With the sudden and unexpected impact that COVID-19 has had on nearly every part of our lives, we could all use a little bit of certainty during these very uncertain times. One thing that is certain is that most, if not all, brands have likely seen changes in their Amazon business over the past several weeks. While there are a core set of overall factors which impact brands’ performance on Amazon, the combination of factors and their subsequent impacts can differ greatly. These factors include, but are not limited to, product category, changes in consumption patterns, retailer and manufacturer inventory positions, and retailer shipping speed.
While many brands are still working through how to respond in the short-term, it’s also important to factor in how these current events might be impacting your business over the balance of the year and beyond. One of the biggest questions from brands is what they should do with advertising budgets in the immediate future as well as for the rest of 2020. To best answer that question today, brands will need to fully assess their current position, as well as the expected impact to their overall business for the foreseeable future.
If brands are in essential categories or categories with increased demand, they have likely seen a surge in traffic and sales as of late (See Figure 1 below). In fact, many CPG brands are seeing average daily sales greater than that of Prime Day 2019 (See Figure 2 below). As such, many brands have experienced accelerated advertising spend and pacing, putting many brands at risk of over-spending for the month or quarter. In these cases, brands should decide whether to pull forward budget from the rest of 2020, shift budgets from other channels, and/or procure incremental funding to drive results in eCommerce, where shoppers are increasingly heading as they stay home and do their shopping online. Conversely, if brands are in non-essential categories or categories impacted by Amazon’s decreased ordering and extended delivery dates, brands are likely experiencing decreased conversion that is driving inefficient advertising performance. In these cases, brands will need to decide if they should pull back their advertising spend, shift their strategy to balance efficiencies while still maintaining share, and/or save some of their advertising dollars for their recovery over the coming months.
While the recent shifts in eCommerce, and retail in general, can feel overwhelming, we’re here to help. Below are several key factors that may be impacting your performance on Amazon and some tips and tricks for how you can adjust your advertising strategy accordingly.
Out of Stocks
Many brands have seen unexpected spikes in sales over the past few weeks as consumers across the country stock up on household items and shift their purchasing to online channels. After the unexpected run on various product categories in March, it’s likely that some brands are experiencing out of stock issues. Amazon has pulsed its ordering from vendors and restricted inbound Fulfillment by Amazon (FBA) shipments for sellers, to adapt to the unexpected surge in demand.
While many of these brands have been able to take advantage of the increased sales and pull forward inventory from future months’ supply, they may be facing the prospect of long-term supply chain constraints which could impact their ability to fulfill future orders. This is especially true for brands whose production takes place overseas, including countries that may have been hit earlier by COVID-19. If your brand is faced with these challenges, there are several steps that you can take today to mitigate risk and ensure that your advertising dollars go as far as possible.
- Stacked Campaigns: Begin launching stacked campaigns by cloning existing campaigns but lowering bids. Leverage backup ASINs with deeper in-stock availability to start creating relevancy as you prepare to shift demand, should inventory constraints worsen.
- Subscribe & Save: Promote items in Branded-keyword campaigns that have high Subscribe & Save rates, to ensure that sales are going to items and customers with a higher likelihood of repeat purchase and thus a higher lifetime value.
- Diversify: Update Branded-keyword campaigns to focus on items that have lower organic ranking to drive trial and improve organic search position.
- Variations: Focus on less popular variants of top selling, higher trafficked items by adding them to existing, single-ASIN campaigns. This will shift traffic to products that customers are more likely to purchase as a substitute for the hero item in the variation.
- Pack Size: Shift focus to driving higher count/pack size variants of top selling items. It’s important to ensure these items are variated with the hero item so that consumers can easily navigate to and convert on the hero item if the larger pack size is not desirable.
- Auto Campaigns: Reduce budgets on Auto campaigns to better control which items your ad dollars are surfacing.
- Prolonged Out-of-stocks: If out of stocks are expected to persist on key items, it may be best to remove the impacted item(s) from the variation and work with your Amazon point of contact or agency partners to identify additional avenues to drive traffic to substitute items until inventory levels rebound.
- Leverage Automation: If your business is expected to suffer from prolonged out of stocks, increase focus on driving efficiency with your advertising performance. Be sure to optimize programmatic bidding rules and daypart bidding settings, prioritize campaigns that return a strong balance of sales volume and ROAS, and leverage Auto campaigns to find cheap clicks and identify new targeting opportunities.
- Learn from Your Competition: In an effort to maintain and/or grow share as brands navigate through this crisis, it’s critical to keep a close eye on your competitors and trends in the category. Study key competitors with out of stock issues and learn from their strategies.
- Sponsored Brand Campaigns: Monitor Sponsored Brand campaigns that contain ASINs with low inventory or high Lost Buy Box issues. These campaigns do not automatically pause when component ASINs run out of stock, and will continue to drive traffic to 3P offers if your offer is no longer active. Pausing campaigns or launching parallel campaigns with heavily stocked products can help ensure that you're only paying for traffic that will result in 1P sales.
