Brands selling on Amazon must rethink advertising to navigate out-of-stocks, delayed shipping
“We are continuing to see an increased demand of around 120% for most grocery items [sold on Amazon] through most of this week, but we did start to see a downward trend come in about Friday or Wednesday afternoon and that has lasted through today,” Matt Altman, head of Amazon at Right Side Up, told webinar attendees March 27.
The dip, which brought sales down to 50-60% above average for this time of year, most likely is due to shipping delays at Amazon that have prompted some shoppers to explore other channels with faster shipping or to venture back out into the real world to check local brick-and-mortar stores for products, Altman said.
But, he predicts, the slowdown won’t last long enough for Amazon and individual brands selling online to catch-up with back orders or fully recover from out-of-stocks and shipping delays that are dragging down conversion rates by about 30% across the board.
“We definitely believe … that there will be a resurgence within the channel within the next two weeks as more and more people become isolated and quarantined. Basically, they’ll be back on this channel because they can’t go anywhere else,” he said.
To best position itself for this resurgence, Amazon is continually tweaking its approach to fulfillment, and Altman says that brands selling on the website should be, too.
What is ‘essential’?
Altman explained that Amazon has tried to ease fulfillment pressure by focusing on only a handful of “essential” categories that were announced earlier this month. While this includes grocery, Altman warned that the retailer’s application of what qualifies as essential within grocery and other categories appears to be in flux.
“I’ve actually seen quite a bit of grocery products, which I would have considered ‘essential,’ go down this week. So, there’s no telling if you’ll even be able to send in your items or if you’ll get POS on Monday because they might be considered non-essential,” he warned.
In response, he recommended that brands “try to get as much inventory into Amazon as you can or figure out a way to go ahead and merchant fulfill those products yourself.”
If brands haven’t considered the latter yet, “they should start that up this week or next” as Amazon likely will see more fulfillment delays in the near future as more of its employees test positive for coronavirus, Altman said. (Amazon employees in Staten Island, NY, also walked out yesterday, reflecting growing unrest about lack of protection for workers on the front lines of the pandemic as other businesses close their doors.)
“The big thing on fulfillment right now is there are 10 warehouses that have basically tested positive in the past week. Most of those warehouses are doing partial shutdowns to completely clean themselves and then reopen.
"But, obviously, there’s going to be recontamination because there’s going to be employees that don’t know that they are sick because it lays dormant for a couple of weeks. So, we are going to continue to experience these extended delays probably across all of the warehouses,” he said, adding, “Hopefully they can keep it under control and it doesn’t get out of hand, but I guess time will tell.”
Amazon is kind of playing favorites and prioritizing certain brands
He also cautioned that fulfillment may be unpredictable in the coming weeks because “Amazon is kind of playing favorites and prioritizing certain brands, especially their own brand. All of their items are still available for today shipping no matter what they are.”
With that in mind, he recommends, companies check their products by zip code every few days so that they can understand how consumers are experiencing their brands.
Advertising adjustments during coronavirus
Just as the fluctuations with fulfillments and out-of-stocks are wreaking havoc for some brands, they are creating opportunities for others, said Altman.
He explained that when consumers are faced with an out-of-stock or long delay they will search for other options – creating an opportunity for smaller, emerging brands that play their advertising cards right.
“Our overall recommendation for advertising right now is buy the brand in terms of your competitors as much as you can. You definitely want to get some display ads and some sponsored brands and check whenever they’re out of stock to make sure that you’re running those and maximizing your returns,” he said.
At the same time, he cautioned, brands must monitor their own supply and take steps to minimize out-of-stocks.
From an advertising perspective, he recommended that brands only place one sponsored brand, rather than three to five, against a competitor in case inventory runs low. He explained that those ads will run even if only one of those items is available and if a consumer clicks on one that is not they might be frustrated and have a bad impression of the company.
Out of stocks and algorithms
To reduce the risk of out-of-stocks, he recommended putting limits on some fast selling products to ensure that brands don’t run out of inventory, which can cause Amazon’s algorithm to penalize them in the long run.
“One of the big things with Amazon’s algorithm is always being within stock. They want to prioritize people that have items that can get to the end consumers. So, while that might not seem like a big deal right now that you’re out-of-stock because everyone’s out of stock, it hurts your organic rankings overall. So, it is going to take more time in the coming months to rebuild those rankings if you do have those longer extended periods of out stocks. So, we need to limit these as much as possible,” he said.
In addition to running ads against competitors negotiating out-of-stocks, Altman suggested companies use Merchant Words to find the delivery dates for competitors and run ads against those with long lead times.
Promotions on pause
Amazon’s decision last week to postpone all promotions until April 5 – but likely longer – also should be considered when crafting a new advertising and marketing plan, Altman said.
He explained that unless a deal was pre-scheduled before March 23, Amazon has paused the use of promo codes and price discounts for vendor central sellers. For seller central brands, halted promos include percentage off codes, social media promo codes, buy one get one and free shipping.
As with everything COVID-19 related, the online grocery landscape is changing quickly, which is why Right Side Up’s CEO Tyler Elliston said that the advice provided during the webinar “may become outdated rather quickly.”
Therefore, he said, “the right course of action for your business is almost certainly dependent on your categories, stage and strategy. So, please approach our recommendations critically for your business.”
