This article comes from WeChat WeChat official account:Cross-border talk (id: crossasean), Author: Chloe Wang, original title: "Retail media network, rediscovering the value under the changing situation? 》, the head picture comes from: vision china
Half a year ago, we published an article "Direct or Digital? DTC’s Dilemma and the Way Forward ",which analyzes the difficulties DTC encountered after golden decade, especially Apple’s new privacy policy and Google’s replacement of three-party cookies.(implemented in 2024)It has a direct impact on the accurate advertising model of social media such as Facebook, which leads to the disappearance of classic DTC as the basic premise for the establishment of independent and sustainable business model.
Because the precise locking based on Facebook advertising model basically requires the collection and verification of tripartite data between channels, once the tripartite data cannot be obtained between Apple’s apps and websites through technical means, the past model will face collapse.
However, Facebook and others can’t provide a convincing alternative, and the brand has to find a new way out for this part of advertising.
So the importance of first-hand customers and data is highlighted again in this context.So who has first-hand data? Simply put, it is not someone else, it is a company like Facebook that has a large number of users and user data. Therefore, we can easily understand why they have all made efforts in e-commerce. For example, Facebook/Instagram mentioned several previous e-commerce attempts when the e-commerce business contracted recently:
Facebook hopes to form a commercial "closed loop" with its own first-hand data.(that is, the "closed loop" of advertising effectiveness measurement), judge the user’s purchase link by directly intervening in the transaction without relying on the three-party data, thus completely getting rid of the shackles of Apple’s privacy policy.
Unfortunately, so far, attempts like Facebook have not been successful, and even the e-commerce business has to be contracted because of performance problems. We can also see that,It is difficult to reach the transaction, which makes Facebook’s user data may be sophisticated enough in behavior analysis, but it cannot build a complete business closed loop.
On the other hand, a recent acquisition has attracted our attention.
Hero Cosmetics was acquired.
Hero Cosmetics started in Amazon in 2017, then landed in offline retail stores such as Target, CVS, Ulta Beauty and Urban Outfitters, and launched DTC independent station in 2018.(using Shopify Plus service). Hero’s sales in 2021 was $115 million, its estimated revenue in 2022 was $140 million, and EBITDA in the past 12 months was $45 million.
The purchase price of $630 million means that Hero has become the third Amazon native brand with a purchase price of more than $500 million.(The first two occurred before and after the outbreak of the market boom)It also means 14 times PE, which is quite special in today’s period when listed DTC is still losing money. You know, even SaaS companies, in this year’s situation, the average M&A price is only 3~4 times the annual income.(25 times in previous years).
Hero’s development path is not the traditional typical DTC brand. Although DTC can be said to be one of the components of its business model, it is not the only or mainly dependent model.
In the past, we liked to think of DTC consumer brands as technology companies. For example, companies like Casper seem to have mastered some kind of "technology password", which makes them have the marginal utility and corresponding expansibility of technology companies, but this is not the case.Most DTC companies hold Facebook’s traffic dividend. Once this dividend disappears, these pseudo-technology companies will face the most basic rules of the game in the retail industry: how to achieve profitability is much more important than desperate growth.
The fixed thinking of technology entrepreneurship always pursues the scale of users before considering profits, trying to cover up the losses caused by growth and tell the future prospects of technology companies through the relay of capital. However, once DTC carnival based on venture capital injection and Facebook traffic bonus comes to an abrupt end, it will eventually be unsustainable in the context of deteriorating economic environment, and valuation can only return to the retail industry.
The inspiration of the Hero acquisition is that,DTC is a part of consumer brand strategy, but today it is not enough to support the success of a brand independently.The original intention of DTC is to establish direct connection with customers, but the connection also has efficiency problems. When the connection cost is higher than that of other channels, the brand it has established with other channels will not be competitive enough. What is important is to effectively show itself where customers are.