When used together, these tactics can help mitigate out of stock issues and grow your brand’s total business beyond top selling items.
Stocking Up: Increased Consumption vs. Pantry Loading
If your brand is in a category where consumers are stocking up, it will have implications on future consumption and shipments. For example, the recent trend of buying bulk quantities of toilet paper has yielded a significant increase in sales, however, the overall usage of toilet paper has likely remained relatively stable. This means that consumers could be sitting on supplies of toilet paper that will take them out of the purchase cycle for the next 3-6 months. As such, this is ultimately pulling sales volume forward rather than driving incremental consumer demand over the long-term. Brands should ask themselves whether they expect the current surge in demand to be from increased consumption (therefore driving incremental sales) or from pantry loading (therefore pulling forward future demand). This will have implications on fiscal year forecasts and setting advertising budgets.
If brands are seeing increased sales but without increased consumption, leaning in to win with shoppers now can be highly strategic, since future demand is likely to slow down as consumers sit on large quantities of supplies. Winning those shoppers now can position your brand to win long-term, especially when considering the lifetime value of the customers you have gained.
Inversely, some categories that have seen a boon in sales – such as hand sanitizer, hand soap, certain supplements, etc. – have also seen a corresponding spike in consumption as a direct result of COVID-19. Consumption scenarios include people washing their hands more frequently, practicing better overall nutrition, consuming more at-home entertainment, and exercising and working from home. Brands should predict whether COVID-19 has driven a fundamental shift in how consumers interact with and use their products. This is critical to understand, as the increased consumption will impact your sales forecasts and advertising budgets.
From an advertising budget perspective, it will be tempting to lean in and capture the current demand if your brand is seeing increased consumption. This is likely a smart move, provided you’re balancing short and long-term factors and have sufficient budgets for the balance of the fiscal year. Across many product categories, we’re seeing ad performance that is 2-3x more than efficient than it was before COVID-19. This is being driven by a reduction in Cost per Click (as advertisers run out of stock and/or ad budgets; See Figure 3), stable conversion rates (as consumers put their names on waiting lists to get product when it becomes available; See Figure 4, and larger basket sizes (as consumers stock up now, in case products are unavailable in the future; See Figure 5). If your inventory positions and budgets are robust, consider leaning in – the upside you capture now will boost your total 2020 performance.
Amazon Delivery Delays and Lower Conversion Rates
Given the added pressure on Amazon’s fulfillment center network, with inbound and outbound shipment needs spiking to historic levels at the same time (versus a planned marquee event where inbound peak precedes outbound peak), Amazon has decided to primarily focus on essential categories to meet the most critical needs of consumers during this pandemic. This decision has resulted in extended delivery date messaging on many vendors’ and sellers’ items, with many delivery dates pushed to four weeks out from order date.
While the full magnitude of Amazon’s sales and traffic lift has yet to be disclosed, some brands are seeing daily sales and traffic that far exceeds any historical precedent from marquee events in the past. On the other hand, many brands are seeing the opposite trend, with decreased conversion due to the extended delivery delays. Anecdotally, Pacvue has seen little impact to conversion when delivery estimates are less than seven days. However, delivery estimates greater than seven days appear to be having a detrimental effect on conversion rates.
Amazon’s current delivery promises vary across items and product categories, and in the absence of manual intervention, these dates are algorithmically determined by factors such as product and consumer locations. Said differently, in normal times, Amazon’s delivery estimates are unique to each individual detail page view. As such, this information is not easily captured at scale and is not made available to brands or sellers. This makes it challenging for brands and sellers to identify and quantify the potential impact that Amazon’s delivery delays are having on their business. Tracking metrics such as changes in conversion, ROAS, ACOS, and ordered/shipped sales are going to be critical for brands and sellers as they continue to estimate impact and develop an action plan.
Advertisers affected by decreased conversion rates should consider adapting their ad campaigns to account for this new normal by doubling down on the components of their advertising strategies that are performing best. One popular option is to strategically optimize campaigns to solely focus on top selling ASIN(s) not affected by extended delivery dates. Additionally, advertisers should consider focusing on the handful of keywords that are driving sales on items with high conversion rates.
As of late March, we have come to learn that Amazon has temporarily halted their Born to Run and Vine programs. Amazon's Born to Run program is for Amazon’s 1P vendors and is intended to build Amazon’s inventory ahead of demand for brand new items. Vine is a paid program which allows brands to cede free product samples to Amazon’s top-rated reviewers in exchange for an unbiased product review. Since both programs are often leveraged by brands to speed up the ramp of new products, many have asked us how they can still support their innovation without wasting ad dollars or driving a poor ROAS. We believe that brands can still speed up the ramp of new products without Born to Run or Vine by leaning on a few specific advertising tactics which prioritize efficient clicks and the targeting of brand-loyal customers.
