The Future of Retail Media, with Sephora’s Head of Retail Media

0:01Welcome to the Marketing Millennials, the no BS marketing podcast. I'm Daniel Murray and join me for unfiltered conversations with the brains behind marketing's coolest companies. The one request I tell our guests stories or it didn't happen. Get ready to turn the up. Today's guest on the Market Millennials is my friend Marco, head of retail media at Sephora. We get into what retail media actually is, why is it blowing up, and how Sephora is running full funnel campaigns across search, social, CTV, and beyond. Marco also shares what marketers need to understand if they want to win in this space.

0:48By the way, this was recorded last year, but I think you'll still find the insights super relevant. Hope you enjoy this episode as much as I did. What's up, everybody? Welcome back to another episode of the Marketing Millennials. Today, I have Marco. He's the head of retail media at Sephora. We'll get into what retail media is because I learned about retail media recently. It's really cool. It's changing marketing, but I'll let Marco give a quick intro on how he got into retail media, and then we can have a conversation. Awesome. Well, thanks for having me, Daniel. Really excited to be here. I got into marketing sort of by accident.

1:29I did not study marketing in college. I actually started my career in humanitarian development over in Africa and the Middle East. And then I got a job. A friend of mine got me a job at a company called Vistaprint, which is the company that used to send like 500 free business cards and i was doing a business development in the partnerships group um this was you know forever ago and what we were doing at the time was we were um we were getting uh products that vista print didn't manufacture but we knew that small businesses would need and we were getting them on the website in the form of ads so like if you're a small business you need legal zoom or you need a square reader and we didn't have this terminology back then but what we were doing was non-endemic retail media so i've been doing retail media for you know 15 years now so i worked at visaprint for it was a great company to start marketing very analytical data-centric a lot of a b testing uh and while i was there, I met these three guys, Paul Lieberman, Jason Robbins, and Matt Kalish, who were doing this sort of side project while they were still at Vistaprint on Daily Fantasy Sports.

2:52And they named the company DraftKings. And when they raised their Series A round, I went over to DraftKings. And I was a, you know, I think I was like the 10th employee or something. And I was there for a couple of years doing business development. And then I got back into retail media at Staples, where I joined a very small but nimble team doing retail media and building the Staples Media Network. And then I went on to lead that business. And then finally, a few years ago, I came over to Sephora and I leaved Sephora Media Network. I want to go into a little deeper so people understand what retail media is.

3:31So if you were going to describe this to someone who has no idea what retail media is. Why should marketers care about retail media? It's a good question. There's a few different ways I can answer. I mean, you hear a lot of sort of like big abstractions about what is retail media. It's the future of media and it's digital advertising. It's the third big wave after search and social. I'll give you some examples of what retail media is for us, and then we can sort of expand. So you're watching Love is Blind on Netflix, and then there's an Elton John, Charlotte Tilbury ad in your CTV. That's retail media.

4:16You're watching one of your favorite influencers do their makeup routine on TikTok. and they're using, you know, let's say a rare beauty eyeshadow, that's retail media. You know, I'm very in the midst of it. I would say retail media has quickly become like the hottest thing in media and marketing. And in the examples I just gave, you can see that retail media, you know, it's changing search, it's changing social, and it's even changing TV. So, you know, I would say retail media is the process by which brands are developing closer relationships with customers. And to me, it's the hottest form of marketing on the planet.

5:01Yeah, I want to go into a lot of markers haven't caught on to the wave. So, like most things that just start early, there's those early adopters are doing it well. So what are some examples of like a campaign that someone's run? Don't have to give details of who it is, but what do they do? And what did the marketing campaign look like? Well, so there's a couple of components to that question. There's like, what is a really good retail media campaign look like? And then there's what is that? What does a campaign look like if you're just getting started? I would say I'll start with the just getting started piece.

5:36So the first thing to know is that pretty much anybody can do a retail media campaign. that's in marketing. And the way that I would start is by thinking about like what specific products that you want to promote and what's the audience that you want to reach. And that can help you identify a retailer that you, that would make sense to work with. So the biggest retail media network in the United States is Amazon. They, they account for like 70 % or something of all retail media spend. So Amazon essentially invented retail media when they realized like, we don't need to make money on product margin, right?

