Who WIll Win Their Fair Share Of Commerce Media?

Who Will Win Their Fair Share Of Commerce Media? A COMMISSIONED STUDY CONDUCTED BY FORRESTER CONSULTING ON BEHALF OF PUBMATIC, SEPTEMBER 2023

© FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. The retail landscape is undergoing rapid change, and retailers need to adapt or risk falling behind. Changes in customer expectations, increased need for high-margin revenue streams, and the devaluing of third-party cookies have led retailers to turn to commerce media as a significant part of their future strategies and a significant source of revenue going forward. In August 2023, PubMatic commissioned Forrester Consulting to explore what the commerce media landscape looks like today, what challenges retailers are facing, what there is to be gained from expanding or beginning commerce media programs, and what the keys are to a successful commerce media network. We found the following: 1. Commerce media is growing rapidly. Data shows it nearly doubling in a two-year span, and retailers are hoping to nearly double it again going forward after that. 2. Commerce media offers transformational benefits to the business. Retail leaders see commerce media as a way to significantly increase high-margin operating income, diversify their revenue streams, improve CX for end customers with more relevant ads, and improve relationships with brands. 3. Early returns are exceedingly positive. Ninety-five percent of retailers that have adopted commerce media say their programs are exceeding or meeting ROI expectations. However, there are still varying levels of success. This study examines what separates retailers with the greatest ROI from their lower-success peers to understand what effective commerce media looks like. 4. Retailers face significant barriers to success. Despite commerce media programs performing well compared to expectations, retailers still struggle with considerable challenges across technology, processes and logistics, and people and organizations. 5. Knowledge and strategy are key. The most consistent issue retailers face is a lack of internal expertise to deploy their commerce media programs strategically, which leaders cited as the greatest key to success. Going forward, organizations are turning to their technology partners to fill in knowledge and expertise gaps and to help retailers build their commerce media networks in both tactical and strategic ways. Executive Summary And Key Findings

How is commerce media growing? Why now? What successes are retailers seeing? 1.1 The Commerce Media Landscape Commerce media: Media that enables both retail and non-retail advertisers to connect with audiences throughout the buying journey on retailers and publishers across the open internet, leveraging large-scale commerce data to improve experiences, and tying ad spend directly to outcomes

5 © FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. 87% say their organization needs high-margin income from advertising to support its overall business. 87% say times of economic uncertainty have increased their organization’s urgency to diversify its revenue streams. 87% say the first-party data retailers collect has more value today than ever before. 86% say customers want and expect more personalized advertising and shopper experiences than they did in the past. Retailers are feeling the need to adapt by diversifying their revenue streams and creating more personalized customer experiences. The retail landscape is evolving … Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and UK

6 © FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. 90% say demand from advertisers for commerce media has increased significantly during the past 12 months. … and this has resulted in a significant increase in demand for commerce media over the past 12 months. Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023

© FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. Retailers have been able to turn this demand into a reasonably large increase in revenue, but there is still significant work to be done. 12 months ago 1.51% Today 1.91% 12 months from now 2.66% Ideal 4.37% “What percentage of your overall revenue comes from commerce media ads today? What would you expect this percentage to be 12 months from now? What percentage was it 12 months ago? What percentage would you ideally like it to be?” Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 Base: 190 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK

8 © FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. Effective commerce media networks can create transformational benefits to retail organizations. “To what extent can your organization achieve the following benefits from having an effective commerce media network?” Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 77% 77% 78% 78% 80% 82% Use of brand dollars to reduce the cost of marketing and sales efforts Ability to improve relationship with brands Better customer experience for end customers through more relevant ads Growth of e-commerce traffic to my organization’s site and app Ability to diversify revenue streams Increased revenue/highmargin operating income Significant/transformational benefit Decision-makers expect significant or transformational benefits to key areas of focus, like higher margin income, better CX, and diversification of revenue streams needed to compete in the evolving retail landscape and times of economic uncertainty.

9 © FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. Return on investment for commerce media thus far has been great, although there are varying levels of success. “Thus far, how has your organization’s return on investment (ROI) for its commerce media network compared to your expectations?” Base: 257 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 In this study, we will compare retailers with “high success” in commerce media to those with “low success” to better understand what a mature commerce media program looks like. What separates organizations that are already thriving from those that are just beginning their commerce media journeys? 1% 4% 28% 46% 22% ROI has far underperformed expectations. ROI has somewhat underperformed expectations. ROI has met expectations. ROI has somewhat exceeded expectations. ROI has far exceeded expectations. High Success Medium Success Low Success

