Ecommerce and coronavirus: a strategic assessment and 20+ action items

The novel coronavirus (COVID-19) is hitting our global society hard. This is first and foremost a public health crisis, but it is also a social crisis and a worldwide economic crisis. For all of us, the pace and impact of change will be intensely challenging.  If you are an online marketing manager (OMM) in retail, what might this mean for you?

I am going to offer a very honest assessment of the challenging months ahead. I want to end on an optimistic note, and I want to provide actions that might help you. But speaking realistically, the situation will be tough.

In this article, I will examine the following three questions:

  1. How might the coming months unfold for online retail? (broadly)
  2. What can OMMs do to add value? (emphasis: Shopping ads)
  3. What might happen after the crisis? (here comes the good news)

tl;dr: to make all this a bit more actionable, a compressed master list of 20+ tips is at the bottom.

Before I dig in, let me frame what is happening in terms of change.

The situation is more than dynamic – it is exponential.

As I see it, we are standing here:

Corona Ecommerce change

This chart is not referring to infection rates. I mean to show that the overall rate of change we are facing and the level of complexity involved are seemingly exponential and certainly highly disruptive. Each region, each country is on its own unique timeline, but there will be a universal experience for all of us: “A week ago our lives were normal. One week later, so much has changed.” These changes seem slow, seem incremental – until suddenly they seem very, very fast. That is a function of exponential change.

The next function of exponential change, and this one stings, is that we cannot predict what will occur. Staring into that curve is like staring into a brick wall. For this reason, only very broad ecommerce scenarios are calculable. That said, I will contradict myself on this point at the end of the article, so keep reading.

How might the coming months unfold for online retail?

Online retail is obviously better situated to survive the social distancing period that has closed the doors of so many businesses overnight. There will be windows of opportunity and periods of stability for online retailers in certain categories and geographies. Moreover, it’s reasonable to assume there will be long-term gains (more on that later) for all companies that make it through the recession. So, yes, there is a light at the end of the tunnel.

But yes, I did also say recession.

Depending whether the virus is seasonal or non-seasonal, McKinsey currently predicts a global recession with recovery beginning in Q4 2020 (seasonal) or Q2 2021 (non-seasonal). Please note that the linked resource is updated frequently, so you might see a different analysis depending on when you are reading it.

McKinsey's scenarios for COVD-19 economic impact

The good news is that, for now, currently online retailers are facing more supply shock than demand shock. This is good because as long as you can keep key items in stock and can fulfill orders, you can keep revenue flowing.

But this supply shock means that now – right now – is the time for retailers to take a very close look at their inventory, open orders, and planned orders. The goal is to pick, insofar as possible, the right future inventory. 

Overhead costs can make or break a retailer during a recession, and unlocking cash is crucial to getting through. Slow stock can easily become dead stock, while predicted bestsellers can collapse on the supply side. That’s why your business needs to cancel “bad stock” orders and clear that dead stock while increasing orders on the good stock. This is a task for your purchasing team, warehouse team, or supply chain team depending on how your organization is structured. But you as an Online Marketing Manager need to connect with them today to determine:

  • where can advertising pressure help clear dead stock
  • which items are strongly supplied so I can push revenue

Later on in the crisis, there could be a serious loss of demand due to recession dynamics. This is almost the most painful part for an online retailer, because even if you’ve done the hard work to stabilize your supply chain and build key inventory, sales could just slow. The good news is that whatever level of demand exists, online is the right place to capture it due to offline shop closures. OMMs and paid search marketers will be at the forefront of converting this demand. 

What can OMMs do to add value?

It is your job to help keep the business strong through the challenging times ahead. Acting strategically, adding value, and reporting that value clearly will not only help your company, it will also help your own personal outlook during and after the crisis. So, what can you do?

Set the right strategic goals

Speak with leadership to discover what their needs and expectations are from PPC and paid search channels during this time. You should also be proactive by anticipating questions and challenges and by bringing proposals with you.

For example, maybe your company has focused on revenue generation until now. Now might be the right time to switch to gross margin as your driving goal. When your business is tightening the belt, the actual bottom line is more important than ever, and proving the profitability and margin contribution of your work can settle questions that might otherwise lead to channel divestment. 

What’s more, for some industries or sub-categories you might observe that competition is thinning. Now could be the right time to deploy a countercyclical strategy to capture market share and focus intensely on visibility metrics and new customer acquisition.