6:15We don't have to buy things at wholesale, mark them up and sell them at retail to make money. We can get brands to invest in promoting their products on our platform. And that's how we're going to make money. And then we can reinvest that margin from media back into traffic driving activities. It could be price, like we're going to have lower prices than everybody else. It could be marketing traffic. And that's that Amazon flywheel. But I'm going on a tangent, which I tend to do. So start with the product and then think about your audience. So if you want a Gen Z or a DE &I audience, you know, Sephora, for example, we have really strong penetration in with gen z and d and i audiences if you want um if you're you know if you're selling office products and you want an office and you want office managers or if you want small business what the retailer has that's so valuable to the marketer is the audience the retailer has that direct relationship with its own customers and you know i think folks tend to think of, oh, they own the moment at the point of transaction, and that's true, and that's super valuable.

7:28But we own so much more as retailers than just the point of purchase. We know so much about these clients. I can tell you, we call them clients at Sephora. We can tell you what they've been searching for on our sites. We can tell you what they've purchased in the past. We can tell you what our predicted LTV for them is. So anyway, if you're getting started, think about your product, think about your audience, and then think about your channels. So I would bucket retail media into two sort of big, big dimensions. There's the onsite owned properties, which is sephora.com and our app. And then there's the offsite operated properties.

8:06So, um, you know, we run social campaigns on, um, you know, all the, all the big socials, uh, we run, uh, display campaigns, um, the DSPs, and then we have CTV campaigns. We even have audio campaigns in Spotify. So figure out what channel you want to target. And then if you have, if you're marketing a product that is sold at a retailer, you know, chances are that retailer has some form of retail media network and you can figure out, you know, how, how do I engage with this retail media network? Some of them that are more sophisticated have self-service options. So you can literally like, for example, Amazon, you can just like set up a campaign.

8:42You don't need to have a direct relationship with the media team. We at Sephora, we don't operate that way for a number of different reasons. We're sort of a private markets retail media network. And it all runs through our brand marketing team that manages the relationships with the brands. So anyway, that's a bit of a rambling answer, but I would start with, you know, what products do you want to promote? And then think about the audience you want to reach and then select your retailer from there. One question I had on that is so for example amazon or all these do they have a certain like requirement of what type of product can be marketed in their retail media or if i let's say have a eyeliner brand like i just come to sephora and do i have to meet a requirement to be able to market on on on your network or what's what's like the requirement yeah no no i think i understand the question so what i would say is you know there's what there's some terminology there's what we call endemic and then not endemic in retail media so endemic is products that the retailer sells so for sephora that's beauty products now at amazon pretty much everything is endemic because they sell it but like if you were to see auto ads on amazon that would be not endemic or airline ads on amazon that's not so not endemic is things that you don't sell does that yeah that makes that makes so it's if i wanted to reach sephora's audience and i had a audience that a product that was close to what i want the audience i can come to you and be like hey i want to reach these gen z people with my product what what campaigns could i what campaigns i because i actually had a cool story about this and this is like an amazon story but one of my friends has a skincare company and i I was like, why aren't you on Amazon?

10:37And I went on Amazon and I was just like searched like all like there's like five of their products and it popped up. And it was going to like their competitors because they weren't on Amazon. I was like, why are you missing all this traffic from like people who are going there naturally? You're basically giving away all this traffic. And that's like one benefit of like being in a network where you're like, you're just otherwise you're just giving traffic to other. other people as well. That's just like more of like having a product that could be marketed on there. But there's also that other side of things where you want to reach people who are Amazon customers and I want to do something different.

11:19Right. Yeah. A lot of retailers, Sephora is not one of them, but a lot of retailers make their audiences available via like the trade desk. so if you want to reach a specific audience for off-site campaigns you don't infer a lot of retailers and again Sephora is not one of them you can access their audience directly through self-service platforms so you can run a campaign you know and a cookie deprecation right um you need you need some sort of addressable audience in order for your marketing to work if you're let's say you're running a display campaign that audience increasingly is coming from retailers Now, we don't participate in that at Sephora for a number of different reasons, but a lot of retailers do.

12:03And they're really performant audiences because they're verified. And oftentimes, in the case of really sophisticated retail media networks, those audiences have been broken down into very specific segments that a marketer can leverage to drive performance for a campaign. so i've talked to you a little bit about this before so there's kind of you have multiple different avenues where you can use retail media which is you can either do like you were saying like display campaigns paid campaigns but there's also like the influencer part which is probably one of the biggest part of that so do you have do you set up like a network of sephora or like influences that they can tap in as well that you can use a campaign or is it just to display yes so yeah retail media is very much a full funnel phenomenon it is not i think you know for a lot of retail media networks we're retail media is maturing it was initially for a lot of retailers like you're going to see sponsored products on the website or you're going to see a banner on the website.

