RetailCraft 65: "Three sides of the table" - Pedro Roche of Zalando

0:00Pedro Roche: Hey, so welcome back to the studio, dear listener. The leaves are falling. And so we thought we'd take a look at one of Europe's biggest players. So with me today is a senior exec at Zalando, the Berlin-based fashion and lifestyle platform, which, oh, I don't know, I've given up counting, but maybe 50 million active customers, thousands of brand partners recently acquired about you. So we all know about Zalando, but today we want to take a little sideline and look at a growing area, which is the Zalando Marketing Services platform. And this is, if you like, a mini business. I say mini, we'll hear the big numbers in a second.

0:44Pedro Roche: There's growing up and making more from the incredible footprint. Now, I could keep wibbling on or we could hear from our wonderful guests. So why did I just say at this point, Pedro Roche, Director of Strategy and Offering, welcome, sir, to the podcast. Why don't you tell everyone a bit about you and then correct my initial opening with what is Zalando Marketing Services. So first yourself. First, Ian, thank you very much for having me. I'm delighted to spend the next hour with you. My name is Pedro. I have been with Zalando now for almost five years. I joined their retail media arm over a year ago as director of strategy and offering.

1:34And what we basically do is that we support partner brands, the brands that sell their products on our platform, on their quest for profitable growth. and we do that by supporting them in advertising their goods, their brands on our platform, but also off platform via social media, etc. So that's the whole retail media spectrum, as we call it. And that's where we have been delivering profitable growth, both to our partner brands as well to Zalando as a group. And maybe the only minor correction is it's 52 million annual customers we count on today and over 7 ,000 partner brands, brands that you'll find on our platform.

2:17Wow.

2:17Pedro Roche: I wonder how many it'll be by the time our listener gets to hear this. But I mean, it's an incredible number. It's more than the adult population of the UK. So, you know, very, very big numbers. Now, before we get into your work at Zalando, just tell us how you got there. because it's a cool job in a cool company, but you didn't get that straight out of school. So what was the path that led you to Zalando? That's an interesting question, actually, because I guess you'd guess pretty fast. I'm not a digital native. I think back when I graduated from uni, it was still the era of linear TV, and most of the space in which we operate today didn't even exist.

3:08So much has changed. I studied business in Germany and France and started off working at L 'Oreal and Schwarzkopf in marketing. So I enjoyed a very thorough marketing school working in Germany, France and UK. Part of it was actually the professional business where I had to deal with very big egos, hairdressers. And that was a fascinating time because that's where I picked up on many of the tools that I apply today in terms of how we drive partnerships, how we build trust, how we engage with credibility. So I worked in consumer products for roughly 15 years. Along the lines, I also trained to become a systemic coach and mediator.

3:58That's something that I found fascinating was communication per se, because I think that I believe that that's one of our strongest tools if we apply them adequately. And then after approximately 12 years or so, I decided it was time to go back to uni. I went for a second master's in digital management. at Hyper Island in London. And that's how I segued from a purely physical product to a purely digital product, which is what I'm dedicated to today and which I'm super passionate about.

4:32Pedro Roche: So even though the means of our work, the data, the digital interfaces are digital, you also now are part of a very physical platform so you know you're sending parcels receiving parcels back getting people's stock so it's as if you're a physical monster and a digital player um but yet they're combined so it's not really one or the other it's sort of both really isn't it yes um a physical monster just made me smile i like to think of us as a digital dinosaur but for other reasons yes at the end of the day it's interface right so this the digital layer is what helps us connect to these 52 million customers and bring to them news value across fashion and lifestyle at a magnitude and a and a pace that we wouldn't be able to if this was purely physical yeah so it's digital that has enabled the operations that have made Zalando what it is today after 18 years since its inception being noted in in the German DAX and being as successful as it is today.

5:46But we are ultimately strongly physical, right? So our B2B business is huge. So that's all the fulfillment business and operations services that we provide to our partner brands. And interestingly, one of the most rated dimensions that our customers value most is convenience. And so imagine saying, What I love about Zalando is the convenience in ordering, but also in returning if I ever had to return. So that just at such scale means that we must be getting something right also in the physical world.

