business case for retail media networks

8/14/2019 Business Case for Retail Media Networks

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TheBusinessCaseforRetailMedia

Networks

TrendsReport: September2007

By:

NikkiBaird

ManagingPartner

Sponsoredby:


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TableofContents

ExecutiveSummary ..........................................................................................................................................iSECTION

I:

Overview...................................................................................................................................... 1WhyTheStudyWasConducted ................................................................................................................ 1Methodology ............................................................................................................................................. 1RetailPanel ................................................................................................................................................ 1

SECTIONII:BusinessChallenges..................................................................................................................... 3PlacingDigitalSignageinContext.............................................................................................................. 3ConsumersareHardertoReach................................................................................................................ 3ManufacturersTurntotheStore............................................................................................................... 3RetailersSeekDifferentiation.................................................................................................................... 4

SECTIONIII:OPPORTUNITIES.......................................................................................................................... 5TechnologyPlaysanInescapableRole ...................................................................................................... 5HowInStoreMediaContributestoSales ................................................................................................. 5TurboChargingResults:ValueAccelerators ............................................................................................. 7

SECTIONIV:OrganizationalBarriers............................................................................................................... 9Cost ............................................................................................................................................................ 9Risks ......................................................................................................................................................... 10TheNetResult ......................................................................................................................................... 12

SECTIONVI: TECHNOLOGYENABLERS......................................................................................................... 14Evolution,NotRevolution........................................................................................................................ 14TheBasics ................................................................................................................................................ 14Advancing

Past

the

Basics........................................................................................................................ 14

BeyondAdvanced.................................................................................................................................... 14SECTIONVI:BootStrapRecommendations .................................................................................................. 15

TechnologyAndTheBuyingProcess ....................................................................................................... 15BuildingAnInStoreMediaStrategy ....................................................................................................... 15


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HaveYourSay .......................................................................................................................................... 16APPENDIXA: TheBOOTMethodology ...........................................................................................................aAppendixB:HypotheticalRetailerExample................................................................................................... bAPPENDIX

C:

About

Our

Sponsor....................................................................................................................c

APPENDIXD: AboutRSR ................................................................................................................................ e


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Figures

Figure1:PromotionContributionfromDigitalInStoreMedia ..................................................................... 6Figure

2:

Implementation

and

On

going

Cost

Assumptions......................................................................... 10

Figure3:NetIncomeStatementImpactofDigitalInStoreMediaonHypotheticalRetailer...................... 13


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EXECUTIVESUMMARY

Retail media networks arent revolutionary, but do play an important part in a technology revolution that over time is

significantly transforming how consumers engage with retailers. However, before that technology can get off the ground,

retailershavetobeabletounderstandthevaluethataretailmedianetworkcancontributetotheirbusiness.Thisresearch

aimstostartthatconversationbyprovidingahypotheticalbusinesscaseforaretailmedianetwork.

THEBUSINESSCHALLENGE

Retailmedianetworkssitattheheartofaconvergencepoint.Consumersarehardertoreachinthehome,andmanufacturers

andretailersalikeareseekingnewwaystoreachthem.Atthesametime,consumersareincreasinglyacceptingoftechnology

aspartoftheshoppingexperience,givingretailersanopportunitytouseboththeefficiencyandtheleverageoftechnologyto

reachconsumersmoreeffectively.Retailmedianetworksarentreallyrevolutionary,buttheconvergenceofallthesefactors

consumer,manufacturer, andretailertogethercreatesanenvironmentwhererevolutionispossible.

OPPORTUNITIES

Retailmedia

networks

contribute

to

sales

by

moving

the

levers

of

impressions,

awareness,

and

compliance

to

generate

lift.

Our

retail intervieweessupportedabusinesscasemodel thatgeneratedanadditional2%of revenue through theuseofaretail

medianetwork.Theyalsonotedsoftbenefitsfromemployeetraining,customersatisfaction,andadrevenue.

ORGANIZATIONALBARRIERSANDHOWWINNERSOVERCOMETHEM

Costandriskarethetwobiggestorganizationalbarrierstoimplementation.Thebiggestcostisthehardware,andaswithany

instore implementation of technology, retailers continue to seek ways to minimize the lumpsum impact. In one case, the

retailerdidsobyaligningtherolloutplanwithstorerefreshesandnewstoreopenings.Risksthathavethepotentialtosend

costsoutofcontrolorputbenefitsinquestionincluderisksfromorganizationalownershipthatcrossesmultipledepartments,

unanticipatedcostsfromsellingadspace,contentrisks(gettingthecontentrightandhavingenoughcontent),andrisksfroma

lackofmeasures.

Ultimately, the opportunities far outweigh the costs and risks. Our hypothetical business case showed a 1.1% increase in

revenueand5% increase inoperatingprofitinthefirstyear,anda2.3%increaseinrevenueand10.4% increase inoperating

profitinthesecondyear.

TECHNOLOGYENABLERS

Thetechnologytoimplementaretailmedianetworkismoreadvancedthanretailersarecapableofusingtoday.Tomakethe

mostofanimplementation,retailersneedtofocusonenablingaflexibleplatformthatwillhelpthemgrowmoresophisticated

overtime.

BOOTSTRAPRECOMMENDATIONS

Togetthemostoutofaretailmedianetworkimplementation,makesureyournetworkgoalsmatchupwithyourcustomers

buyingprocess. Identifythekeycustomersegmentsyouaretryingtoreachthrougharetailmedianetwork,and identifythe

buying process those segments follow. Then identify where instore media fits into that process design solutions around

specificcustomerneeds.Finally,measuretheimpactwithawelldefinedmeasurementstrategy.


