2 Cost-Saving Opportunities Brands May Be Overlooking
As businesses face increasingly challenging profit pressures, cost-saving strategies have become more critical than ever. With rising costs in raw materials, packaging, labor, and transportation, it's essential for companies to identify opportunities to streamline their operations and improve their margins.
We’ve worked with our brand partners to identify cost-saving opportunities and build margin back into their P&L during pressured times. Through our scaled supply chain and technology as well as our in-house performance marketing experts, we've learned valuable lessons about two of the most prominent pressure points in ecommerce: supply chain and advertising. This post offers insights and strategies for addressing these two big challenges, head-on.
supply chain: build more agility and efficiency
COVID-19 had a significant impact on the supply chain, resulting in unexpected—and unprecedented—demand spikes, factory and warehouse shutdowns, labor shortages, and Amazon's prioritization of essential items. As a result, inventory shortages, delivery delays, and increased costs throughout the supply chain occurred. Even today, many brands are still facing higher costs due to these implications.
Rather than simply waiting for the storm to pass, best-in-class brands have taken action to build more resilient, flexible, and efficient supply chains. Here are some of the key actions they have taken to optimize their supply chain:
1 - Refine "endless aisle" thinking
While it is hoped that the worst is over in regards to extreme supply constraints, these challenges have prompted brands to think more intentionally about their assortments to make the most of their limited capacity.
Instead of adopting the mentality that ecommerce is an endless aisle, each product should be treated as its own business by evaluating its value to the customer. In many cases, this has meant shifting focus away from unprofitable SKUs and the slow-moving long tail. This approach has led to several benefits, including improved profitability, better rates across the supply chain on the highest-volume products, and more focused resources to maximize sales and profit on top products.
Additionally, higher ROI on emerging and alternative fulfillment investments such as direct-to-consumer (DTC) and retail drop ship, and higher injection thresholds for FBA in times of limited fulfillment center capacity, have been achieved.
One important cost that often goes unacknowledged is the cost of sitting product, which locks up cash and can lead to incremental costs—such as long-term storage fees through Amazon FBA—as well as opportunity costs. Slow-moving inventory occupies space that could otherwise be used for more productive products. Efforts to move more product can result in greater growth compared to a disproportionate investment into slow-moving ASINs, as Amazon's algorithm and fulfillment center logistics favor fast-moving products.
2 - Get in on the control and flexibility game
Supply-chain woes brought on by the pandemic showed brands the value of vertical integration and/or moving more of the supply chain closer to the end consumer. These actions allow for greater control, more agility in a volatile supply-and-demand environment, and a reduction in the time it takes to get products to market.
Traditional manufacturing cycles create long lead times that are not suited for a choppy supply chain environment or the dynamic demand trends seen in ecommerce. This is why digitally-native upstarts often grow market share quickly on Amazon.
By using an agile supply chain strategy and paying acute attention to real-time Amazon demand trends, these companies are quick to get products to market and start building history and fueling growth on the product listing. Mature brands that can learn from that success and invest in a supply chain optimized for ecommerce will be well-positioned over the long term.
3 - Don't underestimate small margin wins
Leading Brandrunners have learned to pursue meaningful cost savings while also searching for smaller margin wins that can make a big difference in the long term. In such a cost-pressured environment, any margin improvement should be welcomed. Even per-unit improvements can add up to have large impacts that continue to grow as the business grows.
Some of the potential margin wins as it relates to the supply chain are closely monitoring carrier costs, revisiting ecommerce packaging, identifying transportation savings through packaging adjustments, and actively managing chargeback fees.
advertising: do more with less
Having a significant presence on Amazon is becoming increasingly expensive as competition increases and Amazon continues to monetize its digital real estate and consumer traffic. Netrush’s research shows steady, 20%+ year-over-year increases, on average, on the cost-per-click (CPC) brands are paying through paid search on Amazon. These large increases have come at a time where Amazon has also meaningfully increased the advertising inventory available on its site.