10 © FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. High-success retailers are more focused on improving relationships with suppliers and consumers and monetizing first-party data. Low-success organizations are more focused on finding revenue streams or they are just piloting commerce media. “Which of the following are motivating factors behind your organization expanding its use of commerce media?” 42% 65% 54% 56% 62% 61% 32% 57% 70% 73% 77% 80% My organization is experimenting with commerce media, and it may or may not be a long-term strategy. My organization wants higher margins or incremental revenue opportunities. My organization wants to deepen its relationships with consumers. My organization wants to get more from its loyalty program. My organization wants to deepen its relationships with suppliers. My organization wants to better monetize its first-party data. High Success Low Success Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023

11 © FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. High-success organizations are considerably more effective in three core components of commerce media strategy: “To what extent do you agree with each of the following statements?” (Showing percent “Agree/completely agree”) Base: 309 Commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 81% 77% 79% 91% 91% 95% My organization is able to effectively balance first-party data monetization with CX. My organization is able to prove the incrementality of spend within its commerce media network. My organization currently has the necessary resources and partners in place to meaningfully scale its commerce media program. High Success Low Success 1. Securing the necessary resources and partners to scale 2. Ability to prove ROI 3. Ability to balance monetization with CX

What do commerce media offerings look like today? How are they changing? What do commerce media buyers look like today? Where are they sourcing their budgets? What do they care about? How many buyers are retailers selling to? 1.2 Commerce Media Offerings And Buyers

13 © FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. While most revenue today comes from onsite search, there is a significant push toward offsite going forward. Say most of their organization’s commerce media revenue comes from onsite search. 80% Expect the proportion of their commerce media revenue that comes from offsite to grow significantly during the next year. 81%

© FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. Retailers are managing an average of more than 1,000 end clients as part of their commerce media networks … Average number of end clients 1,035 19% 17% 31% 20% 7% 5% 1% 1% 0% 0% 1-99 100-499 500-999 1,000-1,999 2,000-2,999 3,000-3,999 4,000-4,999 5,000-7,499 7,500-9,999 10,000 or more Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK “How many end clients does your organization manage as part of its commerce media network today?”

© FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. 7% 14% 19% 31% 17% 7% 4% 1% 1% 0% 1-99 100-499 500-999 1,000-1,999 2,000-2,999 3,000-3,999 4,000-4,999 5,000-7,499 7,500-9,999 10,000 or more … and that number is only increasing. Average number of end clients expected 12 months from now. 1,660 Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK “How many end clients does your organization expect to manage 12 months from now?”

16 © FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. 12% 31% 59% 90% Separate dedicated budget National media (e.g., TV, radio, print but not digital advertising) budget Digital media (e.g., social marketing, search marketing) budget Existing shopper/trade marketing budget Today, advertisers mainly pay for commerce media with existing digital media, trade marketing, and shopper marketing budgets. Very few have separate dedicated budgets. “How are your organization’s advertisers most commonly sourcing their budgets for commerce media today?” Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK High-success orgs are twice as likely to work with buyers with access to a dedicated commerce media budget, although percentages are still low. 8% 16% Separate dedicated budget High Success Low Success

© FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. Advertisers want more transparency than retailers want to offer when it comes to first-party data. “To what extent do you agree with each of the following statements regarding firstparty data use within your organization’s commerce media network?” The balance with this data can be challenging, and this may inhibit the ability to unlock dedicated budgets and incremental funds. This conflict, among others, creates friction in the relationship with advertisers. Advertisers want transparency with first-party data. Advertisers demand more transparency with first-party data than my organization wants to offer. 87% 92% My organization prefers to limit advertisers’ use of first-party data to onsite placements. Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 85% There is significant tension between my organization and our advertisers. 51%

Where are retailers falling short today? 2.1 Areas Of Improvement

© FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. The majority of organizations fall short of where they need to be with their commerce media strategies. Top challenges fall under three main categories: 1. Inability to scale and sufficient inventory 2. Providing advertisers with positive buying experiences 3. Being able to measure and provide data to advertisers Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK “To what extent do you feel your organization’s current commerce media offerings fall short of where you believe they need to be for success?” 43% 53% 53% 54% 55% 55% 55% 56% 57% Return on investment (ROI) for commerce media strategy Diversity of media formats Ability to report to advertisers in real time Ability to give advertisers data about industry total impressions Scaling across advertisers Ability to measure cross-channel sales attribution Ability to measure in real time Buying experience for advertisers Breadth of available inventory Fall somewhat/significantly short of where we need to be

