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- [00:00]
Peter V. S Bond
Chain Drug Review's focus is on reaching the key decision makers across all retail channels, delivering comprehensive coverage of the latest shopping trends and in depth category analysis on health, beauty, over the counter products and wellness. Whether it's the latest trends, emerging technologies, or strategies for adapting to new consumer behaviors, Mass Market retailers deliver the critical information retailers need to navigate this dynamic environment. To subscribe to the newsletters of CDR and mmr, simply follow the hyperlinks in the digital liner notes of this episode. Chain Drug Review and Mass Market Retailers are published by Retail Media iq.
- [00:40]
Mark Williamson
Hi, I'm Mark Williamson from Costco and you're listening to the CPG Guys Podcast.
- [00:47]
Peter V. S Bond
Welcome to the CPG Guys Podcast. Your host, Shree Rajagopalan and Peter V. S Bond explore how brands and retailers engage consumers in an increasing, increasingly digitally driven world. And now, here are the CPG Guys. Hello and welcome to the CPG Guys Podcast. I'm your humble co host, pvsp, and when I'm not co hosting this podcast, I head industry and client engagement at Flywheel, the commerce acceleration division of Omnicom. Not joining me for today's episode is my co founder. He's wears a lot of hats. He's the Chief Revenue Officer at Think Blue Consulting. Sometimes he's called Papa Raj, the patriarch of the Raj family media empire with his famous pop star daughters and his podcaster wife. Heck, even his three cats have more LinkedIn or rather followers than the CPG Guys do. But he's most recently the Chief Customer Officer, General Mills. Of course I'm referring to my dear friend Sri. We were in Chicago this week watching the Dodgers get trounced by the Cubs. An ugly event, but nonetheless, getting to spend a day at the ballpark is better than any other day at work, so we were okay with that. But he's down at nacds hobnobbing with all the glitterati in the OTC and beauty category, so I'm sure he's having a great time there. Sree, make sure to stop by the cabana at the pool. The single cheapest item to eat at the breakers is a $27 hot dog. Spend wisely, that's all I can say. All right, before we get to our guest today, we want to ask you consider following us on your preferred listening podcast platform and app. If you listen on Spotify or Apple particularly, consider giving us a rating. Because when you give us a rating, it helps feed the algorithm that makes our podcast more findable by industry contemporaries and CP&G and retail like you. And while you're given a rating, choose whatever number you want. My favorite number is five. I like five. If you want to give five, five would be great. But also leave a review because we want to hear what you want us talking about in this podcast. It's important that we be audience driven and the only way we can do that is if you give us feedback. I want to thank so many people of recent who've reached out to us. Yesterday, coming back from Chicago, I had a couple people stop me. One in the Admirals Club and a couple coming on the plane. I guess they recognized this beautiful podcast faced and face and it was nice for them to express their appreciation for what we do in the podcast. That's why we do it. We're here to educate and entertain and it seems like we're getting that done. So again, leave us a review and give us a rating if you could. All right, let's get to the main event. We're going to guess what we're going to talk about. Yes. Can you believe it? Retail media. Yeah, we talk about that a lot on this podcast. It's amazing. But anyhow, you know, we love to get guests from as many of the different retailers networks as possible to talk about their platforms that are available for CPG brand advertisers to invest against. Today we've got one such new entrance to to this podcast and into the industry. We'll learn about the retail media offering from the world's fifth largest retailer, which is based out of the Pacific Northwest of the United States. Of course, I'm talking about Costco, the leading membership club format retailer. Costco doesn't have a public relations team and spends very little on advertising. However, the warehouse chain in seeking to build its retail media network by giving brands a way to reach million. I'm gonna. I'm gonna do that again, Brandon. Let me start again. I'm just gonna. I'm gonna scrap the first sentence. I'm just gonna say. Here we go. The Costco warehouse chain is seeking to build its retail media network by giving brands a way to reach millions of members who purchase. Oh my God, I am doing this all wrong. I've got to get my thing together. Okay, Brandon, I'm turning again. Starting again. The Costco warehouse retail chain is seeking to build its retail media network by giving brands a way to reach millions of members whose purchase histories are well documented. Should come as no surprise that our audience that with 100% of all transactions being member household identifiable, Costco has just about the most valuable first party consumption data for Audience building. I mean, that's it. That's the ultimate. When you can track literally every slice of pizza, every rotisserie chicken, every frozen good that you can get, that's a pretty, pretty powerful data set. Right. Joining us to share what's cooking in retail media at Costco. I like that cooking, right. Rotisserie. And I slip that in. Is the assistant vice president for retail media. Please join me in welcoming to the podcast our friend Mark Williamson. Mark, welcome.
- [05:51]
Mark Williamson
Hey, thanks for having me. Mark.
- [05:52]
Peter V. S Bond
We're really excited to have you. We've been asking to come on for a while and we're glad that finally things worked out, the stars aligned and here we are. I'm really excited about this conversation today. Before we get to the questions I'm going to ask you, let's just do a 30,000 foot level check. Why don't you warm up our audience by giving them a high level overview of what is Costco and what's your role there?
- [06:17]
Mark Williamson
Yeah, well, you know, thanks for, for having me for taking the time for the conversation. And miracles do happen that we're, we're able to talk a couple things, a couple reactions to your preamble. One, it's always a good day when the dodgers lose. And two, you know, Sri should be looking for, you know, we have a $50 hot dog combo at Costco. I'm not sure if he's familiar with it, but he can always eat off site and then go back to the glitterati there. And so.