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1

SECTIONI: OVERVIEW

WHYTHESTUDYWASCONDUCTED

Retailers are a cautiousbunch a technology needs tobe proven before it can make any headway in

termsof

adoption.

A

classic

example:

retail

media

networks

(RMN).1

This

technology

has

emerged

as

a

viable affordable technology within the past ten years. But while some retailers have successfully

deployedRMNs,overalladoptionwithin the industrystill remains low.Acriticalsuccess factor for the

technologyiscustomerandemployeeresponsetothemediumspresenceinstoresakeyfactordriving

thereturnoninvestmentinRMNsandformostretailers,thejuryisstillout.

Withmorethanthreeyearsofpilots,rollouts,andcasestudiesavailable,theindustryhasfinallybegunto

accumulatethedataneededtoovercomedoubtsandobjections,butadefinitivebusinesscaseforRMNs

onefocusedonthoseretailerswho lackanaturalbaseofadvertiserstofundanetwork,andfacethe

dauntingprospectofinstallingthousandsofdollarsofequipmentineachandeverystore isstilllacking.

The objective of this research is to define a methodology and create specific metrics around what the

financialopportunity,

or

business

case,

really

can

be.

METHODOLOGY

Everyone knows that getting retailers to talk about the business case for any technology solution is

challenging.Resultsarejealouslyguardedandthemoresuccessfultheresults,themorejealouslythey

are protected.SarbanesOxleyandmassmedia factoidshaveonlyuppedthechallengequotient. Even

retail practitioners that are willing to talk find themselves gagged by PR department concerns about

SarbanesOxleyorthatonemisquotedfigurethatlivesoninthepress.

Togetaroundtheseconstraints,RSRdevelopedauniqueapproachtooutlinethebusinesscaseforretail

medianetworksanobjectivemathematicalmodel,basedon retailerexperience. We interviewed a

select

set

of

retail

practitioners

to

gain

their

insights

into

selecting,

implementing,

and

maintaining

a

digitalinstoremedianetwork.Wealsoscouredmorethanthreeyearsofresearch,articles,casestudies,

and presentations for results that could be applied to nonadsupported networks. We used these

resourcesas inputs,developedahypotheticalbusinesscasefora500storeretailer,andthenaskedour

volunteer retail practitioners to review and comment on the business case to identify where the

business case was optimistic or conservative and to validate that the results were reasonable. This

documentanditsaccompanyingspreadsheetistheresult(seeAppendixB).

RETAILPANEL

Weinterviewedthreeretailers.

1Thistechnologyhasbeencalledmanythingsdigitalsignage, instoremedia,digitalmedianetworks.

WehavechosentousethetermRetailMediaNetworks,aphrasecoinedbyLauraDavisTaylorofRetail

MediaConsulting.Itencompassesthecriticalaspectsofthetechnologyretailspecific,mediabased,and

networked.


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2

Retailer#1,anonymous,isaspecialtyretailerinthemediaandentertainmentvertical.Thisretailerisintheprocessofrollingoutdigitalsignsaftera6monthpilottest.Thedisplaysarein

thefrontofthestoreandbehindthecashregisters,averaging4screensperstorewithnosound

anda30minuteloop(contentmayrepeatwithintheloop).Contentisallselfbranded,withno

paidadvertisers,thoughtheretailerhasbeguntotiepromotionsonthedigitalsignagenetwork

intopromotionstrategiesdevelopedwithsuppliers.Thebusinessistitle andnewreleasedriven,

socontent

focuses

most

on

making

consumers

aware

of

new

releases

and

future

release

dates.

A

fewminutesineverylooparededicatedtopromotinglocalevents. Thereisverylittlevideo

contentismostlyanimationofwhatwouldhavebeenstaticsignsinthepast.Weinterviewedthe

merchandisemanagerwhowasthemainbusinesscontactforthedigitalsignage

implementation.

Retailer #2, anonymous, is a small format specialty retailer with less than 100 stores. Theretailersellsgifts,clothing,andsomehomeaccessories,allprivatelabelmerchandisedeveloped

exclusivelyfortheretailer.Thecompanyhascompleteditsrolloutofanaverageof2digitalsigns

perstore,placedwithinlineofsightofthefrontofthestore,locatedinproximitytomerchandise

displays, rather than checkout stands. The content features a mix of video and animation of

staticsigns,

and

is

exclusive

to

the

retailers

brand

and

products.

The

one

hour

loop

with

low,

directional sound offers 2 minute segments on lifestyle content consistent with the retailers

brand, interspersed with promotions, local events, and brandbuilding content (content may

repeatwithintheloop).Weinterviewedthemarketingdirectorinchargeofcontent.

Retailer #3 isUPSCanada, themain franchisor forUPS retail locationswithinCanada. As afranchisor,theretailerhadtheadditionalchallengeofhavingtoconvincefranchiseestopayfor

andinstallthedigitalsignsoutoftheirownpockets.Storesaverageabout1signperstore,with

approximately100ofthechains300storesrolledout.Signsareplacednearthecheckout,but

notbehindthecashregisters,sothatthesigncanservebothasawaytoreduceperceivedwait

timeandasawaytoengageshoppersenteringthestore.Contentconsistsofa23minuteloop,

with

standard

promotional

spots

and

opportunities

for

franchisees

to

customize

their

playlist

from a library of content. Because the loop is so short, the retailer opted for no sound for

employeessakes.WeinterviewedtheCOO,MalcolmHouser.