6:25Pedro Roche: Now, you've mentioned your time out at Hyper Island, which gave you a direction change. But there's also an element in which you've gone from one side of the buying equation to the other. So during your time at L 'Oreal, you were very much brand side selling. And via a transition maybe through the website factory at L 'Oreal, you've sort of changed now to being a bit more on the services sell side. so that looks like quite an acrobatic move do you want to talk us through that and whether you know that sort of being a um sort of internal client services person uh sets you up for this role is that the way the world has gone or is this something that you feel is slightly different path

7:25so there are three sides of the table if you so will you've got the brands right so the industry and historically brands oftentimes for much of what they do work and engage with agencies and then in most recent times there's now the platform business as well and so what's interesting is that I've sat on all three sides of the table, if you so will. So I started off in marketing, but then headed sales in UK. And that again, in itself, made me the front man in mastering the selling and honoring the craftsmanship in this case of hairdressers, but actually having to know my product inside out. So in this one very short example, hairdressers can be great sales people and they will sell eyes to the eskimos yes but the minute they turn around and talk to you and you're basically trying to sell in the next generation coloration you better know your your technical stuff inside out because they'll be able to discern within 30 seconds if you have if you're highly qualified at what you're talking about or not right so um that was already representing the brand representing the product but also aiming to sell in a product and at the end of the day and getting immediate feedback from someone who's highly competent in their own field.

8:49With the second master's in digital management, I transitioned into the agency space and had a fantastic opportunity to drive the delivery of L 'Oreal's largest digital transformation program, which you just mentioned, the website factory, out of Paris. So I worked very closely with the chief digital office of L 'Oreal, but then on agency side. So I literally had to onboard the global marketing teams onto what was new ways of working, agile project management, redesigning all their master websites, getting them to be D2C ready, but from a very different angle and i came in as a catalyst to be able to translate um the expectations of the mothership l 'oreal knowing uh knowing them and their their cultural um their culture their the way they work which is very particular and being able to translate that and take that back to the drawing board of uh of an agency of a digital agency i then transitioned to akqa uh in berlin which was a creative digital agency within the WPP group and also they're working throughout the times of COVID which was extremely challenging with brands that were struggling and trying to make ends meet on behalf of these brands so that was interesting as well and now coming to the third space or the third side of the table, which is working with these brands right now on a platform business, which is challenging for very different reasons, right?

10:32At the end of the day, brands in maybe 15, 20 years ago were not so focused on ultimately putting money on the table for outcomes. They would just invest into linear TV and they would invest into press,

10:47Pedro Roche: but without certain outcomes right i love those days i miss them and so it was just putting things out there and seeing what stuck and these days um the paradigm has just shifted uh so massively because um they're very different dimensions of where we can engage in conversation if we're talking lower funnel if we're talking how to expand on consideration awareness which is something that we are trailblazing here at Zalando Marketing Services because we do not see retail media to just be the last-click ROAS calculation. There's so much more that we can deliver when trying to present brands to these 52 million high-intent customers, right?

11:34So there's a lot of that, but it is a numbers game at the end of the day, which is the opposite side of the paradigm with which I started my career back then where numbers were not at the forefront. Yes. And we simply had to, yeah, go for a best guess every single time.

11:54Pedro Roche: As I said, I miss those days of best guess money. I think we should have a campaign to get them back. But from a brand perspective, they're like the money tree where everyone is shaking the trunk wanting to get more money on them. So if you're in the commercial end of a brand, not the brand marketing, then you will have had hard conversations about volume discount. So you lose some margin. You'll have had conversations about trade marketing support or special activities. You'll then be told, look, we've got 52 million, but you need to spend a little bit more to lift your game and super perform.

