Over 22 million Americans have filed for unemployment in a matter of weeks. Faced with quarantines, businesses have reduced hours, adapted how they provide service, or fully closed as their income dwindles. As brick & mortar shelves went empty and consumers sought to avoid crowded stores, many shoppers have turned to online marketplaces like Amazon for their goods. Amazon’s infrastructure became so overwhelmed by the demand that Amazon placed a temporary restriction on the type of goods it would accept into its fulfillment centers. Though this restriction helped Amazon prioritize essential goods and deliver them to customers faster, brands who rely on Amazon sales for their income felt the blow and had to scramble to find alternative fulfillment solutions. To assist with the surge in demand, Amazon is hiring 175,000 workers in the US for its fulfillment centers.
All of this feels pretty bleak, and there is talk about whether or not we are entering a recession (though the answer to that question will remain unclear for several more months at least). Some have already dubbed the downturn in our economy “The Great Cessation” as supply chains and businesses around the world slow. To mitigate the risk of a recession, the US government approved a $2 trillion stimulus package to try to boost the economy, although the success of this measure remains to be seen.
As uncertainty and anxiety spread, businesses must look for ways to improve efficiency and cut down costs to protect their bottom line. During these internal assessments, businesses may be tempted to pull back their advertising spend. History proves this is often a mistake.
Since we’re an ecommerce company and Amazon is the largest online marketplace, we’re going to focus on Amazon advertising. Here are three reasons why your business shouldn’t freeze your Amazon advertising spend.
1. Studies Show That Marketing Helps Brands Survive Economic Downturns
History shows many examples of companies that maintained or even increased their advertising presence during an economic downturn outperformed competitors, both during and after the lull.
This finding is backed by multiple studies about marketing through a recession, which show that brands can increase their market share by persevering their advertising through the hardship. Several of today’s market leaders earned their current status by successfully outmaneuvering competition in past recessions, such as Kellogg’s gaining market share from Post after the Great Depression when then-market-leader Post cut back on advertising, or Taco Bell and Dominoes capturing market share from McDonald’s when the golden arches reduced its marketing spend in the 1990 recession.
Amazon itself saw a 28% growth in YoY net sales in 2009, demonstrating online retail’s resilience to the Great Recession. Agile businesses were able to ride the wave with Amazon then, including Kaspien, which was founded at the height of the last recession. We not only survived the tough economy, we thrived.
We’ve seen continued confidence in Amazon as the market endures the coronavirus, with Amazon being one of the few tech companies to close Q1 with stock growth. While the growth was rather humble by Amazon standards, coming in around 5%, it indicates that there is still confidence in ecommerce’s ability to weather this storm.
All this is to say: Do not make the mistake of pulling back your digital advertising prematurely. Ecommerce has the flexibility to survive, and history shows that advertising now can be to your immediate and long-term advantage. Step back from the emotional turbulence and let data drive your actions, and you can position your brand to come out stronger on the other side.
2. Average CPC for Amazon Sponsored Products is Down Significantly YOY
In that spirit, let’s look at what the data is telling us about Amazon advertising. When we compare the average cost-per-click (CPC) for Amazon Sponsored Products from Q1 2019 to Q1 2020, Kaspien’s data shows that the average CPC is down 6%, with categories like Beauty, Health & Personal Care (HPC), Tools, Office, & Outdoors (TOO), and Electronic experiencing double digit reductions.
In 2018 to 2019, we saw the average CPC for Sponsored Product ads rise 37% YoY. The 6% drop in 2019 to 2020 indicates that many brands are cutting back their spend for Amazon ads. This in turn creates a vacuum that you can fill.
This is the same reason that the historical examples mentioned above saw success by maintaining their advertising. With fewer competitors in the space, it’s easier to capture a greater market share.
3. Due to Lower CPC, Marketing Dollars Will Stretch Further
In addition to indicating a vacuum that brands can fill, the lower cost of advertising on Amazon also means that brands who do advertise will see their marketing dollars go further. As a result, brands who can afford to maintain or increase their advertising budgets will see stronger returns. Brands who need to reduce their advertising budget due to fiscal constraints also benefit from the lower CPC, as it means that they could maintain pre-COVID returns even with a smaller budget. A word of warning: While continuing to advertise during an economic downturn can be advantageous, it’s not without risks. How you spend your marketing dollars is even more important during an economic downturn. In a strong economy, you have room for error. In a strained economy, you should keep marketing, but you need to be insights driven. Now is not the time for following hunches. Conduct A/B tests. Review historical data. Assess your competitors. What worked well previously and what didn’t?
Can you advertise while respecting the sobriety of this crisis? Advertising can backfire if you aren’t cognizant of the situation. The coronavirus threatens more than just the economy, and you should always make sure that your marketing doesn’t come across as tone-deaf.
If you’re looking for other ways to improve your online business’s efficiency during this crisis, Kaspien recently launched our Amazon ad management software, AdManager. A free 30-day trial is available, as well as an eBook that delves into the software’s capabilities. AdManager is available as self-service (you use it yourself to manage your Amazon advertising campaigns) and managed service (our experts use it to manage your campaigns for you).