Nowadays, all costs, including marketing, customer acquisition, performance delivery, are rising, which means that enterprises have to reduce profit margins in an all-round way. In this context, if we rely on a single channel to obtain customers, but we can’t adjust the marketing customer acquisition cost, DTC mode will become a dead knot. After all, the competition faced by retail is not pure online, and the change of cost structure will not affect everyone to the same extent, which is different from the pure online competition of the Internet. Bright star DTC like Peloton also had to choose to enter Amazon.
However, if Facebook’s advertising era is dying, what alternative does brand marketing have? Hero actually gave the direction.
Closed loop of primary data: Amazon’s advertising business
Perhaps the original intention of many DTC brands is to develop independently from retail giants, but Hero’s story is to put DTC fundamentalism.(idealism)Back to reality, Jurhuyu, CEO of Hero Cosmetics, described it this way:
“Amazon、(offline)Retailers and DTC play different roles in omni-channel strategy. Hero uses DTC data to assist Amazon’s decision-making and gain insights from Target to assist DTC innovation. Use Amazon’s operation to influence DTC’s decision. "
"Amazon’s advantage lies in the highest return on advertising, the lowest cost of customer acquisition and the highest repurchase rate."
In short, we can simply summarize Hero’s path as follows:Amaozn—-comprehensive retailer-—DTC.
Ju mentioned Amazon’s advertising advantages, which shocked everyone in 2021. In this year, Amazon’s advertising revenue reached an astonishing $31 billion, with a growth rate of 32% in the fourth quarter, second only to Internet advertising giants Google and Facebook. The volume and growth rate of Amazon’s advertising business are enough to prove the market’s recognition of its advertising platform.
Furthermore, as Amazon continues to try to expand the service scope of its advertising platform and integrate the core demands of DTC consumer brands, such as launching Buy With Prime service, Amazon’s advertising revenue may accelerate.
Why do you say that?
When we combine the display demand of DTC brand with Amazon’s advertising ability, we can imagine another scene that seemed very contradictory in the past:Amazon may become the discovery platform of DTC brand.DTC brand can put "Responsible Brands" advertisement on Amazon website through the indirect way provided by "Buy with Prime" to guide users to their own independent websites.(although it seems that this path is too tortuous at present). For Amazon, which has a large number of consumers and has become the default shopping search engine, it has also become the best opportunity to absorb DTC’s past marketing investment in Facebook and other platforms.
Will this contradict Amazon’s own positioning? I’m afraid Amazon itself is adjusting its relationship with emerging brands and channels and trying to incorporate them into its own territory.(e.g. launch Buy with Prime). The success of Hero, Anke and other brands, and Peloton’s entry into Amazon may all indicate the acceleration of this integration.
Rediscovering the value of RMN
In the retail world, competition will never be absent.
Amazon’s advertising revenue has been concerned by the industry before its financial report was first disclosed. Both Wal-Mart and Target are making similar efforts, and the direction of this effort is RMN.
The so-called RMN, that is, Retail Media Networks.(Retail Media Network, this article is called RMN for short).In fact, retail media has existed for a long time, which is aimed at the presentation of different forms of media when consumers make shopping choices and decisions.
Off-line, from product samples, to in-store display, and then to the advertising space of paper catalogue mailed to home, these are all included in the retail media category. Similarly, in the digital field, brands pay to display their products at the point of sale/terminal.(POS)In order to enhance the possibility of consumers actually buying.
RMN refers to all forms of media management and delivery systems that a retailer can provide.Amazon’s advertising system is a typical example, and large retailers such as Wal-Mart and Target also have their own RMN. Its essence is an advertising platform, which is maintained by retailers themselves and built on the channels and digital assets they own. Both online and offline retailers manage advertising inventory and advertising through RMN at various marketing points in the whole purchase process of consumers.
