Retail Media Networks and Loyalty Programs — Better Together

Retailers are embracing new sources of revenue outside of the traditional retail model — from rethinking how to use their physical stores to monetizing their delivery networks to utilizing their customer data for revenue streams such as advertising. Large retailers such as Target, Kroger, and Walmart are cashing in on the shift away from third-party data, leveraging the retail media network (RMN) model to sell their valuable customer data across digital and physical properties.

Much like walled gardens, including Google and Amazon.com, RMNs rely on a unique blend of proprietary audience and contextual data to entice advertisers. Unlike walled gardens, RMNs enable campaign building, activate potential buyers, and measure results outside of their traditional capabilities. And advertising using retailer customer data works, as proven by Amazon's announcement of $31 billion in ad revenue for 2021.

At the same time that retail brands are turning to RMNs for a revenue boost, many are faced with stagnation across their loyalty programs — historically a great revenue generator, but one that many brands and retailers are struggling to perfect with shifting consumer behaviors. Loyalty networks don’t have to play second fiddle to newer revenue streams. Rather than competing for internal resources and attention, RMNs can actually help retailers recharge their loyalty programs in a mutually beneficial relationship.

Creating a Customer Data Engine

One reason brands are attracted to RMNs is the ability to target a known customer with a relevant ad. This happens best when the seller (i.e., owner of the retail media network) has a broad and deep data set that helps the buyer (i.e., the brand) reach the best possible audience.

To create a great data set, retailers with media networks need more than recent search and purchase history (which is good for bottom-of-the-funnel performance advertising but not as good for brand advertising). Retailers can attract a wider set of media dollars with an attractive offering at different points across the customer lifecycle. One good option is to tap into their loyalty program to broaden and deepen customer understanding, as well as delight and engage customers.

Loyalty programs of all models can be used to enhance RMN effectiveness, but it’s important to assess what drives effective advertising for brands (vs. what drives loyalty for the retailer) in terms of both audience and data points about that audience. For example, The Home Depot has two very effective loyalty programs (for its professional contractor and military audience segments) that build strong engagement and profits for the company. The brand’s RMN must determine whether the audiences and data points for those programs are also translatable to other brands.

If an audience is valuable to other brands, the RMN must ensure it can offer data points that correlate to advertising success. For instance, understanding that a professional contractor is purchasing building supplies might not be as important as understanding that a DIYer is purchasing those supplies, which could indicate a significant shift in their life such as a home purchase or major renovation.

With the added value that loyalty data affords the RMN, it might be possible for these retailers to justify investment in a loyalty refresh. Consumers expect value in return for data, therefore retailers can’t be lazy or too stingy. They need to take the time to understand their customers and create emotions by offering relevant experiences, gated content, exclusive access to products, and other perks that offer real value — enticing more people to become members and to get current members to engage and share more data.

On the other hand, the goal with a RMN is to gain additional revenue through the monetization of customer data, which means that the customer data needs to be tailored to the brands buying the data. Combining those goals, especially after a tough two years for loyalty, means brands need to rethink how they can entice loyalty members and what they should both ask for and offer to those members.

Ulta Beauty is a great example of this concept of connecting loyalty value to retail media network value. The retailer recently announced the launch of its RMN, which its team is marketing as being more valuable because it's based on Ulta’s 37 million member strong loyalty program that promotes the value of the data that comes from the company's high-value loyalty members. With the new offering, the RMN enables partner brands to send hypertargeted ads that are directly tied to loyalty program insights aimed at delivering value specifically to these members through offers and experiences.

Finding Value for Loyalty and Data Monetization

With both buyers and sellers focused on customer data, it makes sense for deeper partnerships to evolve between these groups.

Brands on the buy and sell side of the RMN need to consider the value of the customer data behind the retail media network. When a broad, deep loyalty program is the basis for much of the data collection, then both targeting and measurement will be stronger and more accurate.

Therefore, RMNs should consider expanding loyalty program data collection or adding in additional loyalty perks to attract specific audiences that are valuable for the media buyer brands they're targeting. For instance, people purchasing baby food from Kroger are an attractive audience for advertisers in categories like healthcare, home, toys and baby gear — not Kroger’s primary group of retail brand partners — but a big opportunity on its retail media network.

For brands that are media buyers on RMNs, finding high-value (not just high volume) audiences is the key to success — and that’s where loyalty comes in. It’s important to find media networks that provide data-driven targeting capable of helping brands dial into the right audience, at the right time, with the right message. In the long run, it’s much more expensive to market to a larger pool of less-valuable consumers than it is to market to a smaller, more expensive group of relevant, interested consumers.

Laura Carrier is a retail consultant to Sailthru, a company that personalizes individual customer experiences across digital communication channels—in email, on a brand's website and in their mobile applications..