- [06:45]
Peter V. S Bond
You know, what he is saying is he's, he's, he, when we went to the Cub stadium, he scoped it out ahead of time because Theresa vegetarian, he did find some plant based hot, plant based hot dogs. He knew exactly what section to get them in. So very good stuff. But I'm going to ignore the comment about the, about any good day is the day the Dodgers lose. We'll just, we're going to move beyond that, Mark.
- [07:06]
Mark Williamson
We got that right. So no, sorry by introduction. I'm Mark Williamson. I'm responsible for retail media at Costco. So and by that, like it's, you know, I think a new, a new initiative or I think a refocus initiative for the Costco business. There's certainly been the opportunity for suppliers to partner with Costco on whether it's physical activations or digital activations. But I think really what we're looking after here is a fundamental transformation of the way that we are partnering with suppliers, brands and agencies in the ways that they're similarly partnering with other retailers. Within the retail media space.
- [07:45]
Peter V. S Bond
Excellent, Mark. So to our audience, if you want to learn a little bit more about Mark and Costco as we go through this conversation, Fret not. Buried in the digital liner notes of this podcast episode, you will find Hyperlinks to Mark's LinkedIn profile, to Costco's LinkedIn page, and Costco's corporate website so that you can multitask. Do a little research as you listen to our melodious tones of this conversation. All right, so Mark, why don't we get into the meat of what we want to talk about. I'll start with your background because you have definitely a very rich background in this space. You're not new to retail media. You've worked at Sam's Club, at Ajo Delhez, and even Citrus Ad, which is recently rebranded as Epsilon. I'd love to hear from your perspective what really drew you to this new opportunity at Costco around retail media. That said, okay, this was the right time for me to make a move and join the, the world's top five retailer.
- [08:44]
Mark Williamson
Yeah, well, I mean, there's, there's many reasons, but I mean, I'll offer a few here. The first is it's Costco. So like, you can't imagine, like, not only is it a large retailer both in the US and globally, but it's, it's universally beloved. And so like, who wouldn't want to be part of, of a strong, growth oriented brand? And so when, when the opportunity came up, like, it really became a no brainer that that had to happen. But beyond that, though, as someone who's been working in retail media for a while and as a direct competitor to Costco for six years, like, I finally had to answer the question, what the heck is Costco doing in retail media? Because everybody has wondered this because it's kind of like, I don't know if it's been described as the white whale. So I guess that makes me Captain Ahab. Like I just had to, to satisfy my curiosity because everyone else is so public and so like, whether you're showing up at industry events or you' on email distributions or whatever it is, you could see these big branded retail media programs emerging and maturing and being very vocal and at the same time, in a very Costco way, just Costco plodding along doing what they do. And it just at a certain point just becomes frustrating. Like, I know they're doing something, but I can't get my hands on a media kit and I can't make any sense of any of it, like, I've just got to know. And so that really, you know, like, it got to the point where, like, if I'm going to find out, the only way to find out is to join them. And so, so here I am. But then thirdly, it really is, it's Costco. And so joining Costco was an opportunity to be a part of something meaningful. And I think it's obvious there's a ton of headroom here, not just for retail media, but just for growth in general. And so in my early conversations with the Costco leadership team, it became clear that retail media could be a catalyst for bigger, more strategic initiatives. Things like strengthening our member value proposition and driving omnichannel transformation or establishing a, like a stronger loyalty strategy. Those are the things that really excite me more than anything else. And retail media is, it's like no matter how buzzy it is, no matter how popular or how exhaustive we get hearing about it, it's not the end all, be all in retail. It's having its moment. But at the end of the day, it's a part of a retail ecosystem. And I think the opportunity for us here at Costco is to use the, use what it takes to be great at retail media, to drive more value for members in other, I think, more important ways.
- [11:12]
Peter V. S Bond
Mark, I shared your curiosity about what Costco was going to do around retail media. I did not think that they could continue to outsource that to a last mile delivery ecosystem partner, that there was going to be at some point a critical moment when Costco said we really need to play a more decided role in that. So it's nice to know you're on the inside. We're going to tap that inside knowledge in our conversation today. Let me follow up that with why do you think retail media is such an important mechanism for brands to engage with shoppers? And what makes it so appealing compared to the last century where most advertising was driven by linear television, print media, you know, like a brand manager, they did their four FSIs and then away and rotated onto their next brand job. Right. What is the promise of retail media from your position?