12:40Pedro Roche: So every conversation from a brand perspective is someone asking you for a bigger slice of the pie, a different slice of the pie. So when you came into this role, what did you understand about what the brand needs to hear in order to go on that journey with you uh to sort of open more budget get more performance because before you maybe for a decade or so people would have been saying give us more give us more what's changed what do they need to hear so there are a couple of i think foundational layers that they need that they need to be in place before they can actually start listening to you, which is first off, trust, right?

13:29So in whichever context, platform, non-platform, hairdressers, it all starts with, okay, we're talking about a potential partnership. We need to build trust. How do we build that? I need to show up with credibility. I need to show up with consistency. But above all, I should never start with my own agenda. I should start by simply listening to what their challenge is, what their problem is what is it they're trying to solve so i think things like my coaching training back in the day um helped me um hone in on those um skills that i thought i was i was doing quite well on in terms of active listening and uh and engaging in uh in communicating effectively but just at the end of the day showing up being present and trying to then find ways to make my partner heard listen to that's the foundational layer what comes next is a common goal as in saying okay this is i'm not going to try and solve something for you let's try and solve something together uh give them a some sense some sense of a roadmap a glide path with uh an outcome that should be tangible enough to work backwards from um i'm not trying to sell you media space because that won't take me anywhere it's trying to understand what is it you're trying to um achieve as a brand or solve if you have a specific challenge at hand and how can we turn that into a reality if we join forces

14:59Pedro Roche: so what i'm hearing here um is a sort of a very big difference between zilando or general marketplace. So if I'm a widget creator, then I'd go on to an Amazon, I'd buy some traffic or placement. There's no love. No one cares about me. It's just getting into the search box, having the right availability, boosh, job done. Whereas a lot of what you've been alluding to, you have to act in a much more grown-up, mature fashion, where it's like having creative and brand ideas, but yet you're still being measured ruthlessly as a sales and performance channel. Is that a fair characterization, or have I missed the point?

15:55I think it is fair. There are certain complexities that come with it, and it's layered, but yes. I mean, we, first of all, distinguish ourselves strongly from the Amazons, etc., which would be more convenience-focused when it comes to the typology of products. I'm trying to get an ironing board, I'm trying to get, and I may not be bothered about the actual brand. The Zalando customer is different. So whereas, for example, I like working with analogies in supermarket stores. I think retail media starts with the shopping list, right? That's where you will find your sponsored ads. A vast amount of Zalando customers come here with a high intent.

16:44They have something clear in mind. Either I have to buy my children's winter wardrobe. I may be disappointed on the back of the Berlin Marathon I may be looking for my next pair of runners I may be having an anniversary and want to dress up all sorts of things but I come with something in mind and need to be inspired so it's the inspiration level that plays a foundational role for us but also for our partners for our customers and that just opens up a whole window of opportunity for partners to show up, to be able to present themselves as brands to these customers at the right moment, right? So just connecting to Zalando audiences and making sure that they put themselves in front of new prospect customers that they will win over.

17:37All of that dynamic does not happen, as far as I'm aware, on the Alibabas or Zalandas. And at the same time, there is a certain degree of competitiveness because whether it's PVH, Tommy Hilfiger or Ralph Lauren, they need to coexist on this platform. And there is a good level of healthy competition, which we appreciate and acknowledge. But that's what makes us make something good even greater, right? Is having that opportunity to have these brands present themselves throughout the year, throughout the seasons, throughout these great commercial moments. and their large-scale campaigns in a way that will be engaging for our customers, will drive value and ultimately sales.

18:27Pedro Roche: So let's jump then to maybe the skeptical CFO, because you've mentioned so far, you know, the dreaded ROAS. We could talk about incrementality. What would have happened if I put the money somewhere else? or made different weightings. So, and you've also talked a lot about working in partnership, recognizing strong brands and working with them. So, to me, this sounds very sensible, as if you're balancing, you know, complex, non-trivial considerations. But yet, when the CMO is chatting with a CFO and asking her, look, I need some more budget for this, or this is going to be our return, um what do you find is persuasive about your particular approach rather than them just giving more money to their agency or it themselves how does that mix show itself to the cfo so that she signs off for it and says great we love this partnership so maybe we just take a step back first there's something um that needs to happen first um which is um that we are no longer only trading talking trade budgets right so if we maybe take that as a starting point when we discuss initially um retail media we we look at trade terms these trade terms um that foresee a certain percentage of sales being allocated to it will normally be sponsored ads and lower funnel and And that's basically your trade marketing funnel.