13:15It's going to say sponsored on it. We're way past that now, right? So now you have all this stuff that we've been talking about where, um, so I'll give you the example at Sephora. So what we do is we run, we have packages and our brands will, will partner with brands on these packages and they're getting a full funnel marketing campaign that includes sponsored products in the search and browse pages of Sephora. They're getting display banners on sephora.com and in the app but then they're also getting off-site campaigns that span display off-site display social ctv and audio and you you talked about social and influencers one of our great differentiators as a retail media network is that we have something called sephora squad which is our own group of influencers that we have direct relationships with that have been hand-selected by Sephora.

14:14And these influencers have massive followings on social. Let's say TikTok, for the example from earlier. And beauty is an interesting category too because it's such a social category. First of all, our customers love our products and they love to share what they're doing and they love to learn from influencers, not just what products they're using, but how they're combining them with other products to create beauty routines. And so a brand can now insert itself in that process and they can know that they're reaching like a Gen Z or a D &I audience in TikTok with this user generated content. So it's a very compelling value proposition to the brand.

14:51And increasingly, as we're seeing, you know, like shoppable video and the conversion funnel collapsing, there's a convergence happening between content and commerce. Any shoppable video format, you're going to start to see clients that are transacting in traditionally upper funnel channels like social and open web. Right. So, yeah, at Sephora, we run full funnel marketing across a bunch of different channels, on site, off site. You're right that user generated content, particularly social video, is super powerful in general, but particularly for retail media. one question is for like on-site stuff for for brands that do like how does how does it feel natural to like if i'm trying to pick like how do i pick something that feels natural to my brand that doesn't feel like i'm overly marketing to to someone that feels organic to what i'm trying to do so if you're on-site and you're endemic yeah which means you're a product that the retailer sales.

15:57Product listing ads or sponsored products, which is basically just like Google PLAs for an individual retailer, are a great way to create that experience because there's no incremental creative required. It's literally just like your product was going to show up at the bottom of page one in the search grid, and now it's showing up in the third slot. And you're paying on a cost per click basis that's a very natural way to amplify um and increase add to carts and increase visits to your product detail page um so that's a very natural way to do it uh and that works really well for it works well for everybody but particularly for small brands whereas display on the site we typically see that bigger brands have a higher os and display which which makes sense you know like because the targeting for display is a little bit broader.

16:52And if you're a small brand and you're competing sort of on the mid to long tail of a keyword, it's not going to be as expensive on a cost per click basis as if you're trying to do like a huge, splashy display campaign on a homepage or across search and browse. So depending on the brand that you're representing, different channels might make more sense. Yeah, I mean, because I've seen, for example, on sephora.com like like you search like a certain term and like a valentino ad comes up or uh a certain like those display ads and it feels natural because you just because some sites don't feel natural that's what i try to make the point like sometimes yeah it ruins experience yeah you don't want it to be like shouting in the client's face like this is an ad you want it to feel native right yeah i must i totally agree with you the i think ultimately what the customer cares about is getting a relevant product presented to them they don't care if it's you know paid for on a cpm or a cpc basis they want it to be relevant to them and the more uh native the look and feel is the better you know there's a while and there's still sites out there like this where there's like tons of ib standard or like gam programmatic display banners all over these sites and that's not as I think that's not as good an experience as a more natural native display banner that fits in with the overall merchandising look and feel of a website.

18:23And those perform better. Yeah, you've seen it in just like regular media sites forever where you have all these random display ads that are nothing to do and next to like weird articles and your products next to something that says something you don't, but you can't really control that because you're using trade desk to buy a display ad. So you show up in weird places that you probably don't want your brand to show up, but you don't control. If you pick those places to advertise on, it could have a negative effect on your brand instead of a positive effect. Yeah, and I think you're hitting on one of the great benefits of retail media, again, which is our relationship with the client.

19:09It's a direct relationship. And so you can target pretty precisely who you want to reach with your marketing campaign. One analogy that our old former CEO used to use is that with some marketing, it felt like he was fishing blind. And now with retail media, he was casting into a smaller pond. You know, you can direct your marketing dollars in a much more intelligent way with retail media because you know exactly who's on the site. and the retailers can run audience campaigns where we say, look, we only want to run a campaign to customers who have shown an affinity for this product category. We don't want your fragrance customers.

19:50We want your hair care customers. You can do that kind of stuff on retail media in a very direct way that is harder to do if you're running an ad, a display campaign through Trade Desk that shows up on Wall Street Journal or ESPN. Yeah. And also you guys have one of the best data points versus purchase data, which is a lot. I mean, any retailer, someone spending a lot, you could probably target, I'm not sure because I haven't done it, but probably target the people who are spending upwards of a thousand,$2 ,000 on the side. And then that, and if you're more we have loyalty data, right? So like we have our crown jewel is our loyalty program.