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3

SECTIONII:BUSINESSCHALLENGES

PLACINGDIGITALSIGNAGEINCONTEXT

Retailmedia

networks

sit

at

the

heart

of

aconvergence

point.

Consumers

are

increasingly

comfortable

withtechnologyaspartoftheshoppingexperience,astheiradoptionandcontinueduseofselfcheckout

demonstrates.Andrightastheyaremoretolerantoftechnologyspresenceinstores,fragmentedreach

andthehighcostoftraditionalmediaaredrivingbrandownersmanufacturersandretailersaliketo

look for new ways to reach consumers. Retail media networks arent really revolutionary, but the

convergence of all these factors consumer, manufacturer, and retailer together creates an

environmentwhererevolutionispossible.

CONSUMERSARE HARDERTOREACH

Consumersareincreasinglydistractedinthehome.Studieshaveconsistentlyshownthatasinternetand

broadbandenter

the

home,

consumers

increasingly

divide

their

attention

between

multiple

media

outlets

at the same time. For example, a survey of consumers by BIGresearch found that nearly 40% of

consumersregularlybrowsedonlinewhilewatchingTVF2

As the number of simultaneous activities increase, and the time spent doing each one individually

decreases, advertisers ability to influence consumers in the home becomes more difficult. The well

documented decline of TV advertising recall over the years, combined with fragmented audiences as

consumersadjust tomore media choices, leads toaconsumeraudience that is increasinglydifficult to

reachinthehome.

MANUFACTURERSTURNTOTHESTORE

Manufacturersare

well

aware

that

the

advertising

future

does

not

lie

with

traditional

media.

A

study

conductedbyForresterNetworkinJulyof2006foundthat69%ofitsadvertiserrespondentsbelievethe

effectivenessofTVadvertisingisdeclining,and60%areveryactivelylookingforalternatives.3

Manufacturersareputtingtheirmoneywheretheirmouthsare thisdecadehasseenthebeginningof

majoradvertisingbudgetreallocationsasmanufacturersbegintoshiftfundsawayfromtraditionalmedia.

AccordingtotheWallStreetJournal,Proctor&Gamblecuttheircableadvertisingcommitments in2005

by25%,andbroadcastadvertisingcommitmentsby5% withinanadbudgetthat rose incrementally.4

ForresterNetworkssurveyfoundthat72%oftheadvertisersitsurveyedwerelookingtoinstoremedia

2

BIGresearch,

December

2006

for

15,167

US

adults,

compiled

by

Ad

Age

2007

FactPack,

Digital

MarketingandMedia

3IfNotTV?,anonlinesurveyconductedbythePartneringGroupandForresterNetworksinJuly,

2006.Formoreinformationaboutthissurvey,seehttp://www.reveries.com/reverb/research/not_tv/

4 Shelf Promotion: In a Shift, Marketers Beef Up Ad Spending Inside Stores, Emily Nelson and Sarah

Ellison,TheWallStreetJournal,September21,2005.


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4

as an alternative to traditional advertising, 50% rated instore advertisings overall effectiveness as

excellentorverygood,and54%wouldincreasetheirinstorebudgetattheexpenseofTV.F5

RETAILERSSEEKDIFFERENTIATION

Retailersare laserfocusedonprovidingahighquality,differentiatedexperiencetotheircustomers:our

research shows that customer complaints about their instore experience is retailers number one

concern, with 84% of respondents rating it an influential challenge.6

F RMNs offers the potential to

improve that experience through targeted messaging and timely product information delivered at the

shelf.

Retailersbusinesschallengesaresimilartothoseofmanufacturers. Whilethisanalysisdoesnotfocuson

the value derived from adsupported networks, manufacturers who are paying and playing on ad

supported networks have important lessons to offer. Manufacturers are driving three trends retailers

needtokeepinmind:one,thatthestoreplaysanimportantroleinreachingconsumers;two,thatmore

money is headed toward instore advertising now and increasingly in the future; and three, that

managementofinstoremediacontent,profitsandcostscrossorganizationalboundaries,andisboundto

causestrifewithoutclearorganizationalownershipandboundaries.

Ourintervieweesconfirmthesechallenges.Acrossthethreeparticipatingretailers,notoneownercomes

from the same organization one retailer manages their instore media through the merchandising

department,onethroughmarketing,andonethroughstoreoperations.Inonecase,theretailerisactively

seekingcontentfromsuppliers,butallthreeretailersexpressedhow important it istomaintaincontrol

overthecontentnoneofthemaresolicitingadvertisingdollarsfromtheirsuppliers,thoughtwohave

beenapproachedbysuppliersinterestedinadvertisingontheirnetwork.

5 If Not TV?, an online survey conducted by the Partnering Group and Forrester Networks in July,

2006.Formoreinformationaboutthissurvey,seehttp://www.reveries.com/reverb/research/not_tv/

6TechnologyEnabledCustomerCentricity intheStore,aBenchmarkResearchReport,PaulaRosenblum,

RSRResearch,January2007.


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5

SECTIONIII:OPPORTUNITIES

TECHNOLOGYPLAYSANINESCAPABLEROLE

Retailers are historically loathe to implement technology, especially in the store where the distributed

natureoftheretailbusinessmakesimplementationlongandtechnologysupportdifficultandexpensive.

Howevertherateofconsumertechnologyadoptionandtheincreasedneedfortechnologyscombination

ofscaleandleverage isforcingachangeofhearthelpedalongbytechnologyinnovationsthatmake it

easierandfastertodeployinstoretechnology,andcheapertosupportit.OurresearchshowsthatRetail

Winners(thosethatoutperformtheirpeers) inparticularhaverealizedthevalueof instoretechnology.

