Ad agencies warn of retail media’s “diminishing returns”

The insight: Some ad agencies are pushing their clients to be more strategic with their retail media spending due to concerns about the ballooning number of retail media networks (RMNs), high CPMs, and the lack of standardization, per Digiday.

The note of caution comes as retailers push for a greater share of marketing budgets—particularly dollars set aside for national media campaigns—in an attempt to entrench themselves firmly in the advertising landscape.

Growing pains: The biggest concern among agencies is the question of whether spending more with a RMN results in higher sales and increased brand awareness. One anonymous executive told Digiday that “continuing to invest in sponsored products does not always translate to incremental sales,” adding that “there’s a point of diminishing returns.”

• Smaller retailers in particular face an uphill battle to win over brands, unless they can offer up access to unique, differentiated audiences that justify the cost of advertising.
• Two in three advertisers don’t plan to invest in new RMNs over the next few years, per data from the Association of National Advertisers.

Lack of standardization is also holding back investment—which is why players like Kroger and Albertsons, as well as trade groups like the Interactive Advertising Bureau, are pushing for industrywide standards that would make it easier for brands to measure the impact of their spending.

Yes but: Despite their doubts, advertisers continue plowing money into retail media.

• We expect it to account for $1 in every $4 spent on advertising by 2028.
• This year alone, retail media ad spending will grow 26% to $54.85 billion.
• While the lion’s share of that money will go to Amazon—with Walmart as a distant second—retailers that can offer brands the ability to reach new or incremental audiences, access their first-party data, and deliver strong return on ad spend have a better chance of standing out in a crowded field.

Go further: Read our report on The Retail Media Opportunity, or check out our US Retail Media Ad Spending Benchmarks: Q3 2024.