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10 minutes of expert insights every weekday. Your morning ritual for staying ahead in retail media.
Costco Reveals its Retail Media Tech Stack
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[00:00:00] Kiri Masters: So apparently this article that I'm about to share with you was the most read article on the whole website for the drum, the week that it was published, ~which was um,~
[00:00:10] ~which is an accomp, which is a first for me as a comant. ~Which is a first for me as a columnist at The Drum [00:00:15] starting last year. So I'm excited to share this with you. Got a lot of attention when I shared it on LinkedIn also, and honestly, I completely understand why, because I have been
[00:00:29] banging this [00:00:30] drum for almost a year now about how retailers should really. Talk more about their tech stacks and their USP so the advertisers really understand how they're [00:00:45] investing in technology, how they're investing in capabilities for advertisers. I think it's part of a bigger problem of retailers not really effectively marketing their RMNs.
[00:00:59] It's due to a [00:01:00] lot of different reasons. I shared it in a post, um, last year. I might do a recap soon, but. Kind of comes down to a number of different factors. Retailers are very sort of traditional companies.
[00:01:12] A lot of them kind of shy away [00:01:15] from promoting themselves a whole lot. And so if you are the head of one of these retail media, networks inside a retailer, kind of hamstrung a little bit about what you can say and what you can announce. It's not always, you know, the preference of these [00:01:30] retail media network leaders to be so secretive about it, but there's a number of different reasons.
[00:01:35] Why they tend to be very secretive about what their tech looks like. Anyway, all of that to say that there was a little [00:01:45] bit of a bomb that went off at NRF, earlier in January when Mark Williamson, the leader of Costco's, RMN, got up on stage at a event and just shared the company's. [00:02:00] Tech stack right there on stage with names, mapped it out, and of course everyone's phones went up to take pictures of this tech stack.
[00:02:08] And it created definitely a bit of a hubbub at NRF. So of course, I, [00:02:15] I jumped right on and I wrote a post, um, sharing this. And, um, I'm going to just share some highlights of this with you rather than reading the whole piece. Because of course we'll link up to the full post in the show notes. [00:02:30] Let's jump in.
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[00:02:32] Kiri Masters: So setting the stage here, retail media generates high margin revenue for retailers, and that is attractive when most retailers operate on razor thin margins. Looking at [00:02:45] retail media that different, types of retail media can offer 40, 60, 80% profit margins. But Mark Williamson argues that it creates a dangerous temptation for retail media leaders [00:03:00] like himself, which is chasing advertising profit at the expense of merchant outcomes at the ultimate objective of selling.
[00:03:09] Merchandise at some point. You know, if taken too far, the whole thing will fall apart. [00:03:15] Here's what he said On stage, it's not necessarily either or, it's what's the order of operations, what's the hierarchy? If you chase after profitable media revenue, you may undermine your efforts to drive real customer [00:03:30] value.
[00:03:31] Costco's hierarchy is explicit sales velocity. Comes first, the member experience and member renewals come first. And there is definitely, you know, the [00:03:45] merchant at Costco seems to be the top dog, so that creates an unusual dynamic. Transparency in the tech stack serves two audiences.
[00:03:57] Merchants who control supply [00:04:00] relationships need proof that advertising actually accelerates their goals, which is to sell more stuff, and advertisers need to understand how the system works well enough to trust it. And so Mark said. For my merchant [00:04:15] partners, the ones I rely on for support driving incremental sales.
[00:04:18] Sales velocity is a prerequisite for their support. If we can't help them turn more product, then what's the point? So I've profiled this dynamic before, not just [00:04:30] with Mark at Costco, but also another one to call out is Molly Gelm at Ace Hardware, who told me that retail media should show up in the merchant's p and l rather than operating as a separate profit center and
[00:04:43] so Mark is making the same [00:04:45] bet at a significant scale. Did you know that leading retail media networks drive 85% of their ads through [00:05:00] mid and long tail advertisers?
[00:05:02] Miracle Ads provides full funnel ad formats tailored to both one P and three P advertisers leveraging unique AI capabilities that provide unprecedented levels of [00:05:15] relevance and engagement. Retailers who want to capture ad spend from the long tail of three P Marketplace sellers use miracle ads in their tech stack.
[00:05:25] Learn more@miracle.com. That's [00:05:30] M-I-R-A-K l.com.
[00:05:32]
[00:05:33] Kiri Masters: Now, do you want me to read out the whole tech stack on a podcast? I'm not sure it's exactly the right format for that, but I will just say that the infrastructure divides [00:05:45] into four layers each designed around a specific function of service in service of that sales velocity goal. I'll just call out the four sort of layers, and if you wanna get more deep into, okay, which [00:06:00] solution providers are they actually using for each of these layers?
[00:06:02] Then you can check out the article. So there is a unified data foundation, which is really important for everything else that comes after that because everything flows from membership [00:06:15] data because at Costco membership is the number one item that is sold without members. In a club environment, there is no one to sell anything to.
[00:06:25] So retail media that disrupts member retention, breaks the flywheel, and so that is why this [00:06:30] data foundation is super important to Costco in particular. Next level is the activation channels we have in retail media on sponsored product ads, et cetera. Offsite retail media [00:06:45] and in person in, in real life, which obviously includes in store, but also includes things like, traditional print, like the Costco Connection Magazine.
[00:06:54] Layer three is the measurement layer. So that is essential for connecting digital ad exposure [00:07:00] to online and in warehouse transaction data. And then finally, layer four, the operation side is a self-serve model as well as a direct sales model that is really important for expanding the [00:07:15] potential pool of advertisers that are willing to activate that So coming back to the importance of merchandising strategy, mark described Costco's merchandising strategy in simple terms, value, quality, assortment, [00:07:30] newness and promotion. That's what keeps members returning. And retail media's role, if it's working properly, should just be fuel on the flame.
[00:07:39] This willingness to reveal the tech stack publicly signals something important [00:07:45] to advertisers. Costco views them as partners worth being transparent with transparency builds trust. That's true of both consumers and media buyers, agencies and brands continuing to invest in retail [00:08:00] media want to know that their dollars are being shepherded effectively and efficiently.
[00:08:04] What better way to demonstrate investment in the advertiser relationship than showing exactly how you're using best in class solutions across the value [00:08:15] chain? Most retailers guard these choices when there's little benefit to doing so.
[00:08:21] The secrecy creates friction and suspicion, and Mark's approach suggests an alternative that openness and infrastructure can [00:08:30] strengthen partnerships than weak in competitive position.
[00:08:34] The lesson for other retailers in my view, is not to copy Costco's specific vendor choices. What works for them and what's important for them as a [00:08:45] huge club retailer is not going to be the same for a regional or a category specific retailer. It's about getting clear on your own strategic objectives and building accordingly, [00:09:00] then being transparent about those choices with the partners who need to understand them.
[00:09:04] That transparency enables collaboration at multiple levels, Vendors on the tech side understand what problems actually need solving. Other [00:09:15] retailers can learn from the strategic approach without copying the specific stack. Advertisers can make informed decisions about where to allocate budgets based on actual infrastructure rather than marketing claims retailers, maintaining secrecy should ask themselves, what [00:09:30] are we really protecting?
[00:09:31] And is it worth the cost in advertiser trust and ecosystem collaboration? Thanks for listening. You can check out the full article on retail media breakfast club.com and I'll catch ya [00:09:45] tomorrow.