The cases are numerous and will vary per industry and within industries. FYI, WordStream published a thought-provoking overview of industry trends so far.

Do not accept surrogate metrics

It’s easy to say “Ok, I’m pursuing gross margin now” or goal x, y, z. But how do you measure and deliver on that goal? Shopping offers a lot of useful metrics like CPA, ROAS, AOV – but these imperfect click metrics are parts of a closed system, i.e. they use only the Microsoft or Google Shopping data at hand. This means they can lead to circular or self-referential insights that are getting away from your business goal.

Biggest warning: it’s an easy mistake to take a widely available metric and use it as a proxy or surrogate for your real metric. For example, you might decide that ROAS is easily calculated, commonly used by bidding solutions, and generally indicates ad efficiency. It’s not a perfect fit for pursuing a profit goal, but it’s what you have at hand. This is a dangerous substitution since ROAS is actually in no way anchored to margin data.

It doesn’t mean you can’t use ROAS as a guideline, but you need a solution that will let you incorporate real business data or anchor to it, whether it’s margin, stock level, postal costs, return rate, CLV, etc. ROAS is just one example – KPI surrogation is everywhere.

Custom labels, hell yeah 

You can avoid surrogation by using your custom labels to strategically insert business information into your data feed. This information can then be used for bidding and reporting.

Maybe you’re already doing this, but now is the time to re-assess what you’ve implemented. With just five custom labels available, you need to be selective. My top two picks for custom labels are to include margin and stock level. Margin, in order to help you understand the profit of your actions, which will become more important than ever. Stock level, due to the volatility your inventory is likely to face, especially in categories where there can be sudden spikes in demand due to panic buying.

One special idea for the current COVID-19 situation could be to sync with your purchasing manager and get a label that represents the expected or known supply chain volatility for different product types. Then you can know where to bid more aggressively and where to play it safe. Likewise, you might add inventory turnover ratio and put items with a low sales velocity or high overhead costs into clearance mode with very aggressive bidding.

Sidenote: You might also consider sharing your COGS data with Google directly. Just be aware that this is very sensitive data that you might not want to hand over to Google.

Measure, measure, measure

I like the following framework for thinking about some of your KPIs. (Hint: in case these seem like obvious questions, the key word here is “still”).

Market

  • Impressions: Are consumers still searching?
  • Conversion rate: Are consumers still buying?
  • Average order value: Are consumers still spending?

Performance

  • Impression share: Am I still capturing those searches?
  • CPC: Is acquisition getting more or less expensive?
  • ROAS: Is my budget still efficient? (NOT the same as profitable/effective)

Dynamic budgeting is crucial

When it comes to budget, maybe you are facing reductions from your CFO – or conversely, maybe your Head of Ecommerce fought for and won a 20% emergency increase. We’ve seen both situations so far, totally depending on the industry and business goals. 

Looking to APAC, which is the farthest on the COVID-19 timeline, WARC’s Global Marketing Index registered widespread declines in traditional advertising, only modest growth in digital marketing – and pretty decent numbers in mobile advertising. Still, I would predict that budgets will get smaller on average, especially as the crisis deepens (time) and broadens (global scale). In the short term I agree with one scenario WARC posits: “a prolonged disruption and a risk of lower consumer spending will result in many advertisers delaying big brand work, instead favouring a tactical retreat into performance marketing.”

WARC data– Asia Marketing budgets index

Should you cut your budget? Only if your financial situation requires it. I would instead advocate for careful pacing.

McKinsey research indicates that in the 2009 global economic crisis, the most resilient retailers invested more in marketing than less resilient peers. While their peers lost revenue, the resilient retailers grew revenue and market share. However, only you know your specific business context, only you know your supply chain and cashflow. 

Whether you deepen your investment or trim marketing costs, the months ahead will be challenging for all of us. That’s why it is crucial to make every penny count. Some categories and products will have strong demand, leading to a rise in organic and direct traffic. Check with your web analyst or in your preferred attribution tool to see what is occurring. If your budget is slim, save money so you can push elsewhere. Or, if your budget is not so tight, double down and push on the demand.

If your business is experiencing demand spikes, it’s very important to make sure you are not getting limited by budget. You might consider setting an open budget to avoid this, or if you are already experiencing a limited budget, then use ad schedule modifiers to ensure you are getting visibility throughout the day or throughout the hours relevant to your business. 

Check your search terms and set negative keywords wisely

As always, your search term report is an invaluable resource for analyzing customer demand, purchasing intent signals, and other user trends. Your own on-site search will be another great source of intelligence.

