With budgets getting tighter and competition ever fiercer, eCommerce retailers naturally want to make sure that they are generating the most value from any digital marketing they are running. With that in mind, prioritising products from an operational perspective is a way in which marketing and operations can align to ensure mutual beneficial goals.
First things first, what do we mean by ‘marketing for margin’? Essentially we are talking about focusing your marketing efforts in two categories of products:
- High margin products; and
- Overstocked/Slow selling products.
So why would this be beneficial for retailers? Put simply, it speaks to one of our favourite topics at Vuzo: better targeting for your marketing spend. Many eCommerce companies create a generic margin across all products and devise their budgets based upon it, but this is not the best way to approach marketing budgets, as it allows too much wasted spend to fall through the cracks. Instead, marketers can make the marketing budgets bespoke to each product by margin.
By focusing marketing efforts on high margin products, there is an assured greater return on investment – ultimately retailers know they will get better returns when selling that particular product. On top of this, with higher margins at play, it might be that you are willing to pay a higher CPC for that product, or even for any type of search term for that product.
It can also be very useful when it comes to overstock products, which is particularly vital for retailers at the moment, whilst warehouse space is at a premium. Vacancy rates for warehouse space have stayed at around 2%, which is far below the 8% required to balance fluctuations between supply and demand.
Whilst it is understandable that retailers might have been stockpiling or overstocking products following the unpredictability of the past couple of years, research from March 2023 found that UK manufacturers are dangerously overstocked, carrying an average £102,000 in additional product. Unsold stock is a serious revenue drain for eCommerce businesses: in fact, Retail Week recently warned that it could be the final nail in the coffin for retailers, with 26% of online retailers only six weeks away from going bust if their cash flow issues don’t improve, and merchants overstocked by more than 30% with no space to keep it all.
Instead of shouldering huge additional storage costs, retailers can use focused marketing to promote these overstock products and shift the overstocks at a greater rate than you would without bespoke targeted spend.
The concept of marketing for margin can also drive efficiency and profitability in other ways, namely by joining up your marketing and operational functions. Any business leader knows that the various teams within your company should not operate in a vacuum, however this is precisely what happens in many cases when it comes to marketing. By linking the two – operations and marketing – the teams can work in a complimentary and adaptable manner, and make a difference to your operational costs. In other words, facilitating Joined Up Thinking in real time.
Paid advertising is flexible in real time – you are able to turn the dials to increase or decrease spend in each area with relative ease. Instituting daily stock updates, or a weekly stock meeting that includes the marketing team means that marketing has sight of what is going on from a merchandising perspective, and can shift and change budget allocation according to the market, current stock levels, and many other variables. This means that businesses can ensure the marketing function is not only generating revenue across the full product suite, but is also being strategic about where the marketing spend is allocated.
Such a simple change in approach can also be incredibly effective, and it is often overlooked by retailers. Given the functionality that paid search platforms offer, this can also be done at a granular level. For example, an electronics retailer may offer three different brands of laptop, and identify that while the sell through rate is much higher for two of these brands, one is lagging behind. In this case, marketing can reduce the spend on the two brands that are already performing well, and instead focus attention and budget on promoting the slower selling product.
Ultimately, this can all feed back into your operation and inventory planning – making sure you are making the most of your warehousing space by keeping only the best selling or most profitable products in stock. Retailers who are maximising not only marketing budgets but also operational costs can ensure they are getting the best ROI even in the most challenging of market places.