The emergence of digital advertising has created new platforms for advertisers to reach targeted sets of customers and the opportunity for multichannel retailers to leverage their media platforms to create new revenue sources. While vehicles like paid search, affiliate networks, and banner ads have generally proven to be highly ROI positive (and consequently have experienced double-digit growth rates), spending on online advertising still represents only 5 percent of total advertising, as television, radio, and print continue to capture the lion's share of the $260 billion U.S. advertising market.
One factor preventing the broader adoption of online advertising is the lack of high-quality online-ad inventory. Advertisers currently concentrate 95 percent of their online advertising spending within only 50 companies. Predictably, these supply constraints have led to price increases. Even assuming aggressive growth in traffic from new forms of content, advertisers will likely continue to be constrained in the amount of spend they can shift online for the foreseeable future.
Concurrent with the growth in online advertising, retailers have themselves built significant Internet- and information-based marketing assets, ranging from content portals that drive traffic into physical stores to stand-alone e-commerce Web sites. Traditionally, retailers have focused inwardly on using these tools to improve their own businesses, but as advertisers continue to demand new online vehicles, retailers have an opportunity to become publishers, monetizing their online assets by developing cobranded advertising programs with a select set of partners.
By leveraging inventories of impressions, brand, customer data, and CRM capabilities, retailers can offer advertisers a largely untapped source of highly targeted media. Retailers adept at using CRM for predictive modeling are particularly well positioned in this space. For example, leveraging a customer's prior purchase history, demographics, and click-stream provides a higher ROI than relying on the text on a Web page to determine which advertisement to serve. Consequently, they can use the combination of their online assets and CRM capabilities to extract premium CPMs and capture share from traditional and existing online publishers.
Large retailers are digitizing to expand their partnerships with consumer packaged goods (CPG) companies (e.g., Proctor & Gamble) to offer samples, coupons, and other advertising on their site. These retailers benefit from driving more customers to their stores and creating a new revenue source from advertising, while CPG partners receive a highly targeted medium for customers most likely to purchase their products in stores. Retailers looking to capitalize on this opportunity should:
assess the nature of the advertising opportunity and determine potential media inventory, understand the customer data environment and the ability to deliver targeted advertising, outline the key execution challenges, and quantify the potential economic impact;
develop an advertising strategy, including target customers, the retailer/publisher's value proposition versus other competitor publishers, economics of potential advertising relationships, and standards for advertising programs consistent with the brand; and
build supporting capabilities to maximize the value from media, particularly performing a bottom-up analysis of customer transaction and click-stream data to understand drivers and predictors of customer behavior and value.
Leveraging this ability will also allow the capture of increasingly detailed information about customers' needs and behaviors, coupled with the above intelligence to act on this insight. Companies will be able to create better products and more effective marketing campaigns while capturing the incremental value from monetization, and thus become smart media publishers--seizing the opportunity to leverage existing CRM and online assets--and create new, high-margin businesses.
Jeffrey Schumacher is a partner at McKinsey & Company.