In a recent survey,90%ofRetailWinners said that their topopportunity for improving the instore

experience is through technology toempower andeducate instoreemployees. Adding selfservice

customerfacing technologies follows close behind, with 85% of respondents, identifying it as a key

opportunity.7

FRMNsplayanimportantroleinmeetingbothoftheseobjectives.

HOWINSTOREMEDIACONTRIBUTESTOSALES

Themain

driver

of

value

behind

digital

in

store

media

is

the

concept

of

recency.

Its

not

just

how

often

a

consumerseesanadthatmatters(frequency),itshowlongfromwhentheylastsawtheadtothepoint

wheretheyknowtheyneedaproducthowrecentlytheysawtheadthatcounts.

Thisispartlywhyadrecallratesfrominhomemediaaresomiserable(someestimatesputitatlessthan

25%andstillfalling),andpartlywhyrecallofadsseeninstoresissohighWalMartTVhasachievedat

leastdoublethat levelofrecall inmultipleNielsenMediaResearchstudies.Howmuchmoreprimedto

buycanaconsumerbethanwhentheyarestandingattheshelf?

Ultimately,instoremediacontributestoinstoresalesthrougharelativelysimpleformula:

ImpressionsXAwarenessXCompliance=Lift=Revenue

This works whether you are talking about an adsupported model or an inhouse model. Whether

someoneelse ispaying for thead,oryouare, theobjective istodriverevenuebyusingaretailmedia

networktopullontheleversofimpressions,awareness,andcompliance.

So what kinds of results are possible? Lets walk through a hypothetical example (see Appendix B for

detailed assumptions about the hypothetical retailer characteristics, and see the spreadsheet

accompanyingthisresearchfordetailedcalculations).

Assumption:15%incrementalliftfromproductspromotedonaninstorenetwork.Multiplestudieshaveshown that itemspromotedonan instorenetworkachieve incremental liftover

andabovethesameitemsinstoresthatdonthaveaninstorenetwork(whetheronpromotionthrough

othermeanscirculars,signage,etc.ornot).Benefitshavevariedwidelyfrom1060%,dependingon

whoyouask.Ourretailintervieweesagreedthat20%isafairrepresentationofproductliftattributableto

7TechnologyEnabledCustomerCentricity intheStore,aBenchmarkResearchReport,PaulaRosenblum,

RSRResearch,January2007.


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6

theuseofdigitalsignage.Oneretailerhasnotyetmeasuredthe liftassociatedwith itemspromotedon

theinstoredisplays,oneretailerconfirmed20%,andoneretailerestimatedthatitwascloserto30%.To

stayconservative,weused15%.

Assumption:10%incrementalliftfromimproveddisplaycompliance.Theretailersweintervieweddidnotexplicitlylookatthebenefitsfromcomplianceimprovementsaspart

of their business case more a reflection of the invisible problem of compliance than because they

didntbelievetherewouldbebenefits.Oneretailerestimatedthattheuseofdigitalsigns improved in

storecompliancefordisplaysfromabaseof75%toanaverageof95%,butcouldnotestimatetheimpact

suchcompliancehadonthepromotionitself.Tobeconservative,weusedanestimateof10% halfofthe

potentialimpactthatcompliancecouldhave,accordingtooneretailer,andinlinewithotherstudiesthat

haveshownthatdisplaycompliancecanleadtoaminimumofa10%boostinsales.8

Assumption:ThepercentofSKUsonpromotionmakeuproughlythesamepercentageofatransaction.

Inotherwords,if10%ofSKUsarebeingpromotedinastoreduringaweekonaverage,then10%ofthe

averagetransaction

value

is

made

up

of

promoted

SKUs.

This

is

actually

ahighly

conservative

assumption.

Oneintervieweefeltthattheproportionofpromoteditemsintheiraveragetransactionvaluewascloser

to30%.

Withtheseassumptionsinplacefora500storechainwith$2Binrevenue,anaveragetransactionvalue

of$11.57and8%ofSKUsonpromotionperweek,adigitalinstorenetworkcontributes$40Mor2%of

salestothetopline(seeFigure1).F9

Figure 1: Promotion Contribution from Digital In-Store Media

LiftCalculation:PromotionContributions

AverageTransaction

Size

$

11.57

AverageNumberofTransactionsperweek 3,324,247

Percentofaveragetransactionfrompromoitems 8%

$Valueofaveragetransactionfrompromoitems $ 0.93

LiftfromInstoremedia 15%

$valueofinstoremedialift $ 0.14

Lift

from

compliance

10%

8UsingTechnologytoImproveInStoreMarketing,JimBrennanandScottLiles,TheMcKinseyQuarterly,

April2007.

9Foradetaileddescriptionoftheassumptionsusedforourhypotheticalretailer,seeAppendixB.


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7

$valueofcompliancelift $ 0.09

Total$oflift $ 0.23

Newaveragetransactionvalue $ 11.80

Newrevenue $ 2,040,000,000

Contributiontorevenue $ 40,000,000

%increaseinrevenue 2.0%

Thisresult isconsistentwiththefindingsofour interviewees.UPSCanadareportedanincreaseofover

2.5%inrevenueinstoreswiththedisplaysoverstoreswithoutthem.

