Retail media shifting to performance based pricing?

Chris Pash
By Chris Pash | 8 April 2024
Credit: Victor Freitas via Unsplash

Retail media, fast growing to a multi billion dollar sector in Australia, is shifting towards performance based pricing models, according to a local study by commerce marketing practice The Mars Agency. 

This includes cost-per-click (CPC) or cost-per-acquisition (CPA), where advertisers only pay for measurable results. 

“These pricing models provide greater transparency and accountability, aligning the interests of advertisers with the objectives of the retail media network,” says Mars in its Retail Media Report Card which evaluates eight networks in the grocery, pharmacy, liquor, and ecommerce sectors. 

“By incentivising results-driven advertising campaigns, performance-based pricing models encourage advertisers to optimise their campaigns for maximum ROI and drive incremental sales.

Retail media, one of the fastest growing ad channels and potentially one of the most valuable in years to come, has been hard for media buyers to ignore over the past few years.

The local market is estimated to be attracting more than $1 billion in ad dollars and perhaps growing at 20% a year.

Morgan Stanley estimates retail media spending in Australia on in-house/owned ad platforms will grow to $2.8 billion in 2027.

Hope Williams, head of commerce at Kinesso, IPG's connected intelligence company, says you could argue that performance-based pricing models are already in play if you narrowly look through the lens of the lower funnel or platform-based performance marketing.

Amazon offers CPC buying, as do most retailers who have search enabled.

“However, if we consider the full flywheel of retail media and its potential, we have a long way to go in achieving true outcome-based marketing and it remains incredibly rare in our ANZ retail media landscape,” says Williams.
“Coles360, for example, has only just released phase one of its measurement platform, Impact. A great step in the right direction but far from outcome-based buying across the full retail media offering.

“For performance-based buying to become the norm here, we need to course correct on standardisation, measurement and attribution - areas where some retailers are not transparent. I would even argue that we need an independent third party to verify the results to ensure transparency.

“The shift towards outcome-based buying, where advertisers only pay for actual sales or conversions, is a positive development that would no doubt unlock more spending in this space. However, we need to ensure that the measurement and attribution systems are robust and reliable first.”

Harrison Bland, eCommerce Director at Zenith Media, says performance-based pricing models vary depending on the user’s definition of a retail media activation. Is it onsite, offsite, managed service or self-serve? 

“At its core, onsite self-serve retail media offerings in ANZ operate with performance-based pricing models as standard, with metrics like cost-per-click (CPC) a primary metric for optimisation. 

“Cost-per-acquisition (CPA) objectives are commonly found in offsite activations, where broader audiences are targeted in a significantly larger inventory pool, most commonly used in programmatic display to deliver to required cost-per-acquisition (CPA) results.”

Retailers and marketplaces prioritise shopper satisfaction and experience above all other factors. 

Where cost-per-click (CPC) and cost-per-thousand (CPM) metrics naturally flex dependant on factors like inventory, competition bids and others, cost-per-acquisition (CPA) objectives often result in high frequencies which can negatively impact shopper experience – something retailers and marketplaces are likely to avoid. 

“A more sophisticated approach, which Amazon already utilises, is dynamic and rules-based bidding,” says Bland.
“This approach provides a guideline for activations, working to identify the right individuals to target, rather than relying on overly high frequencies to convert.
“While aligning to the interests of advertisers is important, aligning to the interests of shoppers is paramount.”

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