- [12:14]
Mark Williamson
So I'm not sure my opinion deviates much from what the conventional wisdom is today. But I'll like, to me, it all comes down to how content is consumed. And so it's not just that consumers are shifting from one channel to another, from like digital to or from print to digital or from linear TV to connected tv. It's really the, the whole structure of the, of the content itself. Or the form of the media has changed dramatically. And so like I look at like myself like I was an early cord cutter, like, like very early. But if you told me 10 years ago that instead of binging episodes of Arrested Development every night, I'd be doomed scrolling on Instagram, watching 20 second nonsensical clips from an amateur content creator that I don't even know, like, I never would have believed it. But like that's the, I think that's the fundamental shift and that's where we are. And this isn't like what started, I think as when I first realized my kids were watching YouTube and not they weren't even streaming or watching anything on demand, they were just, they went right to YouTube again. It's not just how them and their Gen Z and Gen Alpha peers are consuming content. It's millennials and Gen Xers and boomers are all the same thing. And so like, and I think in this like new media environment, it's tailor made for retail media because content consumption is primarily digital, but more importantly it's done at an individual identifiable level. And, and that means that the ability to target and measure is better than it ever has been. And so if you're a commerce minded advertiser, leveraging retailer data to inform your media buys has and will continue to be an exciting proposition. And so for retail media, when it's properly configured, it promises more transparency, more efficiency and better performance. And so you marry those two things up together. I think it just creates an environment where retail media is built to thrive. But like, as, like, and I think it's been widely discussed, you know, in lots of forms that retail media should work upstream and downstream within the path to purchase. And so it's non linear or whatever it may be. But like, like it begs the question, like, why can't upper funnel media drive immediate conversion and why can't lower funnel media drive equity? Like that's always been the topic that retail media has been wrestling with. And so like if I think back, like grocers have been putting shelf talkers in floor graphics in their stores for decades, which is in essence big national awareness campaigns placed at the point of purchase. So like is that not retail media? Has it not been retail media? We just didn't call it that back then. And, and I think the fact that it's analog and it's not one to one, so it's like it's, we never really got animated about it, but that's in essence what has been happening. And so like the like and I Think the big topic of the day is, is usually like, is can retail media be part of an upper funnel strategy? And so I say yes, obviously it can be. And so if, if brands can push equity campaigns to the point of purchase, why can't you push the point of purchase into equity campaigns? And so like the industry is filled with smart people. I'm sure we can figure this out. But I think the potential for this to happen, the framework of retail media and the advertising and the data tooling that's available makes this a durable and scalable model for retail media. Where if we can figure out how to get the right data in the right place, whether it's for targeting or for measurement, if the content distribution ecosystem continues to change, let's say one social platform goes away or wanes in popularity, another one takes its place. If we've structured everything the right way, we can shift from one channel to another fairly fluidly. And I don't think that was always true in the past where when you went from print to radio or radio to TV or TV to, to digital, those are really disruptive changes. Whereas right now I feel like there's this, with like kind of data as this ubiquitous enabler that can move from connected channel to connected channel, whether it's video or search or on site or offset or whatever it may be, there's this fluidity in the ecosystem now that I think is just tailor made for retail media to thrive.
- [16:21]
Peter V. S Bond
There's so much to unpack in what you said. First of all, we'll talk about this unified ID concept, right? Being able to identify a household and then in a closed loop manner measure all of their exposure to advertising. One of the big things that infuriates me about marketing mix modeling, or as I lovingly refer to as alchemy, is its inability to, to deal with multi touch attribution. Right. It's a first or last touch and it also dramatically undervalues the contribution of retail media. What I love so much is I see in today's era where we have clean rooms and we're able to basically measure each of the touch points, we, we can decompose to your point, it's no longer a linear funnel. It's really about what point do they come in and what are the right elements that get them to conversion. So I'm really excited and I agree with you. I think that's the promise it affords. And once we've done that, it makes it a lot easier to bring in other types of exposure. Other social media platforms as Long as it's all foundational around that unified ID and we've got that closed loop measurement system, the sky's the limit for brand advertisers. So I agree with you. I'm pretty excited about that. You know, it's funny, I heard you on, on another podcast, the Middleman, which is run by a couple of our dear friends. If you're listening to this audience, you're not on, you haven't heard the Middleman podcast. It's relatively new, but they are a bunch of wonks like me and they really go deep into the wonkiness of retail media. So if you like that stuff, you should, you made reference to a term last Mover Advantage and so I would love to hear and if you can weave that into, you know, your next question would love to know about your core on site ad units that brands can leverage and what do you think will drive the most application from your suppliers and what are you excited about your offering compared to what the industry is accustomed to?
- [18:21]
Mark Williamson
Yeah. So I mean the idea of the last mover advantage is that like having having done this with a couple of retailers in the past and then being on the, on the like the technology vendor side and working with many, many retailers who were either trying to do this for the first time or, or maybe reinvent what they had been doing. Like it's, it's very, it can be very complicated to, to get all the parts and pieces arranged in such a way that a retail media program could reach its full potential. And the reality of that is, is that retailers are not at their core media publishers. For many, many, many, many of us, we are not even digital natives. And so if you look at the way that whether it's enterprise data is set up or the platforms that we use or how they talk to each other, none of it was built contemplating the use case of retail media. And so when we say like Last Mover advantage for Costco is like one, like I can avoid all the mistakes that I've made over the last 15 years of doing this and plus I have I think an above average knowledge of the mistakes that other people have made. But, but really like Costco feels like a clean slate where yes there are definite parts of our business where you know, suppliers can activate or brands can activate. But, but the data foundations that, that identity layer or that unified ID that you just talked about, like we, because we do know digital marketing really as a, as an advertiser, as a brand, there isn't anything that untangle. There isn't Anything to tear down and then rebuild. It's just a matter of taking the parts and pieces that exist and starting and designing something that reflects modern retail media and hopefully prepares us for the future. And I don't think all retailers have the luxury of doing that because they, they stake to claim earlier in the process. And I can speak from experience, it's very hard to untangle some of those decisions, whether it's your go to market strategy or your partnership model or the technology stack that you built on. So that's really the thrust of what we're doing. But the good news is, is when I arrived, like I, we're not starting from complete scratch. Like there are, there's definitely things that predate my arrival here and on site is definitely one of them. It's by far our biggest partnership business right now in the media space. Like, even though, you know, some people may say print is dead, Costco Connection magazine I think is the most widely distributed publication in the US that gets sent to I think, you know, 15, 16 million households every month. And it's a very healthy asset for us and we have members who love it. But, but, but our E. Com and on site businesses is still larger than that. And so like our biggest, the biggest product in our, in our on site portfolio is really homepage space. Like by my estimation, I think we make more homepage real estate available for supplier partnerships than, than perhaps any other retailer. We do it in an unconventional sense. We merchandise our website like we're merchandise our website, our warehouse. And so, you know, so the same suppliers that are vying for coveted warehouse space on the entrance fence and the end caps are usually the ones vying for premium space on the homepage. And so, you know, email placements are closed second. And so that's, that remains a big element of our partnership business today where I would say, like it straddles that line between kind of traditional trade marketing and retail media. And one thing that we've really been trying to do is to diversify the way that those, those, those placements are transacted. So that may mean like we've started to do direct deals with brands and agencies outside of our traditional merchandising kind of negotiation process, which I think is an important step for us because I think there's a lot of interest and demand for this space. But if the only way to buy it is through a, a merchant negotiation, if you're a brand and agency, you're not in that conversation and you miss the boat on it. And so like that's a big part of it. And then beyond that, we're laying the groundwork to be able to make the space available programmatically as well. And like. So it's important, I think that we, we, we remove the friction from the buying process. Beyond that, we've got, you know, the usual suspects. Sponsored product ads and commerce display video in grid display units. Things that we've been doing in partnership with Criteo. We're continuing to lean in there and figure out like, you know, what are the ad formats that perform the best, what are the ad formats that advertisers are most interested in. Video being an example of where there's a lot of energy right now. And like, when it comes to our on site business, like it's a storefront, we actually view it as a warehouse, as a location. And so top line sales is priority number one, two and three. And we really view our job as like, how can we drive awareness and discovery for advertising partners for our members who are shopping the website?