TURBOCHARGINGRESULTS:VALUEACCELERATORS

Direct

revenue

generating

results

provide

the

foundation

for

the

business

case,

while

softer

benefits

like

brand buildinghelped speed thedecisionprocess,according to our retail participants. In building their

ownbusinesscases,ourinterviewparticipantsdidnotfocusexclusivelyonthehardbenefitsofrevenue

thoughoneparticipantdidnotethattheircompanyexaminedandapprovedtheimplementationbased

onthedirectrevenuegeneratingbenefitsalone.Inallthreecases,theretailersnotedthatinternalbuyin

to the concept of building the brand through RMNs helped move them through the decisionmaking

processfaster.Thesofterbenefitsconsideredbyparticipantsincluded:

Employee TrainingBenefits: The impact of digital signage on employees is impressive. In CompUSAs

pilot,wherenearly200storeshalfwithandhalfwithoutdigitalsignswerestudied,employeesrecall

of both brands and important selling points of those brands improved significantly in the stores with

digital signage over those without. Employees unaided recall of brands advertised on the instore

network was 23% greater than control stores, and they were 32% more likely to recommend brands

advertisedonthenetworktocustomers.F10

F

Interviewrespondentsagreed.Whiletheyhadnotmeasuredtheextentofthisbenefit,theydidfeelthat

employeesbecamebettereducated.Twoparticipantsemphasized,however,thatmonitoringemployee

toleranceofthecontentplaysakeyrole inensuringthatemployeespayattentiontoandabsorbit.UPS

Canadausedashort loop23minutesbecause itscustomerswerent inthestoremuch longerthan

that, but chose not to use sound to reduce the wear and tear on employees. In the other case, the

retailer did use sound, but employed a longer loop of content to reduce employee irritation with the

displays.

Allof

the

interviewees

were

also

interested

in

the

value

of

using

the

network

to

reach

employees

when

thestoreisclosed.Theyseethisasanopportunitytohelpbuildemployeeloyaltyandsatisfaction.Using

videobasedcommunicationhelpsdevelopastrongeridentificationwiththecompanybrand.However,all

10ResultspresentedbyGeorgeEhingerofInStoreMediaNetworksatthe2005DigitalRetailingExpo,on

May18,2005.


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8

intervieweesalsosawthisasafaroffopportunitytheyaremore focusedongettingthepromotional

benefitsoutoftheirnetworkstodayandfortheforeseeablefuture.

CustomerSatisfaction:MeasuringcustomersatisfactionasaresultofanRMNisatrickything.Whenyou

askconsumersdirectly,theytendtobe lukewarmabouttheconcept,expressingdismaythatobnoxious

ads are following them into yet new territory. The reality, however, is different. In the right context,

consumers

perceive

an

enhanced

shopping

experience

or

at

a

minimum,

a

reduced

wait

time

when

standinginline.

Thekey istherightcontext. InCompUSAscase,theuseof instoremediawasseenbycustomersas

highly complementary to an image of technosavvy critical to a consumer electronics retailer

consumersurveysrevealedanoverallbetterimpressionoftheteststoresthanthecontrolstores,without

beingabletopinpointtheexactsource.Thisdoesntnecessarilytranslatewelltoothercategories.One

retailparticipantagreedasaspecialtyretailerthatdoesnotprovideconsumerelectronics,theydidnot

believethathavingthesignscontributedanyenvironmentallydrivenbrandelement,but theydidnote

that when traffic was slow, consumers tended to linger longer in the stores with instore media, as if

reassuredbyormorecomfortablewiththesoundandmotionofthescreens.

Inthe

case

of

UPS

Canada,

store

managers

and

franchise

owners

shared

anecdotes

of

customers

offering

unsolicitedpositivefeedbackaboutthecontentofthesignsthattheyhadbeenmadeawareofservices

andofferingstheyhadnotknownUPSprovided.

Ad Revenue: While ad revenue provides an opportunity for direct benefit, it is potentially the least

reliablesourceofrevenueforthosewithoutanaturallylargebaseofadvertisers.Inordertogetadrates

thatmakethecostofselling,certifying,andmanagingadspaceaffordable,retailersneedtohavecritical

massofsomesegmentseyeballs.WalMartwho,accordingtoUSAToday,had140advertisersonits

networkbythefirsthalfof2007istheexception,nottherule.F11

FCasestudiesandourintervieweesoffer

twopiecesofadvice.First,makesurethattheweightoftheretailerisbehindtheadsalesforexample,

expecttohavetovolunteersometime,perhapsinconjunctionwithatradepromotion,inordertoget

potentialadvertisers

interested

and

prove

the

value

of

the

space.

Intervieweesalsofeltstronglythatsellingspotstoadvertisersofcomplementarybrandsproductsand

servicesthatarenotcarriedinthestoreisrisky,andmayultimatelybeselfdefeating.Asoneparticipant

noted,Theyre inmystorewhywould Iwanttousetheirtimeandattentionsellingthemsomething

else?Anotherparticipantsaid,Justaswithinstoreradio,halfthepointofdigitalsignageistocontrol

thecontent,sothatImnotplayingcompetitorsadsinmystore.Ultimately,Imcompetingwithshareof

walletagainsteveryretailer.ThelastthingIwouldwanttodoisbringanotherbrandsmessagesintoplay

onmysigns.

11WalMarttakesinstoreTVtothenextlevel,LauraPetrecca,USAToday,March28,2007.


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10

Inonecase,theretailerchargedbackthecostofmanagingthenetwork,hostingthesoftware, funding

content, and maintaining the hardware back to stores. This charge ran $5060/month per store. The

retailer commented that theychose tocreate many inexpensive spots in order tobuildup a library of

contentquickly,withthe intentofaddinghigherqualityspotsovertimeoncethestoreshavepaidback

theinitialinvestmentincontentthroughtheirmonthlymanagementfee.

