If we’ve learned one thing in the e-commerce industry during the COVID-19 pandemic, it’s that brands and retailers need to be agile. Things are changing week to week, so your business needs to be able to react to current events as they’re happening.
Just like the GMV category fluctuations we’ve tracked over the past couple of months, we’ve also seen both advertising spend and sentiment fluctuate pretty dramatically.
According to eMarketer, a survey in late March found that 69% of marketers thought they would see a “major impact” by the pandemic in Q2 but only 28% of those marketers forecast a major impact in Q3. Just two weeks later, those numbers changed drastically: 86% thought the pandemic would have a major impact in Q2 and 43% said Q3. This is just one example of how quickly things are changing and how quickly brands, retailers and agencies are reacting to changes.
So what does the advertising landscape look like right now? Another data point from eMarketer predicts that the US Search ad market could shed between 8% and (nearly) 15% of its value for first half 2020 spending compared to previous estimates.
Of course, not all industries are being hit the same during this pandemic. A large chunk of the decline in advertising dollars can be attributed to industries like hotels, travel and other similar industries. For example, the travel sector has gone basically to zero in ad spend. If you did a search for hotels in New York or LA in late April, the search results page was completely devoid of ads — it felt almost naked.
So what have we seen at ChannelAdvisor that is specific to e-commerce?
- Volatility — Even as far back as early March, we’ve seen pretty big swings in terms of both volume of traffic and costs (CPC) as consumer demand dropped in many categories. And it wasn’t just Google. Advertising on Amazon was notably affected as well, as shipping times and FBA dynamics were in flux.
- Device Shifts — It’s not surprising that we’ve seen a bit of a shift back toward more computer traffic versus mobile. Mobile has accounted for around 75% of our clicks recently, but it has shifted down to about 70%. The remarkable thing is that even with so many people at home — presumably with a computer as their disposal — mobile still makes up the majority of traffic.
- Lower CPCs — We are seeing lower costs-per-click (CPCs) in many categories, which is really a function of the competitive landscape.
- Changing Competitive Landscape — Ad spend remains volatile due to both product demand and competition. Some advertisers are eliminating their ad spend while others are ramping up aggressively. For example, it’s no secret that Amazon had all the demand it could handle during the peak of the crisis, so it drastically cut back its massive advertising on Google, leaving room for other brands and retailers to win bids.
What do we recommend?
At a company-wide level, you need to decide whether you’re in a position to play offense or play defense right now. If you’re in a good financial position, your products still seem to be in demand and you view this as a good time to take market share, this might be time to get aggressive with your marketing. On the other hand, if you’re taking a hit and need to scale back your efforts, it’s okay to temporarily play defense on the marketing side.
If you’re playing offense:
- Exploit gaps in the competitive landscape as others scale their advertising back. Now, more than ever, you want to engage with customers and drive new business. Some of your competitors will be unable to continue advertising, so it provides an opportunity to expand your reach.
- Double down on new customer acquisition. If you carve out a separate portion of your ad budget, now can be the time to get aggressive — particularly if you’re seeing lower CPCs than usual.
If you’re playing defense:
- Get smarter about how demand for your products has shifted, especially if you sell products across many categories. There will likely be significant differences in demand for your products. For example, if I am selling shoes, I should likely shift my budget and ad spend to more casual or athletic categories rather than dress shoes. (Of course, you should look at your data and adjust based on the specifics of your brand.) If you are using ChannelAdvisor, you can incorporate sales velocity signals directly back into your product feed so that this becomes a dynamic strategy.
- Think about your contribution margins. If your advertising programs were generating incremental dollars to your business (and if they weren’t, you were doing it wrong!), then simply cutting advertising off will result in even fewer dollars flowing into the business. Evaluate your contribution margins and only cut those ad programs that aren’t contributing positive ROI to your business.
If you haven’t watched our webinar COVID-19’s Impact on E-Commerce, be sure to check out the slides and recording, which are available on-demand now. You’ll learn how sellers can rethink digital marketing strategies, adjust to marketplace changes, reprioritize budget allocations and adapt to transitions in consumer behavior.