- [23:00]
Peter V. S Bond
You mentioned something about driving sales and revenue. More often than not, I hear other RMNs think about the RMN as a BE all and end all for monetization. What I hear you saying is that if you're not driving sales for the merchant organization, then you're not doing the right thing. Talk more about that.
- [23:22]
Mark Williamson
Yeah, so I mean like we, we actually don't use the word monetization. Not that like, or profit center. Like, like we work very, very hard to make sure that we maintain our purpose. And as a media publisher, yes, it's a profitable business for us, it's meaningful in the way that we fund our business, but it's not the reason why we do it. And two things have to be true. Top line sales have to grow in order for, and retail media has to perform. And so because if I think the example that I give is that we could have a billion dollar retail media business, what would happen is our chief merchant would come to me and say, cool, our suppliers invested a billion dollars in what you sold and what impact did it have on our business? And if it's not 3 million, 4 million or 3 billion, 4 billion, 5 billion of returns, like, well, we could have spent that money differently. And so we view it holistically to say whether you're acting in your realm as a supplier and you have a budget to help you drive, whether it's price point, promotion, end cap fence, whatever it may be, you could drive those levers. And those levers work very, very well at Costco or if you're a brand marketer who's thinking a little bit more upper funnel your agency that's thinking on a performance basis. Like everybody, you know, everyone's interested in activating it at Costco. But, but what we're trying to do is like to drive to outcomes that are as mutually beneficial as possible. And, and so if all, if the only success metric we have is media margin, then, then we've failed. And one way that we've, we've really, we've really worked to align the retail media initiative with our core business strategy is that we, we've set it up in a way that the, the, the money that our retail media business generates is immediately allocated to our, to our merchandising departments where they can then go invest that money in, in what we would call a member give back or in lowering prices or maybe extending a promotion or going deeper on a promotion or other investments that are going to drive top line sales. And so usually a retailer will have some kind of flywheel to say, you know, because I make margin on my very profitable retail media business, I can make an investment over here, over here, maybe I can offsite offset losses in E commerce or I can lower prices generally. And so I would say it's this very, this big flywheel that I think has much value and I've definitely been involved in those businesses. What we've done is we've really worked to shorten that flywheel to where that money can immediately get right back into the business. And Costco merchants are going to do what they do best. They're going to lower prices as much as they possibly can. And so we clear our PNL very often and because, and that's a reminder to us is that we don't exist as a profit center for the purpose of driving profit. We exist as a, as a mechanism to drive traffic sales and grow the member base.
- [26:11]
Peter V. S Bond
I have to imagine that compared to your days working for a more traditional grocery retailer that the assortment that you have at Costco fundamentally changes the balance of how brands are investing across your on site capabilities. Very different, more focused, let me say this, less focused on like the traditional product search and more on some of the other capabilities. Any thoughts on that?
