As of the time of this writing, the coronavirus (COVID-19) has made more than 113,000 people sick worldwide, killing at least 4,000 people. We each have our own part to play to minimize the spread of the virus and prepare to care for our loved ones who may become sick. At the same time, the rapid spread of the virus is also impacting the global economy, which means e-commerce sellers and vendors must rapidly adjust business plans in order to account for changes in their supply chain and in the larger marketplace.
Businesses understandably have numerous questions about how to handle Amazon advertising under these unforeseen circumstances. Zalman Teldon and Mandy Moise who direct the e-commerce program for O2COOL talked with us about the challenges to their business. Zalman observed, “I never anticipated having to purposely throttle our ad sales, but we’ve made the executive decision to pull back to avoid a total stock outage on Amazon.”
How can businesses make these unanticipated decisions effectively? We’ve put together a checklist to help you evaluate the impacts of the virus on your business and we’ve laid out four options for handling Amazon advertising in these unprecedented times.
The impact of manufacturing conditions in China
As part of the effort to prevent the spread of the virus, factories in China shut down, impacting not only China’s economy but the global economy. Although factories have largely reopened, many have been operating at reduced capacity with the impact of the extended downtime still largely unknown. As the New York Times reported: “Quarantines, blocked roads and checkpoints are stopping millions of workers from returning to their jobs. Supply lines have been severed.”
Sellers around the world are continuing to feel the impacts that ripple all along the supply chain. Even if a factory is back in operation, it may not be able to obtain all of the components needed for production, and even when manufacturing has been possible, some cargo ships have been denied entry into port, delaying delivery of products.
Moise dealt with these challenges first-hand: “We experienced limited communication from our Chinese partners for the last few months, which added to the stress and general lack of knowing what the impact would be on our business.”
How supply chain problems are affecting brands and sellers on Amazon
Amazon usually operates on a “lean inventory” model which makes it more difficult to handle fluctuations in supply. In recent weeks Amazon has adjusted this model to account for large brands with the potential to experience inventory problems by requesting more inventory through out-of-cycle purchase orders.
Zalman told us, “Our internal team has spent a lot of time in recent months working to optimize the forecasting process to maintain inventory through our busy season – the impact of COVID-19 on Amazon’s orders has thrown a big wrench into their efforts.”
Amazon has also published advice to sellers, including the suggestions to consider canceling orders that you aren’t able to fulfill and/or placing your account in vacation status. Amazon has suggested that they will take the effects of the coronavirus into account when evaluating seller performance, requesting that sellers “please include a brief description of how your business was impacted when you respond to the relevant performance notification in Seller Central.”
Consumers are also changing their behaviors. Smaller businesses with less diversification within the supply chain are particularly vulnerable to the effects of consumer stockpiling.
Questions to ask about your business
So what is the best way to handle Amazon advertising under these circumstances? Choosing the right strategy when the supply chain is hampered will depend on the specific details of the business.
Sellers and brands can evaluate their own circumstances by answering the following questions:
- How severe do you anticipate the impacts to inventory will be?
- Will particular products be affected? Does this include your best selling products?
- How competitive is your category or market?
- Do you plan to run any Prime Day deals and if so, are those products impacted?
- What percentage of your business is on Amazon?
Once you have a better understanding of the likely impacts on your business, you can use that information as a foundation to select the right strategy for advertising.
Strategies for handling advertising
We recommend considering four options for handling advertising until inventory returns to normal. It makes sense to select a strategy based on your business goals and circumstances.
- Stay the course. If inventory levels aren’t expected to be severely impacted, it likely makes sense to stick to your existing advertising strategy.
- Reduce advertising volume on products with inventory impact. If there are top products or bestsellers that will be impacted by stockouts, it may be important to pull back on advertising to prevent selling through too quickly. For top products, organic traffic should remain relatively strong despite a reduction in advertising.
- Reduce advertising volume across the board. Many vendors and sellers are choosing to reduce advertising spend for all products by 25-50%, based on the industry and level of competition within the market. In a particularly competitive market, reduce spend conservatively. If the market is less competitive, you can consider reducing spend by a larger amount and even pulling advertising on branded terms.
- Increase prices to reduce conversion rate. In addition to reducing advertising spend, another way to slow down conversions and make inventory stretch for longer is to increase prices on products with low inventory. Price increases should be made conservatively, refraining from the kind of dramatic price increases used by sellers Amazon is suspending and prosecuting for price gouging on supplies to prevent the spread of the virus.
We’re facing this crisis together
The story of the coronavirus and its effects on the global economy and society is still being written. We all need to heed the expert advice of public health officials on the best strategies to care for each other in this time of uncertainty.
Teikametrics is here as a partner to strategize on nimble responses to changes in the supply chain and the marketplace so your business can weather this unprecedented storm. We’re always monitoring changes on Amazon and across e-commerce platforms, and we’ll continue to bring you our insights and suggestions to help you guide your business to sustain itself in tough times and thrive in better times.