For

our

hypothetical

retailers

business

case,

we

assumed

an

implementation

of

2

screens

per

store

(see

Figure 2). Hardware costs per screen include the labor costs of installing the screen, any enclosure or

mounting,andanysupportinghardware,forexample,aplayerorwiringinthestore.

Figure 2: Implementation and On-going Cost Assumptions

Numberofscreensperstore 2

Onetimehardwarecostperscreen $ 4,000

Perscreenmanagedservicecost $ 60

Managed

services

setup

fees

$

100,000

Numberofmonthstofullrollout 12

Additionalbandwidthcostperstorepermonth $ 50

Yearlyinvestmentincontent $ 500,000

Oneoftheparticipantsdevelopedan implementationplanthattrackedwithstoreremodels, inorderto

buildsome

of

the

screen

provisioning

needs

power

and

connectivity

in

particular

into

the

new

store

design.Thissavedtheretailersomeimplementationcosts,butmeansalongertimelinetogetallscreens

upandrunning.

NoneofourintervieweesrequiredadditionalbandwidthtostorestosupporttheirRMNimplementations,

but to be conservative we included costs for that eventuality. Because all of our interviewees had

outsourcedcontentcreation,wewerenotabletogetagoodestimateforthosecosts,sowefollowedthe

managedservicechargebacktostoresthatoneofour intervieweeshadadoptedasawaytocapture

thesoftware,content,andmaintenancesupportcostsonaperstorebasis.

In pulling together the business case, we added new stores quarterly, and assumed the expenses

(including

expensed

capital

outlay)

came

the

quarter

before

the

stores

were

up

and

running,

and

that

the

benefitsbeganthequarterafter.Wealsoassumedthatanyadrevenuewouldnotstartuntilthefirstyear

that all stores were implemented (see the spreadsheet for the full calculation and timing of costs and

benefits).

RISKS

Therearetwokindsofriskstoanyimplementation:thekindyoucantmanage,andthekindyoucan.The

risks that youcan manage, if managed well, ensure that you maximize your benefits while minimizing


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13

Figure 3: Net Income Statement Impact of Digital In-Store Media on Hypothetical Retailer

Year 1 Year 2

WithoutDisplays WithDisplays

%

Change WithoutDisplays WithDisplays

%

Change

Revenue $ 2,100,000,000 $ 2,122,600,000 1.1% $ 2,205,000,000 $ 2,255,320,980 2.3%

COGS $ 1,260,000,000 $ 1,260,000,000 $ 1,323,000,000 $ 1,323,000,000

GrossProfit $ 840,000,000 $ 862,600,000 2.7% $ 882,000,000 $ 932,320,980 5.7%

OperatingExpense $ 420,000,000 $ 420,680,038 0.2% $ 441,000,000 $ 441,765,596 0.2%

NetCapital

Expenditures $ $ 880,000 $ $ 3,500,000

OperatingIncome $ 420,000,000 $ 441,039,963 5.0% $ 441,000,000 $ 487,055,384 10.4%


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14

SECTIONVI: TECHNOLOGYENABLERS

EVOLUTION,NOTREVOLUTION

ThetechnologycapabilitiestosupportRMNsarewayaheadofmostbusinessesabilitytotakeadvantage

ofthem.

This

means

that

anyone

embarking

on

an

RMN

deployment

needs

to

have

very

specific

goals

and

objectives and stick to them. Laying a strong foundation today means more flexibility to adapt and

evolveinthefuture.

THEBASICS

A first generation retail media network implementation needs to focus on the basics: the instore

hardwareconfigurationtostoreanddisplay instoremedia; thenetworktodelivercontentandensure

thatscreensareon,working,andplayingtherightcontent;andthecontentmanagementtoenablebasic

playlistcreationandmanagementaswellasserveasthefoundationforbuildinglargercontentlibraries

inthefuture.

Therewontbeenoughcontenttodoanythingfancier,anditwillbecriticallyimportanttomonitorthein

storehardwaretomakesurethatthescreensareplayingwhattheyshouldbeplaying(andthatsomeone

hasntturnedascreenoff).

Twoofourintervieweesalsosharedthattheyranintounexpectedcomplicationsaroundbandwidthnot

atthestores,butattheenterprise.Tryingtodistributethesamecontentacrossalargenumberofstores

becameproblematicforthenetworkpipecomingoutoftheenterprise,andhadtobereevaluated.

ADVANCINGPASTTHEBASICS

When there is enough content to support it, the next phase of technology capability will be around

segmentationand

day

parting.

Also,

integration

to

other

systems

will

help

automate

play

list

creation,

enabling analyticsbased customization of play lists by store. While integration to other systems for

example, marketing automation or point of sale is minimal today, as segmentation and dayparting

becomemorecomplex,theywillplayanimportantroleinenablinggranularityintargeting.Forexample,

integrationtoPOScanbeusedtopreventthedisplayofanad foraproductthat isoutofstock inthe

store.

BEYONDADVANCED

RMNsultimatelyareheadedforinteractiveandpersonalizedexperiencesinstores.Interactivemediawill

becomean importantcomponent ifonlytohelpboosttheabilitytomeasureresponseratesto instore

media.

