Now May Be the Time to Secure the Future of Your Brand

August 13, 2020
Posted in FĒNX News
August 13, 2020 Kevin Fleming

We know that COVID-19 is creating change at every level of society and negative financial outcomes for many businesses affected by both the health crisis and policy reactions to it.

Yet the impact is not equal across the board. Companies in many industries are being presented with an opportunity to secure their future by locking in long-term growth. We see obvious examples—companies like Zoom or Shopify—whose market capitalizations have increased exponentially since March, due to the alignment of their business models with the realities of lockdown.

E-commerce Spending Is Increasing Across Many Categories, Including Consumer Discretionary Products

However, many businesses in less obvious industries have an opportunity to follow the same playbook and use this crisis as an opportunity. Unfortunately, many business owners and executives aren’t doing so. They are playing it conservative by decreasing marketing spend, letting employees go, or freezing rather than innovating.

With a few notable exceptions, most companies that sell their products or services online have an opportunity to grow their e-commerce sales and capture valuable new customers as more consumer spend shifts online.

Just check out this chart from McKinsey that shows 20%+ growth in the number of consumers purchasing products from a wide variety of categories online since the pandemic started.

McKinsey Graph of Consumers Purchasing Online Trends by Industry

Fig. 1. McKinsey & Co; “Consumers’ use of online channels before and expected use after COVID-19”; Mckinsey.com, 4 August 2020, https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/the-great-consumer-shift-ten-charts-that-show-how-us-shopping-behavior-is-changing#

The consumers most likely to have increased their spending on non-essential items are high earners and millennials. These audience segments are valuable for almost any brand.

Consumers are switching brands at much higher rates.

Also, e-commerce spending is not only increasing, but consumers are testing out new brands and shifting to competitors at much higher rates. Many of these consumers expect to stick with their new selections once the crisis is over. The same McKinsey article cites that “75% of consumers have tried a new shopping behavior and most intend to continue it beyond the crisis”.

Many consumers are testing out new brands because of lapses in inventory availability, customer service, or companies not staying connected with loyal customers during a period of changing behavior and new habits. These all can be a result of pulling back on budgets or inventory, furloughing or letting go employees, or simply disruption of typical systems caused by the current situation. Companies that remain stagnant could miss out on the opportunity to gain ground while also losing loyal customers that may test out competitors instead.

So if online spending is increasing and valuable audience segments are searching for new brands to try, why are many businesses reducing advertising spend and new customer acquisition efforts? Unfortunately, I believe many brands are caught up in the general upheaval and uncertainty of the COVID-19 crisis and risk losing market share to more aggressive competitors who are capitalizing on the opportunities in the market.

Because of these trends, I would argue that most e-commerce companies should ramp up their advertising spending and new customer acquisition efforts in the back half of 2020. Many companies realize this and have taken advantage of the opportunity that this situation has presented. However, many businesses with products that fall more into discretionary spending, such as apparel, jewelry, accessories, home goods, vitamins & supplements, and others, have instead chosen to take a conservative stance.

This report from MarketingWeek suggests that ~44% of organizations plan to spend less on marketing in the back half of 2020, despite the possibility of relaxing COVID-19 restrictions and the essential Holiday season. While this data is from the UK, this sentiment also appears to apply amongst many US companies.

Chart of how organizations are planning to treat marketing spend in back half of 2020

Fig. 2. Vizard, Sarah; “How organizations are approaching the second half of 2020 in terms of budget and priority”; marketingweek.com, 10 August 2020, https://www.marketingweek.com/half-marketers-plan-budget-cuts-second-half/

Some opportunities to exploit lower advertising costs due to increased competition remain

This conservative attitude is leading to some discounts in digital advertising costs. With many brands spending less on advertising, we noticed a sharp drop in advertising costs (on a CPM or CPC) basis on a number of platforms for our partners. While they are increasing once again, an opportunity remains for many businesses to go after the increased volume of customers online while potentially achieving even more efficient return on investment due to decreased competition.

Statista Chart on Facebook CPMS pre and post pandemic

Statista chart visualizing the over 50% drop in Facebook CPMs initially after the pandemic struck

Fig. 3. Guttmann, A; “Average Facebook advertising cost-per-mille (CPM) worldwide influenced by the coronavirus pandemic as of March 2020”; marketingweek.com, 31 March 2020 https://www.statista.com/statistics/1108036/global-facebook-ads-cpm-due-to-covid-19/

Why You Should View this Situation as an Opportunity, and How to Smartly Take Advantage

While caution is understandable with the uncertainty around the global economy and the lingering impact of COVID-19, the risk of inaction must be considered. Increased online consumer spending, more consumers switching trying out new products, and many companies taking a conservative approach have aligned to make this a unique opportunity for e-commerce businesses in the right industries (or perhaps more accurately, not in the wrong ones). To borrow a common expression from investing, “the time to buy is when there’s blood in the streets”. I would argue this expression applies to how brands should treat the current situation as regards their digital customer acquisition efforts.

That being said, we know that many businesses may have seen a decrease in revenue or are facing real uncertainty moving forward so strategic bets are what is called for. Now more than ever, a focus on performance and a thorough understanding of the effectiveness of your advertising campaigns is critical. Valuable funds shouldn’t be wasted on poor performing campaigns or ones that miss the mark and risk alienating consumers in these more tense and stressful times. While we are huge believers in the performance model regardless of external circumstances, its hard to argue against the idea of pursuing the opportunities that exist in e-commerce right now with the comfort of knowing you will only have to pay your agency IF those efforts meet or exceed expectations. If that is something that interests you, we are always available at hello@fenxdigital.com.

Kevin Fleming is the President of FENX Digital, a performance-based digital marketing agency.
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