- [26:38]
Mark Williamson
Yeah, I mean the assortment in the wholesale business is just entirely different and that creates opportunity and complexity. And like on the opportunity side, if you're a national brand that gets placement either in a, in a warehouse or on, online, you're in a curated assortment environment, you have, you have the opportunity to win. And so if you can Drive demand and drive conversion. You're going to win and you're going to win a lot. And this idea of switching like, like, of having to play defense on a promotional side where you know, your competitor is on promotion one week, you're on promotion the next week, and you're just kind of, it's this dog fight for, for volume. Like once you're in the ecosystem, you're there and as long as you're driving volume, you're good. And then what we really said, like can retail me to drive volume on top of that? And so it's really, it's more about discovery than it is about, about the competition with others in, you know, in your category. And so like that's on the, on the positive side of as, like if, like not only do you win, you win for a long time. And so rather than a, you know, like, like let's say if your average price point at a grocery store is $5, it may be 25 or 30 doll, but the media doesn't cost anymore. And so from a return on ad spend perspective, if that's important to you, our math should math much better than it could anywhere else. Just because the absolute price point plus you won for a month, two months, three months, you've basically taken that demand out of the marketplace and you own it. And then Costco shoppers tend to be very habitual and so like they'll come back to you over and over again. And so like that's on the plus side. On the challenging side for us is like, well, there's not as many brands for me to sell ads to. It's problematic. There's not as much like what we would call like bid density. So a search results page isn't going to have 50 different items from 12 different national brands that you're, you're fighting tooth and nail with. It's, you know, like, it's just, it's just different. And so, and it also creates complexities for us because it's very important. Whereas we, we always have to be very mindful of our inventory position on any item at any given time is because one, we can accidentally drive too much demand so we can sell through faster than projected. Which you think, oh cool, that's great. But if we don't have a replenishment strategy that matches the demand strategy, then all we did was sell the same amount of goods faster and we've created a hole. And so as we scale this business as we get really good at it, we feel like there's this great Synergy between the demand and the supply side of how we do this, where we have to work lock sets with merchants. Because if we tell a member that there's this really great popcorn item that just landed in the warehouse and they go and they put on their list, they go to the warehouse and it's not there, there's not another popcorn item to trade into. There's not another flavor, there's not another size, there's not another brand. So all we've done is we've created a poor member experience. And so that, that is a, I would say, not a negative, but it's a, it's a, it's a nuance of the wholesale environment that I definitely experienced at Sam's Club. But it is, it is real here at Costco just because of the way that we, we plan our merchandise. But ultimately, if we're going to be good at our job and we're going to drive growth, we have to attach growth with inventory planning.
- [29:42]
Peter V. S Bond
Yeah, I think it's critically important to understand that the commerce experience online doesn't end when people click the buy button. It has to deliver against the experience of actually getting the product into their home, be it through the warehouse club or through whatever delivery mechanism that they afforded their choice in getting that product. And so if they think it's available, you're doing retail media advertising and then the product is not in stock. That's to your point, very negative member experience. Let me remind our audience that I'm speaking today with Mark Williamson. He's the AVP of retail media at Costco. So we talked a little bit about on site, which is mid, lower funnel. Let's move, move up the funnel and talk about on site and in store ad units. What do you got cooking and what are you making available and how are you doing it through Tech Stack Partners or whatever. I'd love to hear kind of your approach to providing advertisers with full funnel connection to your members.
- [30:44]
Mark Williamson
Yeah, so we've made major strides in our offset offering over the last six months. So this is a net new capability. It was one that as I was kind of discovering the Costco opportunity, and it was a glaring gap in the, in our solutions portfolio that I need, that we needed to address as quickly as possible. And so about a year ago, we ran our first kind of what we call promotion amplification tests where we, for the first time we had built a targeted audience, like a custom audience of Costco members based on their purchase behavior to reach off site and then based on Those tests, we ran them, we built some energy for the idea and then about six months ago we really opened up the operation opportunity to, for, for suppliers, brands and agencies to activate against Costco audiences. And we've been scaling ever since. And, and just to, to keep in mind like Costco does not do paid media. The, the challenge of getting this channel stood up was not technical, it was philosophical. The idea of putting a Costco logo on a off site ad unit felt, felt against our religion. And, and I think there's many reasons for that. Is one is that we just don't do upper funnel brand marketing. We're very careful with how our logo is used and we actually like and really the reaction to the idea was how will our members perceive this? Will they view this as us going against what they're used to? Will it be a shock to the system to see co branded Costco media where they're consuming content? And so we kind of had to get over some of those hurdles and really we ran the first campaign and just waited for the inbox. Whether it was our call center, our CEOs inbox or whatever it be like we are very, very sensitive to how our members react to things. And so we kind of had to go through this, I would say this kind of testing and learning, yes on the data and the technology side but more on the member behavior side. Like does this work and then how do our members feel about this? And so I would describe our initial approach to offsite as controlled flexibility. So the partnership model we've been pursuing is really hybrid where we support advertiser self service on their DSP seat but we bookend it with Costco managed services for audience creation and performance measurement. And that's really the only way that we can activate right now we do not have a mechanism for any self serve advertising or self serve audience creation or self serve measurement. We have more to come on this but we wanted to make sure was that we were being as flexible as possible in how they activated. And so we currently onboard through Liveramp. From there we can push audiences to basically any DSP that can transact in ramp id. So we currently have partnerships with the majority with the major DSPs. Trade Desk, Epsilon, Stackadapt and Yahoo are the ones that we're actively working with today. We have more in the hopper and we really opted for this BYO DSP approach knowing that many advertisers have a preferred DSP or they want to test and compare performance of Costco audiences on multiple DSPs. And so one of the interesting things that we've seen is we'll have the same brand as activating on two of our DSP partners at the same time against the same audience. And so like they're, they know what they're doing. Like, I don't feel like Costco has a right to say, hey, we're better at buying media than anybody else. That's not a core competency for us, at least not yet. And so we're really leaning on this like, you know what you're doing. Our job is to make the data available from an audit for the, on the front end for audiences and on the back end for data. So we have a whole, whole process for ingesting exposure files from the DSPs that we're partnered with. We bring that data into a clean room where we marry it up with our transaction data. And we have a data science team that goes through and is doing custom campaign analytics. And so we're looking at traditional retail media metrics. We've recently started reporting on new to item, new to brand, new to category which very, very excited about that. It's a measure of incrementality. It's not the end all be all, but it's something that we're getting a really good response from advert advertisers on. We're also supporting kind of test control like holdout audiences as well in this framework. And so I would say the process today is fairly manual. It's probably not as frictionless and awesome as our advertising partners would love, but it's a start and something that we're really excited to be doing.
