The next few months (or maybe even longer!) look uncertain, and many eCommerce retailers are feeling like they are staring down the barrel of an upcoming recession. Another one?! we hear you cry… as if we haven’t had enough major ups and downs in the past few years! The energy crisis alone has sent the country into a spin, and what happens next is by no means clear.
When Covid first reared its ugly head, there was a shared challenge, with us all waiting to see how the world and businesses would react, and who would be impacted. And, whilst we might feel similarly unsure at the moment, unlike the arrival of the Covid pandemic, retailers have seen recessions before. We might not yet know the size of the impact, when it will hit, and for how long it will last, but the real question we should be asking is how can we weather the storm, in whatever form it takes?
Keep things ticking along
It can seem like the easiest option is to react by battening down the hatches and trying to wait out any challenging periods. This approach will certainly save money in the short term, but stopping all marketing spend can have mid- to long-term impacts on your brand position. We have found that it takes around 6-9 months for brand awareness to kick in amongst customers, but it needs to be maintained. By turning off marketing efforts, brand awareness naturally tapers off and impressions start to decline relatively rapidly. As with anything valuable, it takes significantly longer to make gains than it does to lose your position!
Fortunately, our recent pandemic experience has taught us all that those who kept their marketing spends going at close to normal levels saw a much smaller dip and faster bounce back once ‘normality’ returned. In contrast, those who dropped or ceased their marketing saw a much larger drop in sales and a much slower climb back out after the pandemic.
Recently a survey found that 78% of B2B marketing leaders believe that companies that maintain or increase marketing spend during periods of uncertainty recover more quickly, and after the 2008 recession, companies that maintained their marketing output saw 3.5 times the visibility of those that did not. As the saying goes: “When times are good, you should advertise; when times are bad, you must advertise.”
Make retention a focus
eCommerce retailers are well aware that retaining an existing customer is a much cheaper strategy than pushing marketing budget to try and acquire new customers, and this is even more important when the economy is slow. Retaining a customer can increase their lifetime value and outweigh the initial acquisition cost, so now is the ideal time to follow this age-old advice. One of your core strengths in a recession is a strong and loyal customer base, offering higher yields with less effort and expense than customer acquisition.
The data backs this up as well – did you know that the average success rate of selling to a customer you already have is 60-70%, while the success rate of selling to a new customer is significantly lower, as 5-20%?! Not to mention that with budgets already stretched, acquiring a new customer can cost five times more than retaining an existing customer.
While expanding the customer base is important, marketers should also be looking to customer retention strategies, as data suggests they can have a direct impact on the bottom line, which will always prove popular with boards – increasing customer retention by 5% can increase profits from 25-95%, and can offer 5-25 times more yield. The economy is not only impacting retailers – customers are feeling the pinch too, so why not consider offering options like subscriptions, buy now pay later, and loyalty programmes to existing customers to build brand loyalty and incentivise repeat purchases?
Look to the long term
While the focus is on customer retention as well as acquisition, eCommerce marketers should be aware of the lifetime value of their customers. In a recession, the cost of acquiring a new customer is sure to increase, and with it, retailers will see a decline in immediate ROAS. Already, marketers have seen CPC’s increase, with more competition post pandemic, as retailers are in a much busier market than pre-pandemic. Instead of focusing on the short term returns, marketers should look to the mid- to long-term, and the lifetime value of each customer.
So, what do we mean by ‘Lifetime Value’? Instead of looking at the cost of customer acquisition vs their initial purchase, we’re looking instead at the total profit generated by a customer over a projected period of time. It helps marketers to understand the long term vision, and see how valuable a customer would be if retained for a longer period. This can be challenging for marketers to present to those in charge of the purse strings – indeed 77% of chief marketers in a recent study said they’re feeling pressure to prove more short-term returns on investment – and so lifetime value is a worthwhile stat to put forward when delivering results.
Data, data, data
And finally, we would be remiss in offering advice without mentioning the golden rule – look to the data! Whilst many marketers are not seeing their budgets cut, budgets are certainly not growing, and so the main goal is to do more with the amounts available. As always, data can be an excellent source to help drive your marketing decisions and boost ROI. By consolidating and analysing existing data, marketers can make more informed decisions, and better understand where and how to get the most results when budgets are tight.
In short, marketers must be brave and keep things going even when the outlook is gloomy. History has taught us that even through ups and downs, growth is possible, especially for brands that keep their name out there. The most important thing is to be ready and waiting for your customers when things eventually start to improve.