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Retail Media Breakfast Club
How AI Will Reshape Retail Media (And Why Great Retailers Will Still Win)
00:13:37
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- [00:00]
Host
I recently joined Wendy Liebman on her podcast Future Shop. Wendy, for those of you who don't know her, runs WSL Strategic Retail. And she has spent decades reading Shoppers Advising Retailers. And it was overall a wonderful conversation that I think you should go back and listen to the full episode. We talk about AI and the changing nature of shopping. We talk about retail media, we talk about how, what brands are seeing. We talk about some research that shows how the shopper journey is changing. But there's actually two highlights that I'm going to pull into this little snippet to share with you today. One is about how the fundamentals of retail and actually differentiating your retail value proposition is really the game in town right now. Not just having the lowest price or putting an agent on your app, but the first part of the conversation I want to grab a snippet of is actually the maths that sit underneath the different digital surfaces that retailers offer and how that compares between the web, the mobile app and a chat interface. Let's listen.
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Wendy Liebman
I think what you said was the way we have built retail media or retail media has been built in the last four or five years. We do need to really pay attention to think about is that the way it's going to continue to evolve or is something else going to break in that system? Do you feel that way?
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Guest Expert
Yeah.
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Wendy Liebman
Is that what you.
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Guest Expert
Yeah, exactly. Yeah, yeah, yeah, exactly. And I think that what I would encourage retailers to do is, is really get, get into the analytics of how these purchase journeys are actually happening on your own site today. Are people going straight to the product detail page? Are they going back to the homepage? What does that journey look like? Because retailer to retailer and category to category, this is all quite, quite different as well. And this is what is great about retail media is there is a big percentage of advertising dollars that is spent on site in sponsored product ads. And I think that it's people, consumers say they don't like ads, but ultimately it means that if I'm a challenger brand and I have something that is really meeting the need for a certain type of customer, I'm not just constantly in a perpetual cycle of being at the bottom of the organic search results. Just because I'm a smaller brand that has less sales volume and I'm less likely to show higher in the search results, which generally for a lot of retailers is more weighted towards sales velocity and recency and sales volume than it might be towards having really good relevancy. So actually I really believe that ads in that form are actually help the customer experience in that way to surface more relevant, novel results that I might not have seen in a pure organic search result. But I, I, I, so I, I still believe in that. I think that a lot of, you know, a lot of retailers are putting their own chat assistants on their websites to varying degrees of helpfulness. I think that they're going to get a lot better. There are going to be ads in there. But I did this analysis actually of Amazon, which is by far and away the most mature and the most sophisticated retail media ad network, miles and miles away. But on a desktop search results page, might have 40 or 50 results, accounting for the continuous scroll and everything like that. And about half of those products are actually sponsored ad listings. On the mobile app, you have a smaller number, 20 to 30 products. And half of those ads in Rufus, now known as Alexa Shopping. Have to keep correcting myself on that. There's only, there's, there's only, you know, a half dozen products that can be shown in, in Rufus. It's just not really you, you actually want to have a more curated selection of products suggested to you. And only two of those products on average are sponsored today. So that means for Amazon, instead of showing on the homepage from a search query that I might use for, you know, baking flour, where they might be able to show 20 ads, in Rufus or Alexa Shopping, they can only show two ads. So what does that mean for the economics of the ad ecosystem and what they have to charge advertisers for those ad units? Maybe they charge more for the Rufus ads because they're more relevant, they're more likely to actually result in a sale. These are all things that we're seeing play out in real time today.
- [05:10]
Host
And so this is interesting to think about because if supply contracts by an order of magnitude and demand doesn't, then something happens to price, and in this case, price of that ad unit. So one scenario is that the Assistant placements will carry a significant premium in part because there is fewer of them. Maybe they're more relevant. People are much closer to a decision. But here is the question is whether that premium is enough to backfill the lost volume for Amazon, which is very good at monetizing its search results with ad slots. And this is what is so interesting about this point in time, is that a lot of retail media that has been developed over the last 10 years or so has been modeled on the Amazon model. And in fact, so many people within the industry originally came from Amazon or Walmart, two retailers that have built primarily on site sponsored product ad businesses. In the case of Amazon, that's partly due to the fact that they didn't have a store network. Now, in the rest of the retail media ecosystem, there are some other natural talents and assets to lean into. And this is why something I keep coming back to is it's important for retailers to lean into their USPs and their differentiators and think about how that applies to the world of retail media. Yesterday I shared a profile about Dick's Sporting Goods and how the leader of that AS ads business is really thinking about what does retail media look like in in the context of this specialist retailer that has a great asset with its youth sports app. Costco isn't scaling its RMN with legacy
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Guest Expert
ad tech and manual solutions.