Not

every

ad

or

promotion

will

need

to

be

interactive,

but

as

other

technologies

are

deployed

in

store,aconvergencebetweentherolesdifferenttypesofscreensplaywillmeanthatcompanieslooking

at instore media today will need to consider the role that interactivity may play in the future. For

example, a kiosk may not be a kiosk 100% of the time, but may very well become part of the retail

medianetworkwhenthekioskisnotinuse.

Themoreflexibletheinfrastructureistoday,themorelikelyyouwillbeabletoevolveyourcapabilitiesas

retailmedianetworksmature.


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15

SECTIONVI:BOOTSTRAPRECOMMENDATIONS

TECHNOLOGYANDTHEBUYINGPROCESS

ThebiggestdriverbehindthesuccessorfailureofRMNsishowcustomersandemployeesrespondtoits

presenceinstores.Thebiggestchallengeforretailerswillbetofigureoutwhereinstoremediareallyfits.

Theclosertheygettotherightplaceandtherighttime,themore likely instoremediawhateverthe

businesscasewillbesuccessful.

Therightplaceandtherighttimemeanunderstandingtheconsumersbuyingprocessanddetermining

therolethatRMNscanplayinthebuyingprocess.Forexample,aretailerimplementinganinstorekiosk

with an interactive gift finder was finding acceptance of the kiosk in stores to be much lower than

expected.Theretailerobservedtheuseofthekiosk,andfoundassoonasacustomerapproachedit,an

employeewouldcomeuptothemandaskthemiftheyneededhelp.Thecustomerwouldthenshyaway

fromthekiosk,andeitherengagewiththeemployee,or,moreoften,wouldjustleave.Theretailerasked

employeestowaituntilitappearedthatthecustomerwasdoneusingthekioskandthenaskthemifthey

neededhelpfindinganything.Whentheemployeewaitedtoengagewiththecustomer,kioskusagewas

higher,and

customers

would

more

often

engage

with

employees,

asking

them

for

help

locating

some

of

thegiftideastheyhadjustfoundthroughthekiosk.

Instore media operates on the same principle. It is too late in the buying process to advertise a new

productwhentheconsumeriswaitinginlineatthecashregister.Conversely,advertisinghowtheretailer

contributestothecommunityisprobablynotthebestuseofasigngreetingcustomersastheycomeinto

thestore.

BUILDINGANINSTOREMEDIASTRATEGY

Togetthemostoutofaretailmedianetwork implementation,makesureyournetworkgoalsmatchup

with

your

customers

buying

process:

Identify key customer segments that you are trying to reach through instore media. Itseffectivenesswillnotbethesameacrossallcustomersegments,sofocusontheonesthatare

moststrategictoyou.

Identify the buying process those customer segments follow. This starts from the initialawarenessoftheneed,allthewaythroughpostpurchaseuseoftheproductsyourcustomers

buy.Differentsegmentswillfollowdifferentprocesses.Forexample,onecustomersegmentmay

useyourstoresasashowroomandbuyprimarilyonline.Anothersegmentmayuseyouronline

sitetoidentifythespecificbrandtheywanttobuy,andpurchaseinstore.

Identify where instore media fits into that process. For example, for the primarily onlineshopperwhojustcomesintoyourstorestoseethemerchandisebeforebuyingonline,digitalin

store media will probably play an information role these customers are either selecting a

specificbrandand looking for information tohelpthemdecide,orarevettingabrand theyve

alreadyselectedtomakesure itswhattheyreallywantandareseeking informationthathelps

themconfirmtheyvemadetherightchoice.Fortheshopperwhoprimarilypurchases instore,

instore media serves more of a promotional or crossselling role. This shopper is in the store


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16

becauseshealreadyknowswhatshewantstobuynowyouhaveanopportunitytomakeher

awareofotherthingsthatmaybeofinteresttoher.

Designinstoremediaprojectsaroundcustomerneeds.Liketheintervieweewhobalancedtheirinstore media across two objectives attracting people into the store, and promoting and

entertainingshoppersoncetheycameinitmaybenecessarytobalancedifferentneedsfrom

differentsegments.

As

long

as

you

keep

it

simple,

and

stay

focused

on

how

in

store

media

fits

intothebuyingprocess,itwillbehardtogowrong.

Identifyhowyouwillmeasure success and thenmeasure it. Nothing can undermine yourprojectfasterthanalackofresults!Whilemeasurementofinstoremediaisstillmoreartthan

sciencetoday,makingtheeffortprotectsandsupportsyourinvestmentandhelpsguideyouin

prioritizinghowyourretailmedianetworkwillevolve.

HAVEYOURSAY

Retailmedianetworksarentrevolutionary,buttheydoplayanimportantpartinatechnologyrevolution

that over time is significantly transforming how consumers engage with retailers. This report is not

intendedto

be

the

final

say

in

the

value

that

the

medium

contributes

to

that

relationship

retail

media

networksandhowconsumersandretailersusethemarestilltoomuchintheir infancyforanybusiness

casetobedefinitive.Itisintended,however,togettheconversationstarted,andtohelpthatalong,we

havecreatedablogwhereyoucancontributeyourownperspectiveonthebusinesscaseforretailmedia

networks.Toparticipate,gotohttp://www.retailsystemsresearch.com/_blog/recent.


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a

APPENDIXA: THEBOOTMETHODOLOGY

TheBOOTmethodologyisdesignedtorevealandprioritizethefollowing:

BusinessChallengesRetailersofallshapesandsizesfacesignificantexternalchallenges.Theseissuesprovideabusinesscontextforthesubjectbeingdiscussedanddrivedecision

makingacrosstheenterprise.