In other words, large-scale retailers, whether online or offline, have the inherent advantages of first-hand data relative to the brand side. They are the contact points that connect with the end consumers the most and complete the transaction.With the development of technology, every contact point between these retailers and consumers can be digitized, collected and analyzed, and a complete chain can be formed according to the purchase results.
Prior to this, the development of RMN was slow, mainly due to the combination of personal privacy information collected by Facebook and tripartite data, which could meet the needs of the brand under the condition of better cost performance. Today, when this condition no longer exists, the role of RMN is highlighted.
Of course, the reason why RMN began to attract the attention of retailers themselves,In addition to seeing Amazon’s advertising business for many years bring rich rewards, retailers are now facing many challenges, such as supply chain disorder, inventory backlog, inflation and interest rate hikes, insufficient purchasing power, and increased economic recession expectations.For Wal-Mart, Target, Kroger and other large retailers, advertising revenue is the basis to ensure a higher source of gross profit income in chaotic times.
On the other hand,For brand marketing, Apple and Google’s restrictions on private data force the industry to seek alternatives to Facebook based on three-party data.(and similar platforms)Advertising strategy.
In this sense, both the current market situation and the economic situation have created perfect conditions for the rise of RMN. The difficult market environment will inevitably affect the overall advertising budget, which makes the brand have more stringent requirements on input efficiency, and the strict data tracking rules make the consumer data held by retailers more valuable.
Therefore, retailers suddenly find themselves sitting on a gold mine, and the advertising budget that was robbed by Facebook in the past seems to have returned.
In terms of volume, American digital retail media(Retail Media)Advertising spending will reach nearly $41 billion this year, up 31% from 2021, and may reach $61 billion by 2024. According to BCG’s forecast, the output value of global retail media may reach $101 billion this year.(Global advertising revenue is $843 billion)And in five years, it will reach 160 billion US dollars per year.
Among the top 10 retailers in the United States today, there are 9.(including Kroger, Target, Walgreens, Home Depot, etc.)Running their own media network.
Take Target as an example. Target’s Roundel provides advertisers with key data points, such as shopping behavior, insight and analysis. And provide tools to help marketers lock in the audience in the Target ecosystem and form a closed loop to measure advertising delivery to sales. Last year, Target’s advertising service provided more than $1 billion in revenue, and it is estimated to increase to $2 billion in the next few years.
In addition, Tesco has Media and Insight Platform, Wal-Mart has Walmart Connect, and it also includes Kroger Precision Marketing, Carrefour Links, Walgreens Wag and Sainsbury Nectar 360, all of which are the efforts of major retailers in RMN in the past year.
Although other retailers have far fewer contact points than Amazon in all aspects of the consumer shopping chain.(as shown in the figure below)However, this does not prevent each retailer from establishing its own RMN. Even if it cannot compete with it in terms of scale efficiency, RMN business must be followed up in terms of breaking the internal data island, organizing its own digital assets and strengthening its revenue capacity.
In the foreseeable future, the growth trend of RMN will be more obvious, and new opportunities will emerge due to the uneven RMN services provided by different retailers.
What do we realize?
A brief summary of our thoughts on RMN’s return to the field of vision:
References:
https://www.theinformation.com/articles/instagram-scaling-back-shopping-features-amid-commerce-retreat
https://www.theinformation.com/articles/e-commerce-software-startups-poised-for-m-a-spree
https://2pml.com/2022/09/07/hero/
https://2pml.com/2022/08/29/rmn/
https://www.marketplacepulse.com/articles/dtc-brands-can-buy-ads-on-amazon
https://www.marketplacepulse.com/articles/amazon-native-brand-hero-cosmetics-sells-for-630m
https://www.fastcompany.com/90772916/amazon-walmart-retail-advertising-amzn
https://www.bcg.com/publications/2022/how-media-is-shaping-retail
Retail Media: State of the Industry Report 2022 – dunnhumby media
This article comes from WeChat WeChat official account:Cross-border talk (id: crossasean), Author: Chloe Wang
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