craft Heinz and let them know how their campaign for focusing on health focused millennial moms with cats actually performed. So that's kind of how it would work in a [00:04:45] completely fictional made up example. [00:04:46] So going back to some of the technology here and some of the barriers, I spoke with Laurie John Choi, the VP of Commerce Media at LiveRamp, and formally the head of sales at Targets. Round LRMN, she spoke about the importance of [00:05:00] getting a seamless way for advertisers to self activate across publishers. [00:05:04] Sheep rightly points out that marketers don't want to navigate a patchwork of rules and restrictions. And so that requires a federation level identity backbone [00:05:15] that minimizes waste, enables personalization and embeds responsible use of data at every layer. And this. Concept of responsible use of data is just part of a much bigger conversation around governance. [00:05:29] [00:05:30] Governance is who owns the data, what they can do with it, and all of these rules and restrictions to make sure that retailers are maintaining control over their unique value proposition, which is their audience and their audience [00:05:45] data and their. Relationship that they have with them. So here are a few elements, according to [00:05:51] from [00:05:52] Snowflake that he shared with me. [00:05:53] Number one is clear data contribution standards. So each retailer has to agree upfront on what data they will [00:06:00] share and in what format, making sure that there's consistency across different loyalty programs, transaction systems, and customer touch points. Number two is pre-approved analysis types. [00:06:11] The federation defines which queries and insights can be generated [00:06:15] collaboratively [00:06:15] preventing phishing expeditions. [00:06:17] So this could be. Brands and advertisers will just have carte blanche access to all of retailer's data and everything that makes special about that retailer's audience. And so this is the, [00:06:28] you know, what, [00:06:29] what will [00:06:30] brands and advertisers be allowed to do? [00:06:33] What kind of cross retailer intelligence can they gather without eroding? What is special about this audience data? And finally, number three, automated privacy control technical safeguards ensure retailers can [00:06:45] collaborate on analytics without exposing actual customer records or competitive data to other participants. [00:06:50] So if you are ACE Hardware, you don't want to be exposing competitive data to your friends over at Home Depot or Lowe's. [00:07:00] Sure you're crushing it. Sure. You're crushing Sure. You're crushing it on Amazon and Walmart. But what about Kroger, Instacart, and the fast growing regional grocers? [00:07:13] A Costa Group builds [00:07:15] holistic media plans on real shopper behavior across all the US retailers that your brand cares about. from digital shelf to retail media to data analytics, Acosta Group offers end-to-end connected commerce all [00:07:30] under one roof. Learn more at ACOA Group and tell them Retail Media Breakfast Club sent you. [00:07:37] That's a C OS T group. [00:07:42] So that's sort of the technical [00:07:45] backbone of a retail media federation or consortium. And as you can see, there's quite a lot involved with actually pooling all of that together and safeguarding it. ~But there's some other.~ [00:07:55] ~But there's some other things that need to be true in order, ~but there's some other things that need to be true in order for success, and they're not just around the [00:08:00] technical side of things. So the first is that retailers are only gonna join federations if they maintain ownership of what matters most, their customer data, their brand relationships, and their profit margins. [00:08:11] Yesterday we heard from Neil Sheridan, who's the Vice President of Sales [00:08:15] at Stingray Advertising, and formerly the head of Belk's Retail Media Network. And he told me that participation from retailers needs to be accretive and not dilutive to the core business data. Serenity remains non-negotiable with first party data [00:08:30] staying under retailer control, even as it powers collaborative insights. [00:08:34] And this is as much a cultural question as it is a financial question, [00:08:40] Because control over these kind of assets can be more appealing than collaboration. [00:08:45] We wanna grow the size of the pie in theory. But it could mean getting [00:08:50] a smaller, [00:08:51] what looks like a smaller individual slice of pie. So that is the big question around [00:08:56] federations and consortiums [00:08:58] balancing [00:09:00] advertiser demands for scale and standardization against retailers need. To protect their core assets. Another thing that