Retail Media: A New Budget Allocation Model

Matteo Bizon is a PPC Specialist at Bobsled, an Acadia company.

Retail media is slowly emerging as one of the biggest topics of the moment, with an increasing number of options becoming available for omnichannel brands. No matter a brand’s size or niche, it will have opportunities to reach consumers at all stages of the funnel across any and all platforms. 

There’s just one problem: 

Most brands’ budgets are not growing at the same pace as these rising opportunities in retail media. This is one of the biggest issues - and opportunities - of our time. 

So, which channels are worth it? What channels will end up being a waste of time? What should be funded first? 

These are the questions that I want to answer as retail media budget allocation has been a hot question for all, and the topic of our most recent research at Bobsled that launches on May 19: Retail Media Allocation. As a preview, I’m bringing this important info to the blog to help you learn how to allocate your retail media budget through the right channels despite an overwhelming array of options out there. I highly recommend that you attend our webinar on May 19, where we dive into the framework, and how we’re using it with clients at Bobsled, and share tactical tips from brands about how to implement this model within your own company. 

Two Current Allocation Methods (And Why They Don’t Work)

A lot of our brands are currently using one of two main allocation approaches with their retail media spend. However, neither of these methods is ideal for growth. Unless the ultimate goal of the brand is to achieve item-level profitability, these methods just won’t promise too much growth. Let’s review these two methods and further break down their issues. 

1. Allocation By Retailer or Platform

This approach is designed to consider the gross revenue that a certain platform generates for the brand as a percentage of the brand’s overall revenue. The budget is allocated in a way that corresponds with the revenue being earned. A common phrase for this is “top-down” allocation, which is a very common method for most companies. It is easy to calculate and it can help a company understand what platforms need more money allocated to it and which ones don’t.

However, this approach is quite backward compared to some of the better budgeting methods out there. Instead of looking ahead to predict profitability and growth, this method forces brands to continuously look behind them to factor in historical revenue. 

2. Allocation By Metrics

Brands can identify target metrics they want to achieve and allocate some of their retail budgets to different channels, ad types, and funnels based on whether these metrics are over-performing or under-performing there. This is another easy allocation method to calculate, though it can be dangerous to compare metrics across different platforms. 

While allocation by metrics can facilitate predictable, consistent profit margins, this method places a prominent upper limit on growth. It is especially important for brands to recognize this if they are targeting mostly ROAS and profitability-oriented metrics. 

Overall, both of these methods can contribute to irreversible misalignment between strategic goals and implemented campaigns, causing brands to miss a lot of opportunities for improved retail media strategy.  

Bobsled’s Ad Budget Thesis: Allocation By Funnel Stage

There is a lot of evidence to support Bobsled’s view that these current budget allocation models are seriously flawed. The retail media space is ever-changing, with the number of available advertising channels rapidly expanding. Watching brands struggle to achieve growth while using one of the above two methods has led to the thesis that brands should allocate their retail media budgets by funnel stage - not by platform!

Marketing funnels are good at identifying three key stages in the process of a shopper purchasing a product: 

1. Awareness
2. Engagement
3. Final Transaction

When mapping out a brand’s total retail media landscape, it is easy to see which ad types have helped to drive specific outcomes. There is essentially an ad type for every type of goal a brand can conceive, and each of these ad types is tailored to very specific stages of the marketing funnel. In its ideal state, the ad type will be able to easily produce the desired results. In the current top-down and metric-driven allocation methods, different ad types are hardly even considered.

Instead of building up a unique advertising strategy for each platform they are on, brands should be designing a campaign around the most important objective they want to achieve. Objectives can be at the brand, company, product, or retailer level. As an example, some brands are looking to maintain a contribution margin across the board for the whole company, while others want to focus on growing a category share on a specific platform.   

The Retail Media Funnel

By identifying the main objective of the brand or its specific products (typically growth or profitability), ad campaigns can be set up with ad types that support that specific objective. 

Retail media campaigns, when set up the right way, can immediately locate the shopper at any point in the journey and help guide them towards an ultimate purchase. It’s important to figure out what is best for your brand: to serve ads to shoppers at the beginning of their shopping journey, or at the end? 

Ads at the Beginning: Growth 

Showing ads to consumers at the start of the shopping process is a fitting action for brands looking at growth as their main objective. Ad types are usually based on impressions, allowing the advertiser to target audiences based on different interests or demographics. Brands can also use keyword-driven ad types to target broad, generalizing keywords. For instance, a brand that sells organic food for pets may utilize keywords such as “pet food” and “dog food” to attract as wide an audience as possible. 

Ads at the End: Profitability 

If a brand is looking to serve ads to shoppers near the end of the transaction process (but before the final purchase), it has an objective of profitability. Many different ad types can be used during this stage, with popular options being PPC ads and long-tail keyword targeting for increased conversion rates. 

Using the pet food example from above, a long-tail keyword targeted for conversion may look like “organic dog food kibble 12 lbs”, which is much more likely to coincide with exactly what consumers are looking for. This dramatically increases the probability of conversions and sales. 

💡 Learn more about this framework and a case example with the full report: Retail Media Allocation

How This Framework is Already Helping Brands

We came up with this framework by considering the bigger picture. It’s important to take into account the different data and challenges presented by each platform in order to more accurately integrate advertising efforts across them. Once doing this, we indexed every single ad type and targeting option made available on each platform we provide support for, categorizing them by their purpose and objective. 

Using our new framework, we can help brands accurately measure any missed opportunities as well as the best solution to ensure better alignment across all platforms in the future. We want to help brands achieve their ultimate goal in the most efficient and successful ways possible. 

Agile Brands are Best at Adapting

One interesting thing that came up in my conversations with different eCommerce leaders about brands was that many of them have a sense of rigidity that is hard to let go of. There were several instances of clients using incredibly siloed marketing structures, with each campaign and marketing type being sectioned off on its own with no intercommunication. 

Unfortunately for rigid brands, retail marketing requires a lot of flexibility. If a company is able to adapt a more agile approach while using our framework, it will lead to better goals and higher success in the long run. 

Consider a New Retail Media Budget Allocation with Bobsled

This new budget allocation method can be a strong start to helping brands understand the specific role that each platform plays, as well as their individual strengths and weaknesses. Depending on the brand’s ultimate objective, different channels can provide different possibilities. Our marketing funnel allocation philosophy is always congruent with the anticipated evolution of the evolving retail media space. Strategy and insight should always be prioritized over other emerging trends. 

This is an incredible opportunity to shape the future not only of your brand but of the entire retail marketing landscape. You can find more information about what internal factors contribute to your success by visiting our Amazon Maturity Matrix to measure your status in your Amazon and omnichannel marketing journey. 

Get the full report with 20+ tactical tips and ideas, a client case, and deep dive into this model.

Download the report or attend our live webinar on May 19.