The root of the word retail is “to cut off.” The idea is that a merchant buys a large portion of goods, then parcels it out to make a profit. Now it is the retailer who may be cut off.
The reason? While retail has been a durable model for the last few centuries, technology is challenging the idea. Welcome to the age of “pretail,” which allows a customer to order a product before it exists.
As a Virgin blog post recently explained, retail is based on a supply chain — a system designed to move the product from manufacturer to the customer. But these days, a supply chain isn’t always necessary. In some cases, at least, a customer can order a product before it exists. The manufacturer can then create the item from scratch. This model works well for certain businesses, like custom T-shirts.
Of course, pretail doesn’t work for all categories. If a consumer orders a car that doesn’t yet exist, he might wait several months. And not everyone wants to visit a retail store, or more accurately a showroom, where nothing is for sale. But pretail definitely works for media.
Demand expresses itself and can be met in real time
Not too long ago, media was bought and sold by salespeople – Don Draper types who made deals over martini lunches. About 10 years ago, though, programmatic cut salespeople out of the equation by automating media purchases. Instead of buying ads on a media site, programmatic lets advertisers bid on impressions in real time. To reach Consumer X, advertisers don’t buy an ad in The New Yorker. Instead, they buy an impression that Consumer X is about to see. This of course happens in under a second. While this appears to be a very efficient way to match up supply and demand, as we’ll see, there are reasons why this efficiency may come at a cost as we’ll see.
There’s no need for any type of storage
One of the reasons that brick-and-mortar retailing is having such a tough time right now is that storage is very expensive. Frequently, the stores under-purchase a product that turns out to be hot or they buy too much of a product that fizzles out. That’s why e-commerce retailers have such an edge — they don’t have as much of the burden of anticipating consumer demand. Companies like Amazon can offer better quality product without ever having to push product on consumers to get rid of excess inventory. The media buyers’ work has challenges similar to retail. They’re trying to figure out what will be the hot product of the moment, often months ahead of time, which is close to impossible.
Bulk buying can hurt the customer
Digital platforms that work on a demand basis can secure the best and most-relevant inventory on a case-by-case basis. The prices may not be the cheapest, but the fair market prices paid allow for a targeted approach toward media which will perform. In addition, media platforms who don’t participate in pre-buying bulk inventory don’t run into the inherent conflict of interest which arises when the pressure to offload said inventory arises, just as retailers do. Agencies like making deals for large amounts of inventory because it brings prices down, but such inventory many times does not perform well for clients, which undercuts the efficiencies you get from digital media buying.
With retail, consumers have a huge amount of power and are using it to force the long-standing brick-and-mortar giants to offer a presence on every digital touchpoint and to move away from the traditional buy-to-anticipate-demand model.
In media, consumers don’t have that kind of direct control. Yet the industry should look at how Amazon is challenging retail and learn. The days when retailers held power over consumers to push second-rate inventory is over. The same is true for media.