Set a routine for checking your data, looking for large changes in volume or performance. It’s the classic example by now, but one office supply retailer we work with found a massive spike in queries related to toilet paper. The conversion rate was low, and the AOV was lousy. Clearly there was some kind of a revenue opportunity here, but it was not a valid use case for their media budget in the broader business context. This could be managed via negative keywords.

Observe your competition

Expect your competitive situation to vary much more than usual. Depending on the strategy of your competitors, their liquidity, the state of their inventory and supply chain, and even their IT infrastructure, they could make power plays or withdraw from the channel entirely. Your best friend for making these observations is your auction insights data.

As a reminder, the three metrics work like this:

  • Overlap rate shows how often you are in a shared auction, i.e. how close a competitor’s assortment is to yours
  • Outranking share shows how often you are bidding more effectively than a competitor
  • Impression share shows how effectively your competitors are managing bids, targeting, and feed quality

Use this information to assess market share opportunities and to understand how effective you are against competitors. It’s more important now than ever, and in almost all industries I would expect a lot of change and action in the coming weeks.

Honestly, the user interface and delivery of that auction insight data sucks. It is such valuable information and unfortunately quite tough to mine the data effectively. You can check out Daniel Gilbert’s great script and Google Sheets integration to help solve that problem.

Can scripts or automation tools help me?

Of course! The Shopping community and Google Ads community have produced a lot of great scripts and advanced machine learning solutions over the years, and I guess it won’t be long until people start putting their ingenuity into solutions purpose-built for the current crisis.

Regarding bid management, I fully agree with Frederick Vallaeys when he notes, “automated bidding algorithms have never seen this before”. (Full disclosure, I am the product manager of a Google Shopping management solution that has predictive bid management as one of its capabilities.) Frederick is right: because machine learning looks to the past in order to predict the future, an ML approach alone will not be capable of predicting what is going to happen with conversion rates, basket values, etc. – since this is a novel and disruptive situation that defies normal patterns. 

And yet managing bids manually ranges from impractical to impossible. Plus, humans cannot predict the future adequately in this crisis either. What can you do?

Machines excel at scaling actions and deriving unbiased conclusions, while humans – if they cannot predict – can anticipate, analyze, and prepare. 

In this crisis, we need to leverage the balance of human and machine intelligence in order to conceive and prepare scenarios and strategies, and guide the machines as they scale the work. In other words, look for bidding and management solutions that offer high degrees of customization, granularity, and control. This is not the time, for example, to use Smart Shopping campaigns, which can’t be broken out into a granular structure and which offer only two basic goals.

What about Amazon?

After repeatedly experimenting with Google Shopping, Amazon committed to an aggressive investment strategy during the 2018 holiday period – and never scaled back. This was an epic power play that grabbed considerable market share and has been a persistent source of headaches for retailers in many categories ever since. Until now.

According to research from tinuiti, Amazon began reducing this investment in late January, perhaps due to forward observations of the coronavirus crisis in China. Then on March 17th, they announced they would prioritize operations and fulfillment in certain key categories like medical supplies and household staples – very quickly, Amazon left the Shopping auction altogether, and they may have already suspended text ads as early as March 11.
For independent retailers, this is great news, presenting a window of opportunity to capture open market share. It can also offer a slight reprieve in competitive pressure. Amazon’s fulfilment strategy will continue this way until at least April 5th – although their marketing strategy is another topic.

Another key point: items in non-prioritized categories might no longer get the Prime two-day delivery. Vox cites delivery dates on in-stock Prime-eligible items being delayed up to one month. In the days of COVID-19, at least for now,  delivery speed is no longer the imperative: mere availability is a USP for retailers. That’s why it’s critical to make sure your webshop demonstrates product availability in a highly visible and unambiguous manner.

What about Google and Microsoft?

The situation right now is very threatening for Google, as it is for many businesses. Google’s parent company Alphabet is highly dependent on ad spend – in Q2 2018, for example, advertising fees accounted for 86% of Alphabet’s revenue. Meanwhile, their traffic acquisition costs (TAC) are eating more margin, competition from Amazon is up, and their “other bets” category continues to lose money. If the larger recession also yields an advertising recession, it will immediately impact their bottom line.

