CEO of Urtasker.com, a full-service Amazon marketing agency helping brands grow both on and off Amazon.
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The pandemic shook the e-commerce industry, squeezing almost 10 years’ worth of e-commerce penetration within months. Global credit card data indicated mass retailers’ online sales increased 93% from that in 2019.
However, this explosive growth came with a sharp cut in profit margins for most. E-commerce merchants faced growth and cost challenges simultaneously. Crippled supply chains around the globe brought heightened procurement costs, taking inflation to new heights. Plus, increased competition forced merchants to keep margins low.
At a time when many merchants plan to sell their business to aggregators, profit margins assume increased importance as one of the crucial factors determining your sale value.
We’ve worked closely with several e-commerce brands during the challenging time and helped them bring back their profit margins from the sunken point. Here’s how you can recover your eroded margins, too.
Challenge: Supply Chain Woes
Brands weren’t prepared for the unpredictable surge in demand, and their forecasting buckled under the pressure. At the same time, freight rates reached record highs and transport capacity was reduced, leading to congested ports. Meanwhile, marketplaces like Amazon and Walmart levied high penalties on merchants for inventory stockouts.
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Whatever goods they were able to source cost higher. Overall, raw material shortages, worldwide port congestion and rising inflation forced merchants to lower their margins. An added downside of this storm was a severe hit to merchants’ brand loyalty. It suffered due to customers facing frequent delivery delays and stockouts, which for some led to a loss in future sales.
Solution: Pivot To A Dynamic Supply Chain
Supply chain problems and the associated inflation will continue to affect merchants well into 2022. Brands need to evolve their supply chains to keep up with the unpredictability in both global logistics and consumer buying behavior. While supply chain financing and loans can establish a cushion, the process is often difficult for small-business owners.
The solution is strong relations with multiple suppliers across the globe to avoid regional concentration in their supply network. Use innovative packaging and leverage customized boxes to manage weight, size and reusability—helping make returns easy. Wherever possible, use simple, plain packaging to recover margins as much as possible.
Lastly, your demand forecasting should be data-driven. Use automation tools to stay on top of your stock visibility to avoid both fines and brand loyalty reduction.
Challenge: Increased Competition
With the e-commerce boom of 2020 came a host of new entrants to the industry trying to capitalize on the demand. Lean D2C brands focusing on convenience and unique product offerings quickly emerged as a new category of competition, adding not just to the numbers but also the degree of innovation.
Customers now have more options than ever before, and the struggle to attract them to your products is getting tougher. Merchants couldn’t increase their prices to counteract the cost-side squeeze for fear of losing sales altogether. This led to a pincer attack on their profit margins.
Solution: Brand Loyalty And Diversification
Competing with thousands of sellers online, brands tend to fall into the price-match trap, diminishing their margins in the hope of capturing more sales. Profitable growth can be achieved not by engaging in price wars, but by building brand loyalty to be able to command a premium price.
The solution is to make the buying experience the main focus of your product, building all customer-focused strategies around it. Offer one-of-a-kind products to discourage price comparison across brands and retailers. Augment this with an industry-leading website to offer a rewarding experience to customers.
Explore diversification into categories with higher price points, bigger basket sizes and lower returns to increase revenues and decrease shopping costs. Alternatively, introduce private labels to gain more price control, reduce competition and take back control over margins.
Challenge: Lack Of Insight Into Marketing ROI
The past year turned customer buying trends on their head. Marketers evolved to create new kinds of shopping experiences like live commerce, social commerce and quick commerce. This made the marketing side of things even trickier for merchants. Many lack a single source of truth to measure the performance of their campaigns and, in turn, are unable to make smart data-driven decisions.
On-site advertising on retailer websites, for example, involves heavy investment to maintain prominent digital shelf placement. You can’t afford to shoot in the dark. With out-of-sync stakeholders (retailers, internal teams, agencies) and a lack of integrated systems in the organization, dollars get wasted on ill-conceived campaigns, and data-driven decisions are nowhere to be seen.
Solution: Integrate Data Across The Organization
Your goal as a modern, data-driven e-commerce brand should be to achieve a single source of truth. Data should be the lifeblood of every department, be it marketing investment or stakeholder management.
You need to identify the data sources most valuable to executing impactful strategies and the metrics that need to be tracked to measure campaign performance and ROI. To save you time and get increased ROI, partner with a full-service marketing agency that’s experienced in creating a holistic marketing plan uniquely suited to your brand. Otherwise, keeping up with transitioning customer behaviors will be difficult.
Evolve And Stand Out To Recover Margins
You can no longer rely on conventional strategies, pump money irrationally and hope to generate decent results. You need to supercharge every aspect of your marketing and supply chain operations to evolve and prepare for trends we can’t anticipate coming. The key to combating the crisis is to differentiate yourself from the pack to capture loyal customers and rise above the falling margins.
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Author: Omer Riaz, Forbes Councils Member
