What is the three body problem in retail media?

Retail media has three constituents — the retailer, the supplier (brand), and the customer (shopper). The industry spends enormous energy solving for the retailer and the supplier, but very little on the customer. The three body problem is balancing all three; the customer is the body we consistently under-serve.

What do customers actually want from retail?

Research from McKinsey and others is consistent: availability and value matter most. Customers want the thing they want to be available to buy, at the right value (price and quality), and made easy to buy with good information, easy-to-use technology, and low shipping costs. 'More relevant ads' is rarely what they're asking for.

How can retail media directly improve the customer experience?

Beyond indirectly lowering costs, retail media can directly enhance experience through customer-centric activations rooted in shopper marketing — events, in-store demos, and at-home sampling. For example, Sampler's trial-based program with Starburst increased the quality of Target.com reviews by 11.5% by getting products into likely buyers' hands. These delight customers and drive behaviors well beyond ROAS.

Retail Media's Three Body Problem

Every retailer that has dabbled in this space has their own internal flywheel that articulates their retail media value proposition against the broader business strategy — how retail media serves to feed the goals of the retailer. Inevitably, we all try to make these flywheels seamlessly fit for our three most important constituents. And it goes something like this:

The Retailer

Improve profitability, drive more traffic, capture fair share, create a competitive moat, increase media weight.
The Supplier

Drive incremental growth, conquest competitors, secure space, understand how people shop the brand, control how dollars are spent at retail.
The Customer

Provide them with… more relevant advertising.

In this week's Retail Media Leapfrog Series — articles that serve to help merchants, operators, and retail marketers leapfrog incumbents leveraging learnings from real retail media architects — we talk about the three body problem in retail media.

Clearly we've spent a heck of a lot of time thinking about the business problems we're addressing from the lens of a retailer and its suppliers, but not as much on the problems we're solving for our customers. And if we want to keep this retail media thing growing, we're going to need to think about the customer a lot more.

Body No. 01The retailer, by the numbers.

From a retailer perspective the benefits are clear, and where we spend our time is on the decision to build a retail media business, or the complexities of operating one. Deloitte Digital has great data on this from a 2023 survey of 450 retail executives in the U.S.

Deloitte Digital chart: five top concerns companies have before launching a retail media network — data security and privacy 74%, complexity of technology 70%, insufficient first-party data 69%, unsure of value or benefit 68%, perceived high competition 70%; plus five actual operating challenges. None reference the supplier or the customer. — Five top concerns before launching a retail media business · Deloitte Digital survey of 450 U.S. retail executives, 2023

From data security to staffing to measurement, there's a lot to think about, because this is a relatively new business model for retailers. You'll notice the concerns make no reference to the two other bodies — the supplier and the customer.

Body No. 02The supplier, by the numbers.

From a brand perspective, the focus is along the lines of: 'what is holding me back from investing at greater scale?'

DoubleVerify chart: challenges brands and advertisers face using retail media networks, August 2023 — high costs 30%, lack of quality verification 30%, limited on-site ad space 30%, limited activation options 30%, lack of industry standards 27%, managing multiple RMNs 27%, limited first-party reporting 26%, measurement and attribution difficulties 22%. — What hampers brand investment in retail media · DoubleVerify, “The Rise of Retail Media,” 2023

A 2023 DoubleVerify study suggests the core challenges brands face relate to cost, ad space, standardization, and measurement. These responses are pretty consistent across most surveys. Skai's 2023 study found additional challenges including supply chain and poor ROI.

Skai bar chart: critical challenges marketers face that could slow investment growth to retail media — poor ROI relative to other channels 58%, proving incrementality 37%, selling more D2C 26%, managing so many retailers 24%, supply chain issues 22%, poor content 10%, missing talent 8%, lack of product assortment 8%, too new 7%. — Growth challenges that could slow retail media investment · Skai, 2023

Notice again that customer (shopper) considerations are not top-of-mind for brands either.

Body No. 03The customer, by the numbers.

What is retail media? Does anybody else feel like they're getting retargeted a lot more lately? — The Customer

One might argue the customer benefit isn't top-of-mind because it's obvious — 'of course it's good for them, they get more relevant ads!' But as a customer, when you get retargeted with the things you've already bought, or a system decides you fit a cohort for something else, does it make your shopping experience more joyful?

You could also argue that because it drives sales, it's clearly relevant, so they must like it. But that's a big leap — assuming that just because someone bought something off an ad, it was of value to their experience. So what is retail media's real value for the customer? Let's look at what that customer ultimately wants.

What does the customer want?

As it relates to 'buying something new,' a McKinsey & Company study found that product availability and value were by far the most important factors.

Availability and value dominate the decision to try something new · McKinsey & Company COVID-19 US Consumer Pulse, 2020

Many other surveys suggest that more information about the product is key to making a purchase decision — especially online. What customers want is reasonably consistent across the board:

The thing I want to buy is available to purchase.
It's the right value (pricing, quality).
You make it easy for me to buy it — good information, easy-to-use tech, low shipping costs.

Does what we do in retail media support any of those things? Certainly — but indirectly.

How retail media indirectly impacts the customer.

Many of the early-stage retailers in the retail media space were grocers, operating on very thin margins (1–3%). Retail media can offer access to effective, high-margin dollars that can be reinvested in things like lower shipping costs for online grocery, easier-to-use platforms, or growth marketing — which can deliver economies of scale and ultimately reduce the cost of goods for consumers.

In this, retail media can tick at least two boxes of the 'customer wants' — it indirectly reduces the cost of goods, and it can reduce the cost of things like shipping. But what of the supplier in this equation? Are they not simply paying a premium to support better profitability at the retailer? Two considerations:

There's an expected margin baked into media already — upwards of 50% — meaning that when brands advertise outside of retail, they're paying premiums for multiple intermediaries and the places those ads appear. It's how Facebook maintains a ~35% profit margin.
Return on investment tied to retail media is relatively strong — meaning that, regardless of the premium cost of the ad, it's generating a positive return.

How retail media directly impacts the customer.

For this we turn to decades-old shopper marketing activations — events, in-store demos, at-home sampling and more. Co-funded activities that allow customers to experience products, be delighted, or have a little fun along their shopping journey.

Within the sphere of retail media, these activities are relatively new — having historically sat on separate teams within the retailer. And they're often slightly more complex to operate than programmatic ads, so they get a lot less attention.

A flat-lay of at-home sampling products — amber dropper bottles, balms, and a kraft box surrounded by purple flowers and copper beads on a lilac background — an example of retail media that directly creates a delightful customer experience. — At-home sampling — retail media that directly creates a delightful customer experience

But these more customer-centric, retail-media-powered activations work in spectacular ways — far beyond an ad in a retail search. For example, Sampler — who has powered omnichannel trial-based experiences for Kroger, Target, L'Oréal and more — ran a program with Starburst focused on increasing the quality of reviews on Target.com. By getting products into likely buyers' hands, they delighted potential buyers and increased the quality of reviews by 11.5%.

Solving the third body.

Retail media has the ability to offer so much more to our customers than just relevant ads. It can:

Surprise and delight them.
Create opportunities for trial.
Build engaging experiences.
Reduce the cost of shopping.
Improve their shopping journey.
Enhance content — and more.

As we think about how we continue to evolve this space for growth and longevity, we need to spend a lot more time focused on the benefits to our most important constituents. In this, we've solved the impossibly complex three body problem in retail media.

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Retail media's three body problem.