Retailers are combining their long-standing practice of charging shelf or slotting fees with the modern-day online advertising strategies to find a new, lucrative, and meaningful revenue source. By charging consumer goods manufacturers to place advertisements on their sites, big retailers can drive sales, leverage their consumer knowledge, and earn revenues beyond just their retail margins.
For big retail names such as Target and Walmart, the wealth of customers who visit their sites—already primed and ready to make purchases—offer great promise to consumer goods manufacturers. For example, Dyson enjoyed a bump in the sales of its allergen-filtering vacuum when it paid Target to push advertising for its devices to consumers who previously had bought a lot of antihistamines. By gaining this virtual “shelf space,” but also leveraging the effectiveness of big data–informed targeting, Dyson doubled its sales rate through the site.
Similarly, large grocery chains might push Heinz ketchup when consumers visit their sites to do their weekly shopping and enter simply “ketchup” in the search bar. These consumers have signaled their clear intention to buy the condiment, so reaching them with a brand recommendation at this point in their purchase journey can be highly effective. Accordingly, the Kraft Heinz corporation has announced that it plans to spend four times as much on ecommerce marketing tactics as it did last year, much of it devoted to grocery channels.
For retailers, this tactic represents a new and effective revenue source. They earn anywhere from $.25 to $2 per click on an advertised product. The range of pricing mostly reflects the focal product categories, such that products that people tend to buy repeatedly prompt higher charges, because the manufacturer knows that it is likely to earn more from an interested consumer over time.
It also has more knowledge about what it is earning. Unlike advertising on conventional search engines, retailer-specific marketing efforts give the advertisers a much clearer view of what customers do after they see an advertisement. When Tesco posted banner advertising for a particular brand of dishwashing detergent for example, it determined how many people viewed the advertisement, then determined that this group of consumers spent approximately $132,000 buying the product. It could go even further, specifying that 6 percent of those sales occurred in stores. That is, Tesco was able to inform the consumer goods company that not only did its advertising initiate sales through its website, but it also increased sales in the physical, offline channel.
The data analysis in this case continued to other measures too. For example, it showed that more than 2,200 consumers added the detergent brand to their “favorites” list on the retailer’s website, implying a heightened level of customer loyalty.
Discussion Questions:
- How do retailers like Target use big data to reach target customer groups?
- How do they earn returns from these efforts?
- What are the benefits of such tactics to the consumer goods manufacturers that advertise on the retailers’ sites?
Source: Emma Thomasson and Racha Naidu, Reuters, July 26, 2018