20:30It's the beauty insider program we have 40 million beauty insiders they represent 98 of our transactions and so and we have a ton of data on these people and so it creates this a very strong foundation upon which to build a media business because you're right we have that purchase data but we have we have all their purchase data and we have all their search data on our site so we we have a pretty strong profile about these these clients what they like and what what they don't like we we might know, Hey, this client, they really like new stuff. They like new brands. They like to try out new things.

21:05Or we might know like this client is really up market. We should be giving them the best of the best, or this client is lower market. We should be giving them more intro stuff. And the other thing that we have for the brand is, you know, a lot is said about that purchase point and that transaction data, which is, which is super valuable. Right. Cause you know, like, all right, I showed the ad, it was exposed to Daniel, and then he purchased and I can draw that straight line, right? But we also know whether or not you're new to that brand. So we can go beyond return on ad spend in retail media in a way that's much harder to do in other channels.

21:43This is what we're starting to see happen in the industry. And we're a part of this. And this is what we're doing at Sephora. If you spend, you know, 50 grand on a campaign and you generate$250 ,000 in sales. That's great. You've got a five-to-one ROAS. Great. But we also know that ROAS is pretty correlated with brand sales. We know that that five-to-one, a big chunk of it's incremental, but we don't know how much is incremental. What we do know is of that sales, let's say 5 ,000 customers that transacted, right? Of those 5 ,000, 4 ,000 of those customers have never purchased this product or this brand before at Sephora.

22:21So you now know as a marketer, I'm not only driving return, I'm driving customer acquisition, which is really powerful. And so we're starting to share this with our brands, not just, hey, you spent X and you got Y and your return was five to one. We're telling them you acquired X number of new customers at a cost of customer acquired of, let's say, 10 or 15 dollars. And these are low numbers. We're seeing very low numbers in terms of cost of customer acquired. So what we're trying to demonstrate to our brands is, you know, think about this not just as a direct response performance for ROAS sake channel.

23:04This is a customer acquisition channel and compared to your other customer acquisition channels, it's much more efficient in many cases. I mean, especially, and you've kind of said that, especially now that with all the third-party data on other sites getting weaker and weaker and not being able to use that third-party data as well, it's more expensive for marketers to go on traditional digital channels like Facebook or Google and stuff like that. But we know Google is always going to be attributed as last touch for a lot of these brands, even though it's not the best place to do it. So this is another cool new channel that people should start testing if you want to get in front of audiences and know purchase data and get more precise with your marketing like you kind of used to do back in the day when you were allowed to do that on these other channels.

24:00So it's pretty cool. Totally. And, you know, there's been all this back and forth about cookie deprecation and what's Google going to do. And I, you know, I'm of the view that it doesn't really matter too much, frankly. 70 % of open web traffic is already, you know, is not cookied. and you have this opportunity with retail media to target a specific audience. And the performance just speaks for itself. It's just a much better way of running these campaigns. And it shows up in the performance. So you're totally right that as the overall landscape changes, the relative position of the retailer is getting stronger because we have what the marketer wants, which is that direct response or that direct relationship with the client.

24:53The last, oh, I have two more questions. But the last question, I just want to like break it down. Like what a brand comes to you, what would like a campaign look like for that brand if I would come to you and say, hey, I want to spend$100 ,000 on retail media. what would you suggest? I know it's depending on the product and all that stuff, but what is an example of what that would look like for a brand? Yeah. So we have a menu of packages, right? And they each have different price points and they each have different channel allocations. And depending on the brand and what the brand is trying to accomplish, we help the brand select the package that works best for them.

25:39And so these packages will include like a portion of your campaign is going to be on-site product listing ads or sponsored products. A portion of it's going to be display. And then another big portion is going to be off-site. It's going to be a lot of social. Social is very big in our space. There's going to be a lot of CTV. CTV is our fastest growing channel. There's going to be some display in there. There might be some audio in there. And we're going to break down based on this menu of packages, what makes most sense for the brand. And then we run a campaign. And the good thing about this full funnel strategy is that it all works together really nicely.

26:17We can coordinate. This is the kind of creative that we're going to be running. This is the product that's going to be a promotion. That's kind of at the center of the campaign. This is the audience that we're trying to target. And it all sort of works together for the brand so that at the end of the, you know, let's say two months of the the campaign running, they get to see a report of here's how the whole thing performed for us. And that's ultimately what the brands want. I think historically, there's been a lot of different business units within retailers that run a co-op campaign over here and a display campaign over here and an on-site campaign over there.