- [35:07]
Peter V. S Bond
Yeah, I love your responses and you kind of touched on my next question. I want to double click down into that. I'm sure like me, you probably scoured through the P2P I survey results on retail media platforms to see what brand advertisers like and don't like about your competitors or your contemporaries. Probably one of the biggest areas that separated the winners from the losers was transparency around measurement. Right. You made the fact that you're bringing, this is more of a managed service. You're bringing, bringing in, marrying the data through a clean room and you're able to give, give back some of that. How do you, how do you think about ensuring that your brand advertisers are getting a measurement solution that will satisfy their need not only to measure your performance, but to be able to justify their ability to move more of their advertising spend away from traditional mechanisms and into, into a closed loop system like Costco retail media.
- [36:20]
Mark Williamson
Yeah. So I think it's universally understood that without transparency retail media falls short of expectations. Yet it's an area that we continue to struggle to arrive at. I think there's a few reasons why and so I'll take a moment to defend retailers and my compatriots other places, but then I'll kind of talk about what we'll do about it. I think there's several reasons why this is hard. One is knowledge is powerful. I think some retailers have a hard time getting out of that traditional retailer supplier dynamic where suppliers are meant to be negotiated with, not sold to. And so there's this like, like it feels like it's wise to minimize transparency lest they use your own data against you. And like, and I just like that's something that can be change management out. Like we can, we can work through that. I think several retailers have done this that like they've gotten over this first hurdle. But the fir, but retailers first foray into this. This is a, this is a real issue. Like why would we give them that information? I go because they're giving us money. Like, like there is a value exchange here and, and what they're buying, they're buying access. If it's on site, they're buying, they're buying like informed targeting and measurement if it's off site. But like the data has to be underpinned everything we do. But like there is this like this allergic reaction to this idea of oversharing. So like that's kind of the first one. The second one is that there's risk for retailers in data transparency. There's legal and regulatory risk, there's ethical risk, there's reputational and trust risk. So all of this has to be weighed against the value of increasing transparency and collaboration with suppliers, brands and agencies. Again, it's overcomeable but it's a very real thing that people have to work with this. This was I think my first two months or three months at Costco. This was specifically what we dealt with is are we actually going to, to unlock the power of our data and can we do it in a way that everybody feels good about? And that's an important step. I think some retailers have stepped around that and are kind of paying the price later. Or, or they, or there's like, or they're maybe a little bit too willy nilly and they're introducing too much risk in their business. And so I think thoughtful retailers have to work through this. And the last one I kind of think of is like even if retailer determines that they want to offer performance immediate transparency to advertisers and they've satisfied all the demands of their privacy attorneys. It's still really really hard to do this and so like and I mentioned this earlier but like most retailers aren't digital natives and as like and so they have wonky tech stacks and they have data strewn in multiple platforms and first party platforms and third party platforms and this makes it virtually impossible to stitch together any meaningful reporting without significant re architecting of enterprise systems. And as compelling of a business case as retail media is, it may like is it enough to justify prioritizing and funding a wholesale change out of point of sale systems E Comm. Platforms, loyalty stack like maybe, maybe not. Like, like you mentioned earlier, like, like we outsource our E. Com grocery to a third party. They do a good job. It's a big growing business. Our members respond very very well to it. I can tell you all the costs, all the unseen costs associated with that partnership as it relates to my business so I can make the whole thing like hey, look like we should ingest all this we said in sources we should do all this. Like but is it worth it to do all of the, all of the gymnastics required to unlock the retail media value in that? Maybe, maybe not or maybe not now, but maybe later. So I think like, like and I know for me and my peers at other retailers this is something that we wrestle with now the leaders in this space have already gone through these battles. They've already had these debates, they've already had these discussions. They've landed in a really good spot. And I think this is the, this is the opportunity I think for not only for Costco but for others is to continue to push through each of these things and get those barriers behind us. Because two things have to be true. We have to protect the integrity of our data and our customer reputation. But we also have to offer transparency to advertisers. So like I'm a big believer that we can drive growth by unlocking the power of data. I think other retailers have demonstrated this and so the like the pathway for transparency for us is well underway. So like I would say like over I've been here 18 months, much of the effort we've expended and the money that we've spent is on boring, unsexy foundational work that's required to unlock the power of our data and like and so like it just some examples like we've, we've started to establish unified data platform where we're implementing now inside of a private Google Cloud. And then we're solving for universal consent and preference management, which is a prerequisite with our privacy team to make sure that we are, that we're compliant with both internal and external privacy requirements. We have a project underway that is stitching together 15 more than 15 unique identifiers that are actively being used across our digital ecosystem and none of them talk to each other. So we have signal loss all over the place on our own side, let alone on the outside. And then we're about to launch an audience building tool that works natively inside of our GCP instance where we can more quickly and more easily build audiences for activation. And then we have, we're embarking on a significant redesign of our on site ad serving, which we have to do in order to leverage the full thrust of our new data platform and to deliver on site targeting and omnichannel attribution. And then finally, you mentioned this earlier, we have a bit of a clean room strategy right now, but I would say it's fairly nascent. This year we'll launch a revamped clean room strategy that will be built on our unified data platform. And that means that for select partners, they'll be able to have a partner tenant inside of a HABU clean room where they'll have user friendly, like a user friendly front end where they can query our data for purposes of audience planning, audience creation, audience exporting and then performance measurement purposes. And so right now we're limited in these areas where we have to manage servit because only we can be within our data because it's not in a collaboration suite. What we're moving toward is that the collaboration suite will be fully integrated with our first party data. So we'll unlock all of the power that's there in a privacy by design structure, in a permission based, provisioned, provisioned provision, access approach to how our supplier, brand and agency partners can work. And so this is our solution to being able to work both compliantly but then also transparently with our, with our partners. Not easy to do like, and this is where I think like, like we've had to build all this from scratch. And I think like, like I struggle to see any other way to do this other than to wrangle the control, but then to put in the layers that are required to, to make the collaboration tools available.