21 © FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. Low-success retailers are more likely to fall short with their ability to scale and provide sufficient inventory, which damages the buyer experience. “To what extent do you feel your organization’s current commerce media offerings fall short of where you believe they need to be for success?” (Showing percent falling short) Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 50% 52% 60% 61% 62% 63% 68% 70% 76% 45% 45% 46% 43% 36% 45% 48% 34% 7% Ability to measure in real time Ability to give advertisers data about industry total impressions Diversity of media formats Ability to report to advertisers in real time Buying experience for advertisers Ability to measure cross-channel sales attribution Breadth of available inventory Scaling across advertisers Return on investment (ROI) for commerce media strategy High Success Low Success

What technology, process, and people challenges do retailers face with their commerce media networks today? What holds retailers back from improving? 2.2 Road Blocks

23 © FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. Technology Challenges The current technology retailers use for their commerce media networks (often a combination of point solutions and repurposed tech) falls short of their needs. “Which of the following technology challenges does your organization face with its commerce media network?” Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 50% 53% 54% 57% 58% 61% 61% It’s challenging to bring my organization’s commerce media tech stack in-house. My organization’s commerce media tech stack does not have good user experience and/or is difficult to use. My organization’s technology does not interface well with demand-side platforms. My organization’s technology is disparate and siloed. My organization’s technology does not provide enough flexible buying mechanisms with regard to data usage. My organization’s technology does not provide a great onsite consumer experience (e.g., latency). My organization’s technology does not provide centralized reporting and optimization levers.

24 © FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. Process & Logistical Challenges Retailers face numerous process and logistical challenges, each with drastically different solutions. This creates even more problems in solving these issues because no one initiative will address each problem. “Which of the following process/logistical challenges does organization face with its commerce media network?” Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 50% 53% 54% 54% 55% 55% 55% 55% My organization struggles to handle sensitive first-party data in accordance with regulatory requirements. My organization struggles to unify and synergize onsite, offsite, and in-store media advertising. My organization struggles to deliver consistently relevant advertising to consumers. My organization doesn’t get enough support from technology partners. My organization struggles to scale and manage high volumes of advertisers. My organization is unable to get enough advertisers. My organization struggles to manage available advertising inventory. My organization struggles with reporting on the performance of ads and lift across channels.

25 © FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. Organizational & People Challenges Retailers lack the resources and expertise needed to drive effective commerce media outcomes and struggle to prove their value. “Which of the following organizational/people does organization face with its commerce media network?” Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 53% 53% 58% 61% My organization lacks sufficient buy-in to grow its commerce media program. The management of my organization’s commerce media program is fragmented across disparate teams. My organization struggles to prove the value of commerce media to brands and to help them rationalize commerce media within their overall mixes. My organization doesn’t have enough headcount.

© FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. Retailers struggle to improve their commerce media networks without the resources they need. Organizations are particularly held back by a lack of the knowledge, and they support needed to improve their commerce media. They don’t feel like their tech partners are supporting them here. 16% 28% 29% 31% 32% 33% 37% 41% Lack of budget Too small of an organization to have more of an impact Proving the value of retail/commerce media to advertisers Lack of site and app traffic to warrant onsite monetization Lack of executive support Lack of internal capabilities/resources Lack of support from ad tech vendors/partners Lack of understanding of best practices “What barriers have held your organization back as it has worked to improve/implement its commerce media network?” Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 Base: 309 commerce media strategy decision-makers at retail and/or travel organizations in the US and the UK

Is commerce media going to play a significant role in retailers’ strategies going forward? What are retailers’ plans for commerce media networks in the future? 3.1 Future Strategies And Plans

© FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. The vast majority agree that commerce media networks are a fundamental component of retailers’ future strategies. 83% of decision-makers say their organization’s commerce media network is a critical part of its strategy going forward.

30 © FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. Going forward, organizations are looking to change the way they are handling their tech either by moving it in-house or switching partners. Either way, the message is clear: Retailers feel they need more out of their commerce media technology. 25% 42% 43% 46% 47% 47% 49% 51% Run UX studies on ads Deepen partnerships with agencies Host user events to get advertisers together to share best practices and to be a thought leader Have more partnerships with media companies to attract upper-funnel campaigns Gain greater focus on nonendemic brands Add additional ad placements, including offsite and in-store placements Switch technology providers Bring the organization’s commerce media tech stack inhouse Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 “What does your organization plan to change about its commerce media strategy going forward?”

What are the most important factors in commerce media success? What differentiates high-success organizations from low-success ones? What are the keys to choosing a good technology partner? 3.2 Keys To Success

© FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. 34% 34% 35% 35% 35% 35% 36% 37% 40% 41% Increasing the total revenue and incremental margin delivered Monetizing data without degrading customer experience Having a streamlined workflow in platform tools and approvals Working with technology providers who ensure brand safety Being able to export data from the commerce media network Having a clear strategic direction Having real-time data capabilities Having attribution capabilities Working with the right technology provider Having the right internal skills Very important Having the right skills and strategy are critical for commerce media success. Decision-makers say having the ability to execute commerce media programs strategically and with the right expertise and partnerships is more important than using a particular capability or tool. “How important are each of the following for commerce media success?” Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK Note: Showing top 10.

© FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. Choosing the right technology partner and taking advantage of their strategic support plays an enormous role in success. Low-success organizations are nearly twice as likely to lack sufficient support from technology partners. “Which of the following commerce media capabilities would you most like your organization’s commerce media technology provider(s) to add?” Knowing the importance of expertise and well-planned program execution, retailers are turning to their technology partners to provide them with strategic support. 35% 35% 36% 36% 40% 41% 43% 45% 46% 48% Flexible cost structure Unified auction capabilities Consistent shopper identity Onsite activation Data clean rooms Self-service platform Transparent cost structure Identity resolution Strategic support Sales and marketing support Top 3 Ranked 60%of low-success retailers don’t get enough support from their technology partners COMPARED TO 38% of high-success retailers.

34 © FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. What capabilities do retailers look for in their technology partners? Base: 309 commerce media strategy decision-makers at retail and/or travel organizations based in the US and the UK Source: A commissioned study conducted by Forrester Consulting on behalf of PubMatic, August 2023 “How important are/were each of the following when evaluating commerce media technology providers?” 70% 71% 72% 72% 73% 74% 77% 77% 81% Clean room capabilities Bundled services Flexibility of buying mechanisms Transparency of pricing Technology integration level Time-to-monetization Omnichannel reporting Consistent shopper identity Data privacy Somewhat/Very important say their organization needs a unified auction solution across its properties to drive monetization and acquisition across multiple tactics and data sets. 86% Data privacy is top of mind … … as are unified auction solutions, flexibility, customization, and scalability. say their organization needs a flexible yet custom commerce media network solution that provides seamless CX to drive multiple tactics in one place. 82% say their organization would like a tool to enable advertisers to buy across retailers because it is too small to scale. 81%

35 © FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. Commerce media networks should outsource technology where possible. Agility and features are key to successful media networks, and many of these solutions (e.g., measurement, audience targeting, auctions) are readily available from best-in-class partners. Commerce companies don’t have the talent or time to develop these capabilities in-house. Sophisticated measurement will be key to commerce media growth. Merchants must have well-constructed customer data platforms to provide true incrementality metrics to brands and advertisers. Improved measurement is also likely to reduce tension during joint business planning meetings. Offsite inventory is a promising commerce media frontier. As third-party cookies disappear, large commerce players are well-positioned to serve relevant ads. Offsite and in-store ads are much larger advertising opportunities than current onsite solutions. Commerce media companies should align their monetization teams and e-commerce. When goals are aligned and reporting structure is linear, ad placement is less likely to clutter pages, new ad formats are tried, and additional site traffic becomes even more important. Generative AI can address talent limitations. Because tests and different creative iterations can be limited by people who can create and run those tests, generative AI promises an infinite amount of copy and images for testing, personalization, and experimentation. Small commerce media networks should aggregate and form a supply-side cooperative. Most commerce companies are not large enough to warrant being a walled garden. By joining a larger network and sharing relevant insight, they function like long-standing catalog-marketing cooperatives. Key Recommendations

© FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. In this study, Forrester conducted an online survey of 309 commerce media strategy decision-makers at retail and/or travel organizations that are based in the US and the UK and generate $500 million or more in annual revenue. Respondents were asked a series of questions related to their organizations’ current commerce media programs, their challenges with these programs, and their plans for the future. The study began and was completed in August 2023. Methodology Project Team Josh Blackborow, Senior Consultant Steven Mullahoo, Associate Consultant Contributing Research Forrester’s Consumer & Digital research group ABOUT FORRESTER CONSULTING Forrester provides independent and objective research-based consulting to help leaders deliver key outcomes. Fueled by our customer-obsessed research, Forrester’s seasoned consultants partner with leaders to execute their specific priorities using a unique engagement model that ensures lasting impact. For more information, visit forrester.com/consulting. © Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester®, Technographics®, Forrester Wave, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. [E-57907]

© FORRESTER RESEARCH, INC. ALL RIGHTS RESERVED. RELATED FORRESTER RESEARCH “The Marketer’s Guide To Retail Media,” Forrester Research, Inc., February 2, 2023 “The State Of Retail Media,” Forrester Research, Inc., July 11, 2022 “The Trifecta That Makes A Best-In-Class Retail Media Network,” Forrester Research, Inc., October 25, 2022 Get in touch with ’s best-in-class team to learn more about how they can help you strategically grow your commerce media programs. Explore More

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