26:53It's good for the brand to have a cohesive, holistic story so they can see how their marketing investment is working for them. yeah and i think one you guys know you have a lot of data of how previous campaigns worked what creatives work for certain brands all that stuff and then also like it's so much easier to not as a marketer to not have to go to eight different places to do this one thing where i will have to go spend on like social i have to buy a ctv ad i have to do this thing i have to do that thing i can just do it through one place and you can be like the one sub shop that helps um put it all out for us we got it yeah so that's a way better that's also like why it is a little bit of the future marketing because marketing is hard enough already to like have to manage all these channels so it's just like having a one-shop shop where someone could tell you hey this is where your dollars are going to go this is what creative you should be running um i've seen it done before this is what success looks like um here's a report so you can show your boss how it was successful and make you a better marketer so that's a really that's a really good point um and i would say it's going to get even easier because you know these retail media networks they're popping up at retailers, right?

28:19These companies are retailers. They're not media companies. And so there's this, it's a process of a retailer, like building these media, media capabilities and learning how to serve the brands, um, and their, and their digital marketing arms. And, you know, some, some retailers have been doing this for, for many years now, and they're sophisticated other ones, you know, every, every month there's a new retail media network. So every, each one is sort of in its own stage. But as time goes on, these retailers are getting more and more sophisticated about how to do exactly what you just said, which is make it easy for a brand to run a marketing campaign to their customers.

28:58Yeah. And I mean, obviously the big thing here is like the company, the companies that are winning are the ones that have the better data for the customer. And that's where you probably should go first. The ones that you know have are collecting the right data points Because that's, at the end of the day, what really matters in this whole thing is, like, do we have the right data points that I can target as I market it? Exactly. Exactly. And that data reflects the strength of the relationship between the retailer and the customer. Right? And so for a brand to be able to access that data is super powerful.

29:39because a lot of these brands, you know, it's a little bit different in beauty, but at Staples, certainly, and to some extent at Sephora, a lot of these brands don't have strong direct-to-D2C channels. So they really are relying on the retailer to teach them about their own customer. And that's the core value that the retailer is bringing to your point, that data set. And you're also right that the retailers that are going to be successful are the ones that are good at this. BCG put together a great slide a few months ago on sort of, I think it was like top 10, it's like top 10 retailers by revenue over each decade.

30:19And you can just see over the decades, the ones that have stayed around and the ones that have fallen off. And every single one of the retailers that is now in the top 10 by revenue, one of the things that they all have in common is that they all have exceptionally strong retail. media networks. I mean, it makes total sense. And I also think like something like Sephora, where you you're collecting data points in so many different places where you have an app that's on a phone, you have the Sephora.com. And then also you have actually retail stores all over the country where people are going in and buying products and do.

31:01And it's also good for. haven't even talked about in-store but in-store that is the next wave in-store i mean some some retailers are doing a good job but we're generally as an industry pretty early like you're going to start to see really cool retail media in-store activations and i think the best ones it's going to be hard to know if it's even retail media you'll start to see screens um with ads running and that that already happens um in a bunch of retailers but it's it's still fairly early i would say europe is ahead of us on this actually you'll see you'll have audio so you'll have audio playing in retailers but i think you're also going to see bigger activations where it's hard to know like is this a retail media campaign or not i mean in europe i can't remember which retailer it was but they put a wrap on the store there was a pepsi wrap on the store they they literally turned the outside of the store into a publisher, into content.

32:01So not to say that that's going to work for everybody, but it just shows what's already happening and how fast this is evolving and the kinds of things that we're going to see happening in stores. And it's also, I mean, now retailers are going to rethink store design and how to naturally insert these placements in the right place, especially like sephora where sephora makeup is such like a a touchy thing that you have to like see if it works for your skin and work for you so they're in the store so long like i go with ari all the time and we're in the store so long that i'm like how are you in a makeup store for 45 minutes to an hour like this is like ridiculous and what and what website are you in for 45 minutes to an hour like that's the crazy part about it's like people in the store yeah it's It's the time that you're spending with the media format and then the corresponding amount of ad dollars.

33:01If that's sort of your metric, the in-store is just at the beginning. There's so much time spent in-store and there's so little ad dollars running to in-store that it's a huge opportunity. And a lot of really smart people in the industry are predicting that it's going to be the fastest growing channel within retail media. it the last question i have for you and i like to ask everybody on this podcast is what is a marketing hill you would die on um well i think we've we've talked about it already a little bit i would say it's it's time for the industry to start uh thinking beyond roas and i'm far from the first person to say that many people have said that and i think those voices are getting louder.