A New KPI for Retail Media – Supply Chain Management Effectiveness

In this article Utilizing Retail Media for supply chain management Using Retail Media to reduce profit drains Key considerations for supply chain management Impacts on physical retail A solution to help

The rise of Retail Media has brought about a paradigm shift in advertising, enabling brands to tap into purchase-ready customers on retailer-owned properties and start personalized, commerce-ready campaigns offsite.

As with any burgeoning new ad medium, conversations have turned to Retail Media KPIs, and a growing consensus that ROAS isn’t quite right. Any KPI that is strongly linked to revenue or profit is likely to be a better fit, and the spotlight is shifting toward iROAS – or Incremental ROAS.

Utilizing Retail Media for supply chain management

Increasingly, we’re hearing about the potential to use Retail Media as a tool for supply chain management.

The concept is simple: if you have high stock on the West Coast of the USA and low stock on the East Coast, why not ramp up Retail Media activity in the West and dial it back in the East?

Supply Chain Management Review notes that, “in a Retail Media-enhanced supply chain, systems are seamlessly integrated to evaluate individually focused advertisements in conjunction with location-specific SKU inventory levels.”

While that sounds simple, it is in fact quite complicated to achieve. Where you do and don’t have stock is a critical consideration, but many other factors influence what actions you should take.

Using Retail Media to reduce profit drains

It’s also worth considering how Retail Media might be used to reduce profit drains, including levels of remnant or obsolete stock.

Typically, brands end up buying back or offering huge price reductions and as such they are not keen on using their hard-fought Retail Media budget.  This is where agencies can help supply chain management — the more entrepreneurial ones are open to alternative commercial models where the media cost is funded wholly or in part by the agency in exchange for a higher return.

Key considerations for supply chain management

  • How do we navigate short-termism?  

If you move stock from A to B to solve a short-term issue, do you run the risk of running out of stock in location A?  It’s vital to know what stock you have, as well as what the depletion rate is by location.

  • What’s the cost/benefit of moving stock?  

If your margin is $2 per SKU, but it will cost $1 per SKU to move it from A to B – is it worth it?  The answer to this question is nuanced, and a big consideration is switching ease. If you risk losing loyal customers to a competitor the cost/benefit may stack up, but if your product has some uniqueness and/or high switching costs a short lull in availability may be worth enduring.

  • What is the potential impact on share of shelf?  

Most Retailers and Marketplaces actively demote products that are low on stock and some even penalise low or out-of-stock SKUs for some time after the stock has been replenished.

  • What is the potential impact on joint business plans?  

Similar to the above, most JBP’s have clauses relating to stock control which can have a substantial impact on margin.

  • What is the forecast for demand in the coming weeks?  

If demand is set to spike in location A but dial back in B, then moving stock and/or adjusting Retail Media spend may not be needed. Crucially, Retail Media can play a significant part in the forecasting task.

Retail Media platforms have a wealth of data on customers, and they know their preferences and purchasing patterns. This data, especially over a decent time frame, can help supply chain managers optimize inventory management, improve demand forecasting, and plan distribution strategies.

Impacts on physical retail

It’s important to consider these wider factors before you start to use Retail Media to manage stock and other supply-chain-related issues. But there is no doubting the power of Retail Media to assist in the supply chain management process.

The potential increases further when we consider physical retail. Today, most stores have static promotions, but we are rapidly moving to a future where in-store promotions are digital and can be bought programmatically.

Once that becomes commonplace, we’ll have the ability to dial up/down Retail Media spend by individual store – an effective tool for micro-location stock control.

A solution to help

It’s clear that Retail Media data can help with supply chain planning, and, with the right tools, talent, and other data sets, it can also help actively manage supply chain issues as well.

However, the solution is only as good as the data being ingested from Retailers, which today is far from standardized.

That’s why we see our Unified Retail Media Solution as a cornerstone of effective Retail Media activation and allied uses like supply chain management.

If you’d like to learn more about our Unified Retail Media Solution, or how to use Retail Media as a tool for supply chain management, please get in touch.

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A New KPI for Retail Media - Supply Chain Management Effectiveness