20:11You're not talking to your CMO. You're not yet talking to your CFO. Those are great conversations. They're tactical. But you're not talking to any of those. And so what has happened over the last year is that we at Zalando Marketing Services, obviously in collaboration with our colleagues in the fashion proposition, in the fashion store have sat down with our brand partners with not just the trade teams to showcase how they can literally leverage Zalando as a customer growth engine yes by moving up the funnel towards consideration and awareness and expanding their investments there and ultimately expanding their whole customer funnel that will take them then to significantly higher level of return on investment on sales.

21:09So that's what's happened. And what brands do is that their CMOs will sit down with their CFOs, with the trade teams, and whenever there are big moments, whether it's a the season launch or launch of runners or something else, something big happens. These things will be orchestrated on brand level end-to-end, right? Across the entire funnel. All these teams come together, have to sit down and devise this. And so for us, it's been quite a ride and a journey to get there. And so the beauty is, yes, we are having these conversations today with the CMOs, with the CFOs, unlocking sometimes six, seven-digit budgets for single campaigns, right?

21:59And that's something that we pride ourselves in. Now, having had that conversation, understanding that now we are talking to CMOs and CFOs is what are the challenges? And obviously, the challenge is measurement, right? So on one side, anything that is within our platform, we can measure really well. But at the end of the day, I mean, yes, with things like ROAS, you can definitely steer your campaign. But bottom line, I think what is interesting long-term is this view on incrementality, right? And that's where we see the holy grail. So we are focusing more and more with our engineering teams in...

22:46aiming to attain a higher degree of maturity of our measurement tools measurement capabilities um also looking at um things beyond what we call on-site so brands in orchestrating these large campaigns will want to maybe connect a creator an influencer to also post about innovation this launch this new seasonal collection on their um social handle etc And all of that needs to be connected, right? So that means we need to be connected to data clean rooms. We need other technological in-between steps to be able to have closed-loop measurements, right? So there's a high degree, an increasing degree of complexity of what it will take for us to be able to consistently and reliably deliver this degree of analysis and results that will take a CFO to say, okay, looking at this, yes, I can definitely see that it makes more sense to invest the next campaign with Zalando or not.

23:51Yes, depending on what the results are. But there is a lot of engine room work that is currently in progress to make sure that we hone in on these measurements, tools and capabilities. And that is the precondition for a long-term partnership when it comes to how can a brand want to grow their business. Yes, not just on trade marketing terms, but just putting really brand marketing money on the table and grow their brand sustainably in Zalando.

24:18Pedro Roche: now you mentioned on-site um and we've also mentioned influencers etc so um i think we we very quickly mentioned streaming and parsing so in order to um really measure incrementality across the whole budget or seasonal campaign then increasingly uh you need to be looking at everything from CTV, digital out of home, social media. Goodness, it's basically everything and everything. So the world, if you like, of measurement is no longer just your measurement, but also the agencies, the retailers, your peers and other channels. That seems like an enormous task. So how far down the route are we of being able to measure incrementality or was it still more an attitude and an approach rather than an achievable dashboard of everything?

25:23So I think historically retail media has been highly fragmented. And so it seemed from a brand point of view, and again, this is the beauty of me having worn different caps, the agency cap, the brand cap, the platform cap, and understanding where does every single party stand. And so from a brand point of view, it seemed to be an impossible task to think of stitching it all together and being able to connect all the dots in a way that I could reliably see bottom line what was the return on an investment across everything that you've mentioned out of home, CTV, social, etc. and on site. the good thing is that technology together with ai is getting us there so data clean rooms for example is one central technology that will help connect all the dots um in a in a data privacy secure manner right so but on the other side these things are not i wish they could just be plugged in that that's it these integrations are highly complex um these require validation on so many levels, starting with procurement all the way to legal to then literally looking at all the engineering work that needs to happen, security, etc.