- Sponsored Brand Campaigns: Brands should consider adding new items with little to no reviews to new Sponsored Brand campaigns. These will have to be launched as new campaigns, since Amazon currently does not allow users to edit active Sponsored Brand campaigns. These campaigns allow for three ‘face out’ ASINs in the ad itself, in addition to a brand logo or lifestyle image, and a 50-character tagline which leads to a landing page. We recommend launching brand new versions of your top-performing Sponsored Brand campaigns that include two best-selling ASINs in the first and second product slots, and the new items with few reviews in the third slot.
- Landing Page Placement: Highlighting new items on whatever landing page your Sponsored Brand campaigns lead customers to, whether that be a custom ASIN list or a Brand Store is another good way to surface these new items to consumers. For Brand Stores specifically, adding new items to existing pages and writing copy to highlight why they’re new and interesting is another good option.
- Sponsored Display Campaigns: Test Sponsored Display campaigns that feature new items and are placed on a brand’s own Product Detail Pages (PDPs), with the goal of introducing innovation to consumers who have already shown an interest in your products. Keep in mind that ROAS will likely be relatively low compared to top-performing campaigns for these placements at first.
- Branded Campaigns: Include new items in any keyword-based campaigns which target your brand’s own keywords (i.e., “Apple Watch Series 5”), since these consumers are already actively seeking out your brand and are more likely to click on one of your products.
Brick & Mortar Sales Decline
We’ve heard from many brands that they’ve seen share shifts from brick & mortar to eCommerce channels, and in some cases, from other eCommerce retailers to Amazon and Walmart in recent weeks. It is likely this trend will continue over the coming months, given the ongoing government restrictions and research studies like the one from Brick Meets Click consulting, which noted that the number of people who used online grocery delivery services more than doubled from 13% of all US households in August 2019 to 31% in March 2020.
Many of our clients who have seen this share shift are asking how they can take advantage of the increased traffic and sales on Amazon and Walmart.com by making their products more discoverable to the consumer. Below are a few things you can do to maximize sales during this accelerated period of share shift.
- Shift Budget: Shift budget away from brick & mortar channels where possible and reallocate to Amazon and Walmart.com where consumers are shopping.
- Leverage Promotional Dollars: Repurpose promotional dollars to paid search drive traffic to full-priced sales during this period of high demand, especially when looking to boost 2020 net profit.
- Inventory Allocation: Reallocate unclaimed inventory, which may have been allocated to a declining channel, to eCommerce channels or those that are growing. This can help your eCommerce sales and maximize sales for your entire company at the same time.
- Additional Selection: Consider adding additional selection that may be missing from eCommerce channels to your Amazon or Walmart.com assortments. Obviously, there are several factors to consider when weighing this decision, however, one thing has remained consistent: more SKUs on Amazon means more sales.
While share shift from brick & mortar to eCommerce isn’t a new phenomenon, the shift has certainly accelerated over the past few weeks. While none of us have a crystal ball and can predict the ongoing impact this may have, it’s fair to assume that these recent developments will have a lasting impact on how and where consumers shop.
Changes in Search Behavior
It goes without saying that COVID-19 has altered just about every aspect of our daily lives. Consumer search behavior on Amazon hasn’t been immune to the impact of COVID-19. For example, some search terms that would otherwise have low search volume have seen a significant increases. In the past month the search term “microban” has increased in interest by over 1500%, according to Amazon’s keyword data. Microban is a technology used in certain products to give them anti-bacterial properties. For certain products the term “microban” could be a key sales driver, so discovering and targeting that term could be key to remaining competitive during this time.
One way to discover emerging keywords such as “microban” is to frequently monitor Amazon’s search term data for new keywords. A great way to automate keyword harvesting is to utilize Pacvue’s rule-based optimization, which automates the process of finding new keywords and adding them to your relevant campaigns, based on your preset KPI parameters. Many Pacvue subscribers will typically run their search harvesting rules on a monthly basis. However, that may be too infrequent to capitalize quickly on emerging search terms as the eCommerce landscape changes at an unprecedented pace. To adjust to COVID-19, users may want to update their rules to run on a daily or weekly basis, so that they can discover and target emerging search terms right away.
COVID-19 is a fluid situation, and we never know what piece of news will drive search trends in the future. By adjusting keyword harvesting rules to run on a more frequent basis, advertisers can automate this process and quickly discover emerging search trends.
While the eCommerce search landscape is ever evolving, the tips and tricks outlined above can be applied to current and future strategies when similar challenges arise. In addition, Amazon’s COVID-19 guidance can be found on their COVID-19 FAQ page. To learn more about how Pacvue can help with your Amazon and/or Walmart paid search strategies please email firstname.lastname@example.org.