Can retail media compensate for weaknesses in performance media?

The saying goes that the first ever ad banner had a 44% clickthrough rate and it's been downhill ever since. That was 30 years ago. Contrast that to today where the average clickthrough rate for a display banner now sits below 1%, and it's clear how times have changed for performance marketing. 

Furthermore, in October, leading media platform Criteo reported declines in performance media earnings, particularly retargeting, owing to ongoing signal loss due to privacy regulations. Its third-quarter 2024 earnings showed that retail media continued to outpace the performance media segment, growing by 23% year-over-year and raising its share of Criteo’s sales to 22%. In contrast, performance media grew by just 5%, lowering its share to 78%.

Given these alarming declines, some say that performance media is increasingly becoming a slippery slope. And as more markets come into the fold of consented consumers, this slope will accelerate. 

"Recent reports might suggest a downturn, but the reality is more nuanced," says Alberto Sánchez, paid media senior director, Orange Line. "Performance marketing, especially retargeting, is undoubtedly facing challenges due to increased privacy regulations. As consumers demand greater control over their data, and initiatives like Apple's ATT (app tracking transparency) and Google's Privacy Sandbox take effect, the ability to track and retarget users is becoming more difficult. This is particularly true in privacy-conscious markets."

However, despite the bleak outlook, Sánchez is confident that this doesn't spell the end for performance media. 

"Savvy marketers are adapting by diversifying their strategies, prioritising first-party data, and embracing privacy-preserving technologies. This shift presents an opportunity to build stronger, more trusted relationships with customers, ultimately leading to more sustainable and ethical marketing practices,” he says.

At least for now, Criteo's report serves as a clear indication of the hurdles the industry must overcome in an era focused on privacy. The loss of third-party cookie data, which have been fundamental to retargeting strategies, is significantly affecting their effectiveness.

Despite this worrying trend in performance media, many still believe there is room for optimism. There's growing consensus that the situation presents an opportunity for marketers to innovate and find new ways to engage with customers.

Navigating the new landscape

Going forward, it's clear that marketers will need to adopt diverse and privacy-compliant data solutions to navigate the changing landscape.

"Don't rely solely on retargeting. Think broader—SEO, social media, even those ads you watch on smart TVs. The more diverse your media mix, the less reliant you are on any single channel," says Sánchez.

Now, more than ever, it's also critical for marketers to build strong, direct relationships with customers to collect valuable first-party data.

"Marketers need to work on their direct relationships with customers, and create incentives for those engagements," says Charlie Allatt, head of planning and investment, Kinesso Australia. "We're well past a point in time where consumers willingly hand over their data for nothing, but brands that show some reciprocity can still make huge strides in a one-to-one relationship with their customers—and it's generally going to be more personable than in an ad."

But while many brands have invested in first-party data systems to navigate signal loss, which can be transformative—it may not always be feasible for smaller players.

"AI-powered solutions can help bridge gaps by leveraging contextual signals, predictive modelling, and real-time optimisation," says Arun Kumar, director, activation and experience, APAC, Assembly. "Privacy-first strategies such as contextual advertising, creative optimisation, and clean rooms also enable privacy-safe collaboration between advertisers and publishers. Together, these approaches ensure marketers remain effective while adapting to a privacy-conscious landscape."

In fact, marketers can benefit from actively embracing the privacy changes. 

"There are some really advanced technologies emerging that allow you to analyse data without compromising user privacy. It's a win-win," says Sánchez.

Additionally, contextual advertising is making a comeback. 

"Show ads relevant to what people are reading or watching, regardless of their individual profile," adds Sánchez. "Traditional metrics are becoming less reliable. Start looking at things like how your campaigns actually drive incremental sales, not just clicks and impressions."

To adapt to signal loss, marketers must embrace alternative and even multiple signals alongside experimental frameworks to better inform targeting and measurement. 

"What marketers need is a clear understanding of their campaigns' incremental impact, supported by investments in advanced measurement solutions like incrementality experiments," says Kumar. "Performance decline will persist if marketers fail to adapt, experiment, and pursue the harder but necessary path of understanding incremental marketing impact."

Is retail media the solution?

Retail media is emerging as a promising alternative to traditional performance media. However, doubts remain about whether retail media can fully compensate for retargeting’s revenue decline in the long run.

"Retail media is a popular alternative right now," says Sánchez. "If you think of retailers like Coles or Aldi, they have tons of first party data on what people are buying. This allows for super-targeted ads, and you can actually see the direct impact on sales."

But Sánchez stresses that it's not the only solution: "Retail media is awesome for certain things, but it's just one piece of the puzzle. You still need a well-rounded strategy. As usual, embrace a test-and-learn approach to find the right mix of channels and strategies in this challenging landscape."

In terms of revenues, Criteo reports that its retail media segment has consistently represented about 20% of the company's overall business for the past two years. While it has shown signs of growth, retail media operates with lower profit margins compared to retargeting, which could affect overall profitability even if it becomes the dominant segment in Criteo's portfolio.

"We don’t see it as a wholesale solution to swap out one tactic for another—there’s almost always a balance to be struck," says Allatt. "At Kinesso we continue to recommend broad experimentation, and our internal teams stay close to what’s changing across categories, including functionally emergent space where we have dedicated resources like retail media."

Marketers should also recognise that while retail media may offer a compelling opportunity for advertisers, it still operates as a walled garden, often relying on a black-box model. 

"This limits data transparency and optimisation control, requiring trust in the platform's reported results," says Kumar. "Furthermore, retail media's position at the bottom of the funnel makes it susceptible to last-click attribution bias, which can inflate perceived performance."

While retail media is expanding quickly, it faces challenges like scalability issues and a strong dependence on retailer partnerships. Despite its rapid growth, it remains less profitable than retargeting, mainly due to revenue-sharing agreements and the high costs of technology development.

"Retail media’s performance is tied closely to the overall health of the e-commerce sector, making it vulnerable during downturns in consumer spending," says Hiren Kumar, media strategy director, Jellyfish Singapore. "To stand out, these platforms need to enhance their attribution tools and improve product recommendations, giving advertisers a clear, compelling value proposition."

Above all, Kumar from Assembly says that the biggest challenge from signal loss lies in measurement and attribution: "Even with investments in alternative marketing approaches, without effective measurement frameworks, brands risk being misled by flawed metrics, leading to inefficiencies, and wasted budgets."