- [43:05]
Peter V. S Bond
I think all too often people think of retail media like that swan on the water, gliding effortlessly. You have no idea how much kicking and paddling there's going on under the water line. There's a Lot of sausage making and it's, it's good that you're honest about what it is, but also seeing the direction of where you want and making note of the fact that there are other players in this space that have kind of acting like the North Star in terms of they've been able to do that. So you know, you can, can get there. It's just a matter of finding the right way to get there. You talked a lot about managed service versus what is self serve. And so I think I have an idea about that around. Listen, you want to do audiences right now it's going to be more of a managed service with an aspiration of getting to where they can build their own and they can do that through the havoc clean room technology that that Liveramp is affording to them. How do you think about, because I know my friends and my other avatar working at Flywheel, like how do you think about making the availability of doing all that kind of work to, you know, e commerce accelerator agencies in the space so that they can do that on behalf of your mutual clients? Where are you, where are you going in terms of bringing them into the fold as, as partners in this journey?
- [44:33]
Mark Williamson
So I think it's a mandatory like we at this point for those intermediaries or those SSPs or those DSPs or whatever, we're like we're having active conversations on what role they can play and how they need to access and so anything that's available programmatically they can kind of, they can kind of manage through even if we have to provide some level of managed service in order to get them there. So I think it's really a bit of a mix. But our design, like the purpose of our entire data infrastructure and then ad tech and Martech stack is to enable as much self service as is necessary and that could be like self serve tools that we create or it could be integration with self serve tools that others are using. And I think that's the, that's like one of the biggest complaints from advertisers is there's just too much fragmentation. There's too many networks, there's too many bespoke platforms. Like I don't think you're going to see Costco try to do anything fundamentally bespoke, like the things that are bespoke to us is how we manage our data, how we manage consent, how we stitch our identity and how we remain compliant in our privacy by design framework. That's what we'll own, that's what we'll control, how that Ecosystem plugs into sources of demand, whether it's multi retailer demand or it's Costco direct demand, but through a platform that I buy all my media through, so my agencies are trained on it or whatever it may be like. I think that's incredibly important. I actually, I think it's essential for scale and I think that's what the, you know, the market leaders are doing very, very well. Like, like part of me can argue, ah well, we're so large and like we can do whatever we want and people will play ball. Maybe, maybe not. But I still feel like we have to remove as much friction as the, from the process as possible. And it's kind of a, kind of a bridge to that reality because we, we are on a bit of a journey. We've created what we call our growth management team and they are aligned by merchandising department and so their job is to translate all of this nascent retail media stuff that our merchants don't really live and breathe every day. Their job is to translate these opportunities into merchant speak. And so there's nine people on the team now. We went from zero to nine. So I'm very excited about that. But nearly every single one of them work in merchandising and almost all of them started their Costco journey in the warehouse. And so they bring this mentality of retailer first. But, but what we've really positioned them to be is the Costco Sherpas. So even if we have some self serve tools and a lot of managed, a lot of managed service stuff, their role is really whether they're talking to a DSP or a managed service agency, a brand directly or a supplier, like a shopper, marketer or whatever they really are, that point of entry or that throat to choke if needed to help remove as much of that friction as possible to lubricate the process. And over time I think this role is going to end up shifting a little bit as we have more self service tools. But for now we've kind of put this like this human based self serve tool where you can, rather than interacting with the platform, you're interacting with a human and you're saying human. I would like to do xyz, will you please tell me how to do that? And so we're trying to bridge that gap as much as we can. But the idea though is to get to as much self service as necessary to make Costco an easy investment.
- [47:49]
Peter V. S Bond
All right, so let me close this out. I always liken it to the wheel of fortune. When you go to that final puzzle and they give you the rst lne. And so when I ask you about what industry trends you're focused on, I know like AI is going to be one of the letters I've already given. Then you're welcome. But I kind of want to know what other letters you would choose. So what, what, what are the trends that are, you're really focused on as you see development in retail media and how that contributes? Because a lot of brands are facing real volume challenges in the wake of the inflationary period that took a lot of price. I sat at Cagney and listened to a whole lot of very dejected CEOs sharing and I even saw one analyst, wrote a pen and penned a research paper the other day saying hey guys, you got it. You got to take a step back and take down your EPS projections. They're really unrealistic. But I want to know from your perspective, what are the trends that are really interesting you that think can really drive this industry and are going to help you in your efforts to make retail media meaningful for Costco to drive its top line sales and for your brands to see value in growing their brand business?