There are surely conversations happening within Google at the executive level. I can only speculate the outcomes of these talks, but, who knows, they might include improved payment terms or different goal-reaching setups that would reward merchants who stick with Google or help those merchants make it through this period. In other words, Google’s time of need could be positive for online retailers. Another example, I’ve seen Google reps delivering some very thoughtful insights and materials to clients in order to help offer an industry or category view of the situation.

Regarding Microsoft, advertising is for them a growth opportunity rather than the core business. In my experience, they tend to collaborate more generously with partners, and I would expect this trend to continue.

Ask for help, offer help

Online retail – and digital marketing as a subset – has become a saturated competitive battle for consumers’ attention, clicks, and money. Yet I think we need to take a more open-source and collective stance in the current situation. Although I’ve written above about market share opportunities and tactics, I really want to mention that we are working together to survive and overcome a monumental challenge to the global community in addition to our own businesses.

 
Let’s share ideas, let’s give away our secret sauce, and let’s not be too proud to ask for help. There is no need to suffer or perpetuate economic harm when asking for help could have prevented it. In that spirit, I am opening my inbox to anyone looking for a sounding board in these tough times. I don’t want to post my email address due to spambots, but please send me a message any time on LinkedIn.

What might happen after the crisis?

I’ll keep this short and sweet. 

The next months will be hard – but the global economy will recover from this, and in fact ecommerce is likely to come out stronger than ever. We can guess this outcome because it is intuitive: consumers who cannot shop at physical locations will shop online instead, and will keep shopping online. Moreover, we can know this because it has happened before: the SARS outbreak in 2003 was a major driver of ecommerce adoption in China and one reason why Chinese ecommerce has outpaced US and European ecommerce.

This brings me back to where I started. As mentioned, the changes that are occurring, as well as the second- and third-order consequences, are highly unpredictable. There is one exception though.

Famed science fiction author William Gibson has said, “The future is here – it’s just not evenly distributed yet.” This is true of COVID-19 as well. China’s timeline is a number of weeks ahead of the timeline in the rest of the world. Even within Europe, nations are on different timelines. This is how Italy became such a warning bell of what can go wrong. My advice to you is to carefully watch what happens in China and other “forward” nations, and let this be your crystal ball. Lessons won’t translate 1:1, but nevertheless could deliver crucial insights to your business.

I invite you not to obsess, but to observe – I will try to do the same. 

As one last note of optimism, I want to share an image, a resource, which I find so inspiring. This is a view of the approximate location of every registered cargo vessel on Earth. For me, it is an astounding testament to the systems and scale that we have built up – a testament to what we can accomplish together – and of course a testament to the sheer mass and power of the global supply chain. It is, in some ways, the economy made visible.

ecommerce will recover

After we have resolved the health crisis and cared for our most vulnerable, we can and will bounce back economically too – and ecommerce will lead that recovery.

tl;dr:

Here is a collected list of tips for Online Marketing Managers during the COVID-19 crisis

Organizational

  • Break down silos: align with your purchasing team, warehouse manager, supply chain manager, finance dept, etc. to discover and suggest how your channel can add value

Goal setting

  • Reassess your channel goals in alignment with broader ecommerce goals and company goals
  • Consider gross margin, new customer acquisition, customer lifetime value, and market share
  • Be careful not to settle for “easy” KPIs like ROAS

Data integration

  • Use custom labels as a simple way to connect your campaigns with your business data
  • Consider stock level, margin, inventory health, postal costs, and supply chain status

Budget

  • Analyze where advertising pressure can offer incrementality and push there
  • Be prepared to dynamically scale and shift your budget
  • Use ad schedules or an open budget to prevent being limited by budget
  • Be honest and cut budget when it is necessary for the business

Search terms

  • Look for changes in volume and performance to connect with demand trends
  • Use filters like high clicks, low AOV or low CR to select negative keywords
  • Consider that changes to negative keyword strategy should also be dynamic

Competition

  • Expect highly variable entries and exits from your competitors
  • Use auction insights to monitor this closely for threats and opportunities
  • Amazon in particular is unpredictable, powerful, and essential to watch

Automation

  • Do use automation to support granular setup (e.g. one product per ad group)
  • Do use automation to deliver bid management and other workload relief
  • Don’t overestimate the capabilities of machine learning in highly volatile situations
  • Do keep human intelligence and business goals in the loop
  • Don’t depend on automation that removes segmentation and intervention possibilities (e.g. blackbox automation like Smart Shopping)

Outlook

  • Ask for help when you need it!
  • Hope for the best, prepare for the worst, and don’t be surprised by anything in between