26:41So these things are in the making, but simply take time. Yes, and then at every corner you come up with a new partner, then it will be CTV, etc. So these things are being built right now and we're focusing more and more on off-site. Now, maybe where do we stand today is we've focused over the last five plus years literally on unlocking everything we could on site. This is why we've been so focused on working with the brands, widening their funnels, being able to get even our creative business to an eight-digit, high eight-digit revenue, just working as an agency, creating these campaigns, etc.

27:25Because there's so much more than just lower funnel and sponsored product ads, right? So this is what we've achieved and we keep on growing there. But now we're understanding that more and more we need to focus outwards and start working with media agencies and start working with e-commerce performance agencies and connecting the dots as well. Everybody who can contribute to the growth of these brands across the entire ecosystem.

27:50Pedro Roche: still so we made it half an hour uh before either of us said ai but we've said it now so um you've painted a world of increased speed uh lots of complexity and difference and working pace so alongside the enabling capabilities of ai there's also quite a lot of chat around agentic So you'll have agents looking at agentic output talking to each other without the human in the middle. We'll have increased speed. We'll have creative collateral being knocked out much more quickly. So let's not spend time looking at AI itself, but rather maybe I can ask you, what is ai making much much easier for you and which areas of your business have become more valuable either because or despite ai so ai is a reality what's it knocking out and what's it making more valuable so maybe starting where with the status quo and um starting with a customer i always like to take the different points of view so um we have an ai agent on solanto today that if you prompt your question and say listen i have this um gala dinner etc and i would need a cocktail dress or whatever it is you can you will be just taken to that yes you'll be supported on the fly during um your visit on our fashion store so this is already in the making and also So there just we keep improving the capabilities of this agent.

29:44From a brand point of view, this is where it gets super, super interesting because so far, if you look at how brands operate, they will have their tentpole campaigns maybe twice a year to feature the biggest seasonal collections. But it's pretty impossible to jump on a micro trend. And it's because, again, by the time you get your creatives done, something shot, etc., you're two months in, this micro trend is long dissipated and thinner. Also, if you have, let's say, overstocks that you need to manage, it's impossible literally to create these short-term campaigns to be more reactive. And so where we see a great opportunity is to add this second layer just in between these temple moments as a brand where you can pick up on, again, these micro trends.

30:40if you think of, again, whether it's Berlin Marathon or the Football World Championship or maybe a feature film like Barbie, right, where suddenly everything went pink. There are moments where you can literally find ways as a brand through AI to create your campaign within literally right now we're launching something that will allow you to create assets within six days and literally to take them live within six days. but next year we're planning on taking that into just less than hours or less than an hour and just giving you that capability understanding that once you've uploaded your brand book as a brand right so that your ci is respected we it's not just random stuff but you'll be able to um keep controlling your narrative but keep spinning that narrative in between us keep your brand alive keep refreshing it also just actively feature not just your best-selling articles but also other articles so you'll be able to work across the depth of your portfolio so from a sustainability point of view when it comes to again really proactively steering your assortments and how you steer it out through these campaigns this will give you so much more flexibility being able to jump on these short-lived trends as well.

32:05And ultimately, yes, do that at a much more affordable and accessible price, where basically AI just makes these tools almost a commodity, and you're ultimately only paying for media. So it is high convenience, it is high accessibility, it's fast-paced, and that means that as a brand, it's an absolute win.

32:32Pedro Roche: So that's the making things cheap, knocking out the process, the friction, the delay. Is there anything that's becoming more valuable in this sped up AI powered world where you think, oh, we can now make more money from that or our capability here is now more prized. What's the upside of all this efficiency? Is there something that's becoming more valuable? I think from a brand point of view, it is the opportunity of being always on, right? And being able to have a stronger connection to customers, to relevant customers and prospect customers throughout the year instead of just only having to place my bets as a brand on the three, four key moments throughout the year.