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Host
It's leaning into a cloud centric composable stack.
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Guest Expert
As part of the Costco Velocity Network
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Host
Growth Loop empowers the retail media team
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Guest Expert
to build audiences directly from the data
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Host
cloud, enabling faster activation, greater relevance and better performance, all while maintaining privacy and governance standards.
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Guest Expert
The result?
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Host
Exceptional value and experience for Costco members and better ROI for brand advertisers. Learn why the Growth Loop Composable Commerce Media solution was the right choice for Costco's Velocity Network. Visit go.growthloop.combreakfast that's go.growthloop.combreakbreak Now I didn't really make the connection at the time when Wendy and I were having this conversation, but she then relayed this really great anecdote that kind of helps to make this case perfectly. She tells the story of a big purchase that she needed to make in a hurry and the outcome didn't come down to price at all. Let's listen.
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Wendy Liebman
It's so interesting to me because I've had two examples like that myself recently. One to do with my hair color and then going into chat. Actually, I think I used perplexity. I used AI to figure out what my hair color might look like. Whereas picture of me, what would this woman look like with Annie Lennox colored hair? So I got that. I was like, this is good. And so I went to my hairdresser, got that done right. And then I started to say, well, what is my makeup? Should I change my makeup? The color, right, foundation, all of those things. And I got a very prescriptive here are the things you should consider, whatever. And I was like, well, but how do I see that? You know, all of that? It was quite, it was, it was much less direct than what you went through. And because I was now trying to figure out color Shade, those sort of things. And then I wanted to see what it looked like on me. And they kept sending me to other places. So it was one of those things where I was like, okay, that's enough, and I stopped. But the other example, last Sunday we had a back out in our whatever in our weekend house and I lost power and the fridge blew up. So last Sunday I started looking for a new fridge. And that, that was a much more specific. I knew what you knew. I knew I had a certain size. I knew I wanted to spend only a certain amount. I also knew, and I knew a configuration, but I also knew I needed it by this Friday when I went back out because I have nothing to put food in. And so I did the homework. I did, I looked for a model, then I looked for the places. I went through the usual, you know, Amazon, Costco, Best Buy, whatever, but nobody could deliver it in time. And then I went to a local place which had a couple of places called them Sunday morning, sent me an offer immediately sent me an alternative quote, yes, I can deliver it. Click. Monday morning they called me to confirm it would be shipped on, delivered on Friday. So long and long.
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Guest Expert
Now question for you, did they have the best price out of all the options you looked at?
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Wendy Liebman
They had equivalent price. So that was pretty good. I would have paid a little extra because of the timing factor. So you know, to your question, convenience. For the convenience of getting it Friday, I would have paid a little more. They had an offer, they sent me first of all a more expensive option. And I was like, no, I think I saw there's another one you've got. That's this. They gave me a couple of hundred dollars off that and then I did have to pay for taking it away and whatever the old one. But yeah, it was within 10%. But the time factor in that instance, it was the time factor that made the, made the difference.
- [11:26]
Guest Expert
Well, I think this is, this is the thing that I want to underscore for retailers is there's so many, just like for the last few decades, the reason why we buy from a certain retailer is not just about price. I think there's a lot of concern with AI now with perfect, perfect visibility, perfect price, competition visibility that it's going to be a race to the bottom. And it is not. You bought a more expensive an option, a product from a more expensive retailer for very specific factors. And that is how, you know, there's lots of different reasons why we shop where we do. It's convenience. It might be the best price. It might be assortment, it might be the loyalty program. It might be, you know, I, I like that, that they bag my groceries for me and carry them to my car. There's lots of different reasons why we shop where we shop. And just because we now have this super, super visibility into pricing and product details, it doesn't mean that your reason for being as a retailer is suddenly gone.
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Wendy Liebman
Yeah, and I think that's, that's really wise commentary because this notion of, of course it's got to be the lowest price is only one factor today. And of course, we can see all that at our fingertips.
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Host
So just wrapping up here, the fear about AI shopping creating perfect price visibility and therefore creating a race to the bottom is a little overblown. Wendy did that comparison shopping, and that understanding really should play out into retail media as well. And I think the retailers that incorporate their strengths and assets into their retail media value proposition are the ones that are going to really have longevity in the space. So that's it for today. Little recap of a really great conversation with Wendy at wsl. Will link up to the full episode in the show Notes. If you want to listen to a little bit more of the banter at the start, a little bit of my career backstory, how I got into this space, that's where we start. Thank you again for listening and I'll catch you tomorrow.