needs to be true here is that advertisers need simplicity and not more complexity. On the flip side. So if we're talking about brands, they're not going to invest in federations that [00:09:15] create additional operational burden. [00:09:17] This is the whole appeal of federations [00:09:19] and, [00:09:19] and consortiums, is that complexity is reduced. I can reduce the number of RMNs that I need to buy through. [00:09:26] Laurie Johns Choi from LiveRamp captured this perfectly. She said, [00:09:30] marketers wanna avoid a patchwork of rules and restrictions in favor of seamless audience activation across publishers. They're looking for self-serve capabilities that build trust. Without them, brands won't buy in. And then finally, more progress towards [00:09:45] measurement standards. [00:09:46] The technical foundation of these federations requires a common currency for retail media. Metrics so far, retailers have found it difficult to implement the industry defined measurement standards, and so brands are left [00:10:00] with things like different attribution windows, different incrementality methodologies, inconsistent row ads, definitions, et cetera, which make it nearly impossible for brands to compare performance across networks. [00:10:11] ~I shared yesterday some examples of current federation success stories, and they're happening primarily at the regional level, at least in the us.~ [00:10:11] ~Regional Grocers, for example, share common challenges. They're too small individually to win national budgets, but they, but they do have strong local loyalty.~ [00:10:11] ~The governance and revenue sharing negotiations. Sorry, let's just scrap this section.~ [00:10:11] Yesterday I shared a couple of examples of current federation [00:10:15] success stories, and they're largely happening at the regional level, at least here in the us. [00:10:20] That's the stage that we're currently at, but National Federations offer the ultimate prize for advertisers. This is what brands and advertisers want. [00:10:30] Fewer logins, standardized metrics, and true scale outside of Amazon and Walmart. Speaking of Amazon, Amazon has already begun testing this approach with its Amazon retail ad service, which is where a retailer can kind of plug and play with [00:10:45] Amazon's retail media, network tech capabilities. [00:10:49] But beyond the tech, the true, carrot is Amazon's access to millions and millions of advertisers. But takeup from retailers has been [00:11:00] slow. They did just announce a partnership with Macy's, but that's the first announcement for several months since they've launched the program, initially, a lot of industry observers are skeptical of Amazon retailer ad service because they wonder if retailers would trust a [00:11:15] direct competitor to fairly. [00:11:16] Distribute advertiser budgets and preserve their unique advantages, sort of letting the fox into the hen house a little bit, and that skepticism extends to federations more broadly. Some people worry that these models will [00:11:30] primarily benefit the convening organization rather than the participating retailers. [00:11:35] One Industry insider I spoke with Drew parallels to what happened when publishers embraced programmatic advertising and they said they were all decimated and commoditized and all the [00:11:45] value accrued to the walled gardens and tech players. These concerns around power dynamics, revenue distribution, and competitive risks are what I'll tackle in the next part of this series. [00:11:55] Some more to come there. [00:11:56] But just wrapping up on this point, the technical infrastructure for retail [00:12:00] media federations is solvable. We have data clean rooms, we have identity resolution capabilities, and we have a sense of what kind of governance frameworks need to exist. I think. A lot of the real barriers could be cultural retailers known [00:12:15] to be conservative in general, and for federations and consortiums to come to life. [00:12:19] Retailers have to overcome the instinct to hoard data and protect competitive advantages in favor of collaborative value creation. Do you wanna grow the whole pie or do you wanna try and grow [00:12:30] your own tiny slice of the pie? Just a little bit bigger? [00:12:32] So stay tuned on this topic because the next part of the discussion is going to be around the practical barriers that could derail retail media federations from competitive dynamics to technical integration [00:12:45] challenges. [00:12:45] So make sure you stay tuned for the next part of this series on retail media federations and consortiums, where I'm gonna talk about the practical barriers that could derail federations from competitive dynamics to technical integration challenges. Catch it tomorrow. [00:12:58]