OpportunitiesEverychallengebringswithitasetofopportunities,orwaystochangeandovercomethatchallenge.Thewaysretailersturnbusinesschallengesintoopportunities

oftendefinethedifferencebetweenwinnersandalsorans.WithintheBOOT,wecan

alsoidentifyopportunitiesmissedanddescribeleadingedgemodelswebelievedrive

success.

OrganizationalInhibitorsEvenasenterprisesfindopportunitiestoovercometheirexternalchallenges,theymayfindinternalorganizationalinhibitorsthatkeepthemfrom

executingontheirvision.Opportunitiescanbefoundtoovercometheseinhibitorsaswell.

Winningretailersunderstandtheirorganizationalinhibitorsandfindcreative,effectiveways

toovercomethem.

TechnologyEnablers If a company can overcome its organizational inhibitors it can usetechnologyasanenablertotakeadvantageoftheopportunitiesitidentifies. Retailwinners

aremostadeptatjudiciouslyandeffectivelyusingtheseenablers,oftenfarearlierthantheir

peers.

AgraphicaldepictionoftheBOOTfollows:


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b

APPENDIXB:HYPOTHETICALRETAILEREXAMPLE

Inordertoprovideabasecasefordevelopingabusinesscaseforretailmedianetworks,westartedwitha

hypotheticalretailerof500stores,withannualrevenueof$2billion.Assumptionsused inthebusiness

case, for example, the number of stores, revenue, cost of goods sold as a percent of revenue, are

variablesthatyoucanchangetoreflectyourcircumstances.

Webasedourassumptionsandtestcaseonamidsizeretailerwithlargeboxspecialtystores.Storesize

averages 30,000 square feet, and we assumed 5 screens per store, operating a single channel (i.e., no

segmentation or dayparting) and a single loop of 20 minutes the assumed average dwell time of a

customer.Weassumedanaveragetransactionvalueof$11.57,and thatchainwideweekly foot traffic

averagedapproximately450,000people.

AllofthesearevariablesintheExcelspreadsheetthataccompaniesthisreport,andareavailableforyou

to change. If you are reading this report and do not have the spreadsheet, you can download it at

www.rsrresearch.com .

To use the spreadsheet, begin with the Start Here tab, which describes each of the tabs in the

spreadsheet,andhowtousethem.Thespreadsheetisintendedasatooltofacilitatediscussionaboutthe

potentialbusinesscase fora retailmedianetwork. It innoway replaces a retailersownduediligence

abouttheirspecificcircumstances.

If you have questions or comments about the assumptions or calculations in the business case, we

encourage you to share them in a public format, using the blog we have set up for that purpose at

http://www.retailsystemsresearch.com/_blog/recent, or by contacting the author directly: Nikki Baird,

[email protected].


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c

APPENDIXC: ABOUTOURSPONSOR

Cisco is the worldwide leader in networking that transforms how people connect, communicate, and

collaborate.Thecompanystechnologyischangingthenatureofworkandthewaywelive.

Founded in 1984, Cisco pioneered the development of Internet Protocol (IP)based networking

technologies. This tradition continues with the development of routing, switching, and numerous

advanced technologies: application networking services, home networking, hosted smallbusiness

systems,security,storageareanetworking,unifiedcommunications,videosystems,andwireless.

Asaninnovatorinthecommunicationsandinformationtechnologyindustry,Ciscoanditsvaluedpartners

sellCisco

hardware,

software,

and

services

to

businesses

of

all

sizes,

governments,

service

providers,

and

consumers.

CiscooffersaDigitalMediaSystemthatisacomprehensivesetofproductsforthecreation,management

andaccessofcompellingdigitalmediafordigitalsignageanddesktopvideo.WiththeCiscoDigitalMedia

System,customerscaneasilyconnectandreachtheircustomers,employees,orpartnersanywhereandat

anytime.Cisco'sDigitalMediaSystem,givesretailersthe flexibilitytocreatecustomizeddigitalsignage

screen layouts and provide flexible options for playback.Cisco also has aDesktopVideooffering that

enableslive broadcasts and videoondemand (VoD) sessionswith theability to manage audience

questionsandpresentations.

An

integral

part

of

Ciscos

business

strategy

is

strong

corporate

citizenship.

Responsible

business

practices

help ensure accountability, business sustainability, and commitment to environmentally conscious

operations and products. Social investments built upon partnerships with local organizations positively

impact recipientcommunitiesaroundtheworld.Asanexpressionof thecompanysvaluesandbeliefs,

theseactivitiesaredesignedtobuildtrustinCiscoandempoweritsemployees.


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APPENDIXD: ABOUTRSR

RetailSystemsResearch(RSR)istheonlyresearchcompanyrunbyretailersfortheretailindustry.RSR

providesinsightintobusinessandtechnologychallengesfacingtheextendedretailindustry,andthought

leadership and advice on navigating these challenges for specific companies and the industry at large.

RSRs services include benchmark reports covering the state of retailer technology adoption for topics

rangingfrommerchandisingandsupplychain,storeoperationsandworkforcemanagement,tocustomer

facingandmultichanneltechnologies.Customresearchreportsprovidemore indepthviews intotopics

of industry interest, and advisory serviceshelp retailersand technology vendors make themostof the

insightsRSRprovides.TolearnmoreaboutRSR,visitwww.rsrresearch.com .

Co pyright 2007 by Reta il System s Resea rch LLC All rights reserved . No part of the c on ten ts of

this do c ument m ay b e reproduc ed or transmitted in any form o r by a ny mea ns without the

pe rmission of the pub lisher. Conta c t [email protected] for more information.

business case for retail media networks

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