What Does ‘Fair and Proportional’ Mean in Retail Media?
PART ONE of this analysis discussed how CPG brands face something of a conundrum in dealing with retail media networks. It summarized brand marketer spending trends documented by Cadent Consulting and described why brand teams are challenged (perhaps slightly overwhelmed?) when it comes to making sound empirical decisions about their retail media investments across their entire distribution networks.
Some help may be coming from the FMI – The Food Industry Association, which is readying a significant report on retail media standards and practices in collaboration with NIQ. The document is expected to be released at the FMI Midwinter Executive Conference on Jan. 30, and we anticipate much discussion.
When it comes to investing with retail partners in trade promotions – temporary discounts, display and other incentives – the established industry custom has always been to provide these incentives in proportion to the sales volume that the retailers can deliver.
There is a well-known legal basis for this custom in federal law – the Robinson-Patman Act (RPA) – which expressly prohibits special pricing incentives from manufacturers to large retailers, on the premise that this would drive smaller retailers out of their markets by making it impossible for them to compete, and ultimately harming consumer choice.
For many years, CPGs and retailers seem to have complied with at least the spirit of RPA when it came to trade and shopper marketing investments. The Federal Trade Commission has not pursued a Robinson-Patman case against a consumer product manufacturer in many years. A further search reveals just four civil cases over the past decade brought by retailers against suppliers.
Now, the present concentration of retail media investment among the largest few retailer networks calls for some fresh thinking about what “fair and proportional” means. Are “power regional” retailers and small chains able to claim a fair share of retail media investment from brands? Sources we reached out to were very cautious about how they addressed this issue.
“Pairing any conversation on customer investment with Robinson-Patman is a bit unnerving,” said one industry consultant on condition of anonymity.
Added a retail executive who is close to the issue: “Discrimination (unintentional or not) is happening in the retail world due to retail media. There is definitely not a fair and equitable investment across the board. Of course, the big retailers have more sophisticated tools and more reach.”
Another consultant confided that they were leaning hard into research on this issue on behalf of clients. “There is little definitive information about these practices,” they said. “Brands are overwhelmed managing just a few of the largest RMNS.”
Audience providers versus data providers versus distribution partners
The idea that retail customers represent a valuable captive audience who arrive in a buying mindset is not new. Not only is this insight a foundation of trade marketing and later shopper marketing programs, but it was also the premise behind the earliest-known retail media channel launched in the early 1990s – Wal-Mart TV. [sic]
Then, and now, Walmart recognized that its shopper traffic represented a large and reliable audience that brands wished to reach and convert into buyers. It was not easy to measure shopper response alongside other in-store promotional activities, so impact was comparatively limited
As digital shopping evolved, the ability to use programmatic techniques to deliver messages in-context to carefully selected audiences emerged, beginning with Amazon circa 2011. Ad types like featured products and sponsored search worked beautifully with the visibility and measurability of the digital channel, delivering relevant messages adjacent to the selection and purchase process.
As other large retailers increased the power and sophistication of their own ecommerce offerings, it was a natural step to seek a share of this “alternative” revenue. Walmart, Albertsons, and Kroger were early adopters. Their incentive was to attract incremental investment by tapping budgets that brands previously invested elsewhere – in national media or consumer promotion.
The incentive for brands was the ability to tap retailer’s first-party shopper data to define highly relevant audience groups, then analyze their responses. The big RMNs have each established self-serve portals or demand-side platforms, to enable brands to make these digital advertising buys.
According to NIQ’s The Executive’s Guide to Retail Media Mastery 2.0, “Retail Media is different from national media in that targeting is typically based on a single chain’s data, and the ads are then placed on the retailer’s owned media channels or within the retail media network’s partnership network. From a retailer perspective, the benefit of this is that there is more control over what ads are placed and where.
“However, the smaller the retailer, the more difficult it is to compete for advertiser dollars due to the audience scale that advertisers are often looking for.”
While smaller retailers still collectively represent a very important share of CPG’s product distribution systems, as individuals they may be disadvantaged when it comes to presenting their retail media offerings to brands.
Joint planning and new assumptions
As retail media networks began to appear about four years ago, it was natural to assume that retailers would never permit even one penny of the trade and shopper marketing funds they already collected from CPGs to be transferred instead into RMNS. Retail media were supposed to be entirely new, incremental, alternative revenue.
Industry sources now suggest that the line has been blurring somewhat, in the context of joint account planning. At a few retail accounts, some conversations may be addressing the total marketing investment from brands and how funds may be invested to deliver the best total outcomes for both parties.
What might motivate a retailer to consider a brand’s proposal to re-allocate some trade marketing funds into retail media? If the total investment by the manufacturer across all retailer programs including retail media amounts to a net increase, that might earn some cooperation, several sources agreed.
There might also be a “flywheel” effect that could benefit both parties: Say a retail media campaign succeeds at boosting sell-through for the advertised products. Since trade incentives are still doled out in proportion to sales volume, an increase in unit sales or conversions due to the ad campaign could result in a subsequent increase in overall trade allowances.
Just how theoretical is this scenario? We were unable to fully answer this from the present reporting. There were hints that this is an area for consideration and analysis. It certainly suggests there is value in taking a holistic approach to joint planning.
Editor’s Note:
This is far from the last word on the subject for brands. With the release of the FMI/NIQ report, we may anticipate an expanded dialogue about retail media and standards, business practices, and proportionality. CPGMatters will continue to keep readers informed.