33:32So in doing that, in partnering up with Zalando's under marketing services and making sure that I can, I have my entire toolkit that would allow me to drive my sales more consistently, simply being always on. So that for me would give me as a brand a lot of value, right, in knowing I can work effectively without having to increase my resources on my end and ultimately achieve my revenue results, my GMB results with a higher confidence.

34:07Pedro Roche: good well look we've been on a very positive path here of values bringing the three parties together increased speed effectiveness reduced friction we've brought the cfo and the cmo together in happy harmony we've done well so let's look now maybe ahead and just in closing um let's maybe just ask what do you want zms to be known for so the beginning of 2028 you've had another year of growth and achievement uh how do you want people to talk about you behind your back what would they be saying about you other than you're a great guy with multiple mbas and a good coaching style where does the business go what's the win so um i didn't forget the agentic bit because i just realized that that was the one topic we didn't mention so happy to touch on that very briefly let's do agentic first then because you're being more rigorous and structured than you do agentic then we'll see where you're going to go so in terms of agentic i think agentic is Because agentic commerce is happening.

35:26And I think it will be, however, somewhat different for fashion. I think if I know exactly what I want, yes, and I brief my agent on a specific pair of runners that I've seen, etc., I think that that may be a pretty straightforward transaction. but if I need to pick an outfit for a friend's wedding the inspiration layer still needs to happen, right? So that means agents will need structured data to be able to go back and pick a brand and AI at the end of the day and the agents will only be as good as the data that supports them, right? And so we have 18 years of real shopping behavior across these 50-plus million customers.

36:24And that is real data, right? So if we manage to start early, which we have. So Zalando, again, we have our own AI assistant. We're in partnerships with OpenAI, with Google. we are quite confident that we will be able to deliver this fashion intelligence to these partners right and make sure that every shopper is surfaced and serves the right products via Zalando yes but that means just a whole new track of work and in how we feed these other beasts yes these um these uh commerce agents so that that will shift the paradigm definitely but we do see a huge opportunity for a company like zalando it's maybe next time we talk on the

37:16Pedro Roche: record it'll be 60 million customers and 100 million agents who knows um but then let's get back thank you for that uh pedro let's get back to the uh forward look um you've got so much going on um so tell us the direction you're going and what what for you would be success in how zms is seen a year from now so i would hope that um primarily brands we call them partner brands because again partnerships are key to us so it's a bit of a mantra maybe see us as the strongest growth platform for fashion and lifestyle in Europe

38:09where brands can drive their growth profitably I think in a nutshell that's something that requires a lot of effort I mean if you start backwards the topic of profitability, yes? What does that mean if you double-click on it? It means us being able to give brands all the levers that they need in managing how they steer the campaigns. Do I want, am I able to add my max CPC? Can I make sure that I remove the top 20 % of my, of articles that are being returned or the highest returns, right? How can I make sure that I effectively manage my campaigns etc so there are there there's a whole suite of of solutions that we're bringing to the table conscious that that needs to be our common goal our goal cannot be our own revenue as a business as a land of marketing services our goal needs to be profitable growth for the brands and so what it will take is on one side bringing these ideas to the table but on the on the flip side making sure that we deliver the proof um and maybe for for customers uh who are not really do not engage with i don't know marketing services yes but they are served these advertising is that they should hopefully not experience um the ads we place across the platform as something that just um spoils their experience but actually enriches the experience that feels relevant and personal.

39:48Pedro Roche: Great. Well, look, I think that's quite the manifesto. And I look forward to chatting on the record, let's say in a year or so. Hopefully when you can tell me all of that has been achieved or at least is within sight. So Pedro, massive thank you. We've covered an awful lot of ground about how an enormous business is able to incubate another very large business working in partnership with such a pace of change and the balance of creativity, brand, and profitable proof. It's a great mixture. So thank you so much for joining us in the studio. It's been a pleasure. Thank you. Thank you for having me.