- [49:05]
Mark Williamson
Yeah. So I mean obviously I have to say AI, but, but I won't, it is, it's always this like circulating buzzword. But I, there are actually some really compelling use cases that we're attacking now because like I, I'd seen it, I've seen it said multiple times like you can't have an AI strategy without a data strategy. So we feel like our point of first focus will enable the, the option to have AI be a focus on the future. But we'll, we'll, we'll see when we get there. For now, like, like, I don't know, I don't know if this is particularly interesting but like what I am, what I am most animated by and I think this may be because I've, I've lived through most all the iterations of retail media, whether it's 1.0, 2.0 or 3 whatever. However it's defined like from the days where we had no ad serving on our website, we're basically just native serving content, no measurement. We can do impressions and clicks but like there's like zero transparency, zero dynamism, nothing at all. And then have that evolve into, then you see the entrance like hook logic that becomes critio and now you have sponsored product ads and now you're disrupting search like seeing all these different evolutions and I really like, I think that makes me appreciate More than most, the power of the composable ad tech ecosystem that we have today. And so like 10 years ago it would have been okay, we want to do retail media. Which of the three monolithic platforms are we going to partner with? And they'll be a full managed service, they'll do our sales and our ad operations and our tech and they'll be good at one of those and not so good at the other two. But like you kind of go through this RFP process like are you, are you on price or whatever it is, but like that was the way that you did it, unless you were Amazon. Everybody else, you go find who's your partner, who's our partner going to be. Whereas nowadays, like whether you're a brand new retailer that's starting or you're reinventing a legacy business, or you're smaller, you're big or your specialty or your mass or your dollar, it doesn't matter. Like the technology is advanced to the point where if you can control anything you want to control without having to do this build, borrow or build buy thing, where you can build with tools that other people have bought and they're all purpose built to be composable and to be integrated into whether it's first party data platforms or into e commerce platforms or whatever. What that allows me to do is like, like I will pull in, I will pull agentic AI in this conversation is we're kind of having this idea, like I talked about the importance of an inventory check before we run, before we run a campaign. Right now, if we're building an audience for an agency, that agency, there's no way that agency knows what the inventory position is of that one particular item at Costco. So what happens is my agent is one of those growth managers who emails or calls up a merchant and says, hey, such and such brand would like to run a campaign from such date to such date on this item. Do you have any concerns with your inventory position? And there's this whole process and it's interesting. And so what we're thinking like if you have a composable ad tech stack that is built within your private cloud, which is really what we're pursuing, what we could do is as that audience is built against a certain sku, you could have an agentic AI go out and do all those tests for you and say like, hey, go ping the inventory system and tell me what's going on. Go ping, you know, go ping this, the creative area. Like how long would it take to get this asset created? Or do I have all of the right parts and pieces. Do I have the right information in my PIM that will allow me to dynamically create multiple assets for this onsite or offsite campaign or whatever it may be. And I think, like, in the, in the, in the partnership models of the past or the technology stack of the past, there's like, no matter how good your partner was, there's still a little bit of a black box to you, and you're a black box to them, meaning they can only share so much information with you and you can only share much, so much with them. My ad server can't talk to my inventory. My. My full might can't look up how many orders are, like, how many items are on order for a particular SKU and the Costco Depots. Like, like, that connectivity doesn't happen. But if I've assembled my data foundations and my ad tech stack in a way that I can pull, my ad server can pull data from anywhere in our ecosystem in a compliant, you know, privacy compliant way because it never leaves our four walls. That's a really, really big deal. And I think that's where you can start to merge media and retail together in a much better way. Where today we kind of, we kind of solve it politically by having my team interface with merchants and making sure everyone's cool with what we're doing. Like, I think this fundamentally merges the world at a, at a systematic level, at a technology and a data level that allows media people to just do what they do, just churn and burn, plan and pitch and build and activate, do all that stuff in a way that they don't have to worry themselves about all of the retail nuances and the things that freak us out as merchants and operators. But we can still move at the pace of media, and we can move at the pace of retail. And there's this platform in the middle that does programmatically, all of that reconciliation across the two sides. So, like, it is. That's super aspirational. But I feel like as an industry, we're in, we're at the place where that's actually possible, where five years ago, 10 years ago, it would have been too much. So that's like, I don't know if that's an industry trend or not, but, like, that's what I get really animated by these days.
- [54:16]
Peter V. S Bond
Mark, thanks for taking the time today to walk us through how Costco is building a meaningful retail media ecosystem for brand advertisers to build their brands and engage in an omnichannel way through through your members. We really appreciate it and and we are going to include in the As I mentioned earlier in the digital liner notes of this episode, links to your LinkedIn profile and to Costco's LinkedIn page and access to where Costco retail media information can be found. Thanks for taking your time and Sheree and I have to get up to the Pacific Northwest go catch a Mariners game with you. What do you say?
- [54:53]
Mark Williamson
Whenever the weather's turning. So come on up here, we'll do it. Alrighty.
- [54:57]
Peter V. S Bond
There we go. All right. To our audience, I wanna say thank you for joining us today. Remember, follow us on your favorite podcast platform, give us a rating, leave a review, and we look forward to speaking with you on the next episode of the CPG Guys Podcast. Goodbye. The content in this podcast episode is provided for general informational purposes only. By listening to our episode, you understand that no information contained in this episode should be construed as advice from CPGuys, LLC or the individual author, hosts, or guests, nor is it intended to be a substitute for research on any subject matter. Reference to any specific product or entity does not constitute an endorsement or recommendation by CPGuys LLC. The views expressed by guests are their own, and their appearance on the program does not imply an endorsement of them or any entity they represent. The views expressed by CPT Guys, LLC do not represent the views of their employers or the entity they represent. CPTGuys LLC expressly disclaims any and all liability or responsibility for any direct, indirect, incidental, special, consequential, or other damages arising out of any individual's use of, reference to, or inability to use this podcast or the information we present in this podcast.