Is E-commerce About To Get Even Harder? Here's What To Do

Welcome to CXA's newsletter.

What is this newsletter? It's about marketing, consumer behaviour, AI and will always include useful marketing chart. We're getting this out about once a week.  If that sounds like something you're interested in, please subscribe for free.

In this week's newsletter we're discussing a single topic:

Is running an ecommerce brand about to get even harder?

As one agency director said to us about the current trading conditions 'this is the first challenge a lot of people who are new to e-commerce have faced'.

To answer this question we're pulling together some data-backed macro economic and consumer shopping trends happening in Australia and in the United States and posing a few questions too.

Ready? Let's dive in:

1. The macro economic picture

It's no secret many Western economies are currently struggling with growth, with some teetering on the verge of recession. For many Australian e-commerce brands, it will be concerning that in the United States murmouring of recession being flagged by a well known indictor while Australia's GDP growth looks anaemic, trending down, as discretionary spending stalls and household savings dry up.

Takeaway for E-Commerce Brands: If your brand sits squarely in a discretionary industry, consider prioritising partnering with larger online or physical retailers or focusing on your wholesaling strategy. Diversifying income streams and tapping into other retailers customer databases could be just the way to not just survive, but thrive. You may even find a whole new group of customers you've never tapped into before.

2. Consumers are spending less, shopping down and deal hunting

As the cost of living crunch rolls on, more Australians are spending less, shopping down (searching for cheaper alternatives) and deal hunting. This is also being seen in similar economies such as the United States (chart below in retail food sector).

As we highlighted on our LinkedIn feed recently, over the last few years consumers, knowing sales season is coming up, begin their search earlier and earlier each year for deals.

Takeaway for E-Commerce Brands: While you may feel you need to compete in every sales activity and promotion, in consumers minds Black Friday still rules them all. Setup yourself up for success by going half in on AfterPay Weekend and Cyber Monday but go all in on Black Friday.

3. Expect online advertising costs to increase

Almost all Silicon Valley businesses have become behemoths during the era of free money (low interest rates). They took on huge amounts of cheap debt to grow and dominate their respective areas.

However the era of free money is over, and new corporate debt to grow costs far more, as interest rates on that borrowing increases.

As money becomes harder and more expensive to advertise as advertising giants such as Google and Facebook can, and almost certainly will, raise the floor advertising price to access customers on their advertising networks. 

Takeaway for E-Commerce Brands: Diversify, diversify, diversify. As quickly as possible get your brand off the paid media bandwagon. Invest more into your email marketing campaigns and growing the database through refer-a-friend programs and other incentivised methods. Owning access to your database with first-party data like email addresses is going to be the new gold. 

4. Quid Pro Quo Partnerships

In speaking to a range of ecommerce agency founders, one who has been in online since the early 2000's told us of an idea that doesn't get a whole lot of traction today, but could be due for a come back. Sara* told us, about Quid Pro Quo marketing.

The idea behind Quid Pro Quo advertising is that long ago when the age of online advertising was just getting going, before Twitter existed and well before Facebook was born, email marketing was a dominant form of marketing.

And while email marketing is undoubtedly still a factor today, one key part of email marketing back then that was particularly valuable was both the size and quality of the database - and then trading access to it with other complimentary, non-competitive businesses - via what became known as solus emails.

How it would work is both organisations would agree to promote the other's business to their database without any cash consideration. Both brands would introduce each other as being great for their database and then let the other brand do their thing by providing creative and a marketing promotion to the database.

Today the marketing activity is just as valuable, if not more so, due to segmentation and the value of first-party data, but actually doing it has taken a backseat. Perhaps in these times it's time to dust-off what has worked in the past, because for many organisations simply shelling out more money isn't an attractive option right now.

Takeaway for E-Commerce Brands: Look for and reach out to, friendly industry partners that offer complimentary and non-competitive products and see if both brands can scratch each other's back.  

Summary

There's little doubt that in the short to medium term while discretionary spending continues to be challenged by higher interest rates some e-commerce brands are experiencing equally challenging trading conditions.

As one agency director said to us about the current trading conditions 'this is the first challenge a lot of people who are new to e-commerce have faced'.

But now is not a time to panic, it is however a time to assess one's business and look for ways to reduce costs, improve effectiveness, think differently about marketing budgets, not chase every opportunity to provide big discounts and diversify income opportunities.

*Sara is a pseudonym.