Why McKinsey sees ‘commerce media’ as the go-to media and marketing investment channel of the future

ecommerce changes

As e-commerce and retail media have separately made their mark on the media buying and selling business over the last decade — most notably over the last two years — one consultancy believes it’s time to look at the two as one big industry: commerce media that encompasses all the advertisers, retail media firms, media companies and shoulder industries that serve them.

And the thinking behind the rolling up of all that has to do with the power of connecting media investment to sales data in whatever form it takes, explained Quentin George, partner and Jon Flugstad, associate partner at McKinsey, two leaders of the firm’s commerce media practice. McKinsey estimates it all adds up to some $1.3 trillion in enterprise value.

  • Broken down that includes:
    $820 billion for retailers who develop new, margin-rich media businesses
  • $280 billion for advertisers in the form of higher returns on ad spending (ROAS)
  • $50 billion for publishers from new ways of capturing additional ad dollars
  • $5 billion for ad agencies that deliver high-efficiency performance marketing for clients or help firms set up media planning and buying capabilities
  • $160 billion for ad-tech providers who offer martech solutions to firms that have no experience as media companies.

“For the last 100 years, we’ve optimized media on impression delivery — did I reach the audience that I said I was going to reach?” said George. “The change here is, I can now connect an impression with a SKU level sale — not with a [checkout] basket, not with a credit card, but with a direct sale. And that is incredibly transformative for the industry.” 

What’s more impressive to the McKinsey executives is that the growth the world of commerce media is experiencing is largely incremental — CPG advertisers can’t seemingly get enough of it. 

“Our surveys [show] that somewhere around 70% of advertisers indicate that [when they buy ad time or space] on retail media, it’s somewhat or significantly better performance than what they can get elsewhere,” said Flugstad. “There’s no certain threshold or number that they’ll spend — if you’re driving performance they will keep shifting toward you. And therefore the pie that retail media can eat from is the broader digital pie.”

Clearly that power represents both incredible opportunity and a potential challenge to the agency world, as retailers and e-commerce firms take their story directly to brands. It helps to explain why some agency holding companies have taken steps to either partner with the bigger players of retail media, or have invested in their own shoulder and support businesses. 

“When you can measure things toward direct sales, more dollars go there,” said Megan Pagliuca, chief activation officer for Omnicom Media Group, which announced four separate e-commerce-related partnerships during the Cannes Lions festival. She recalled that Facebook became and ad juggernaut only when it changed its focus from brand advertising to a more DTC approach that drove eyeballs directly to advertisers’ pages. “When it’s directly attributable you can’t argue with that.” 

Industry analyst firm Forrester is working on its own research into the broader conjoining of performance, commerce and retail in the marketing ecosystem, and is finding that marketer are looking at it all as one as well. “The distinction at the client level between retail media performance media, or commerce media, is not a clear distinction,” said Jay Pattisall, vp and senior agency analyst. 

Another unifying factor to Pattisall is that virtually all the buying and selling activity across the landscape is data driven. “Performance media is driven by third-party data, commerce is driven by first-party platform data and retail media is driven by first-party retailer data. But the signals are similar in the sense that they seek to understand, who’s buying, what they’re responding to, and what it means for sales or conversion.”

Will this approach to media investment lead to a world of haves and have-nots, the latter being media that don’t deliver similar levels of sales results or business outcomes? “Is there going to be an expectation that all media should become better measurable? I hope so, that’s a good evolution,” said Pagliuca. 

Pattisall thinks the effect will be limited from a media point of view, because media can only be optimized so much. The creative side of marketing is where better optimization can happen. “Creative optimization comes from those same data signals of who’s responding to what andthose atomic elements of what’s being presented to them,” he said. “There’s a tremendous amount of work underway all across the industry to understand this … What combinations of information and content are most effective, rather than just where it’s placed?”


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