For example, a few years ago, shoppers may have seen a Sponsored Brands headline banner and a handful of Sponsored Products, at most. Today, any given search engine results page (SERP) is most likely filled with a collection of ads—a Sponsored Brands banner, multiple rows of Sponsored Products, Sponsored Brand Videos, editorial recommendations, “highly rated” products, etc.—that are all part of the pay-to-play model. Therefore, shoppers see these advertisements before they see the organic search results that used to account for the majority of the SERP.
We believe paid placements are nearing full saturation, meaning Amazon is unlikely to continue to grow advertising inventory at the same rate going forward. If growth in supply (i.e. advertising inventory) slows, yet growth in the demand for Amazon’s advertising placements (from brands) continues to rise, we may begin to see even larger increases to brands’ total advertising costs on the platform.
We’re also observing increasing customer fragmentation across the retail landscape as consumers’ shopping options—from discovery all the way to fulfillment—proliferate. This fragmentation can make customer loyalty more challenging, with a recent McKinsey study suggesting brand switching is at an all-time high.
This decreasing loyalty, mixed with rising customer acquisition costs, is contributing to the profit squeeze. Thus, we believe Brandrunners’ ultimate objective for marketing and advertising is to create the most loyalty at the lowest cost, which can be done through the following actions:
1 - Ensure inventory and advertising are synched
Thanks to a feature tailor-made for Amazon sellers, AI-driven Amazon advertising platform Sellozo makes this task simple. “I’m leveraging Sellozo’s ‘days of inventory’ (DOI) reporting to quickly adjust advertising budgets to ensure we don’t accelerate stock-outs,” says Jackson Hathaway, Netrush Performance Marketing Director, Sports & Outdoors. “This is critical in today's supply chain environment.”
2 - Use dayparting
Running campaigns only during peak sales hours—based on product sales history—is a best practice for any campaign. Sellozo’s auto-dayparting feature can do this work for you, automating the process of finding those peak sales hours, as well as the dayparting execution.
3 - Incorporate cost of goods sold (COGS) into advertising strategies
Running an ASIN-level profitability report allows you to optimize spend toward higher-margin ASINs, effectively increasing the bottom line to free up additional marketing dollars for growth (or to be invested, or saved, in other ways).
4 - Optimize continuously—and embrace automation
“One of my favorite Sellozo features is Campaign Studio,” says Liam Jacobs, Netrush Performance Marketing Manager, Sports & Outdoors. “This tool creates a funnel for keywords based on strategy and performance, so all campaigns are continuously growing, testing, and optimizing on a daily basis.”
5 - Focus on loyalty
Using advertising with a focus on driving loyalty and customer lifetime value (CLV) will result in more economical advertising spend. A key tool to achieve this goal is the use of first-party transaction data to understand the level of loyalty among customers and identify products that drive loyalty.
For example, first-party data can share which products most commonly lead to a second purchase (and third purchase, and so on). These are likely the products most worthy of more advertising spend (and other types of focus and investment within the Amazon platform, such as inventory management, content, brand protection, etc.).
On the flip side, the products that are most common among one-time customers could either be deprioritized from a marketing perspective and/or brands could find opportunities to drive better retention from those products (e.g. through post-purchase offers, product education to increase utilization or improve customer experience, etc.).
conclusion
When times are tough, it can be difficult for brands to turn a profit. But the best Brandrunners understand that opportunities are always likely to exist in two areas: supply chain and advertising. Brands that can optimize their strategies in those departments—by exhausting all the tried-and-true actions detailed above—stand the best chance of not only weathering the storm, but building a competitive advantage in the process.
Need help optimizing your supply chain and/or advertising strategies? Netrush understands all the levers brands can (and should) pull to soothe two of the most prominent pressure points in ecommerce. Contact us today to get started.
ABOUT the authorClaire McBride leads Research, Insights and Education for Netrush. Her entire career has been centered in the consumer and retail space, spending the last six years helping brands grow and optimize their ecommerce businesses through written research, events, share group discussions and one-on-one consulting. Prior to joining Netrush, she led the ecommerce market research division at Cleveland Research Company. Connect with Claire.
