Reprinted in its entirety from our partners at NetSuite:
By Ian McCue
September 21, 2020
- We’re facing a record-setting holiday season for online retailers. Are you ready to capitalize?
- Consider increasing ad spend immediately, then work to build out a medley of promotional programs.
- Heading into the holidays, be prepared to adjust on the fly — maybe frequently — as the world changes.
As a retailer, you’re likely already working hard to prep for the 2020 holiday season. You’ve forecasted sales as much as possible for November and December, placed purchase orders and started receiving inventory for the two-month stretch in which many sellers earn a large chunk of their annual revenue.
But beyond that, plans for the holidays are not set in stone — or, they shouldn’t be. A year unlike any other in so many ways has created vast uncertainty and rendered tried-and-true market models obsolete.
A combination of shoppers’ hesitancy to browse in stores, high unemployment, general economic uncertainty and fast-changing consumer preferences means even loose predictions are difficult. That’s so for even the largest retailers that have staffs of prognosticators who do nothing but prognosticate. How can a small retailer compete?
In a word, agility. You have the flexibility to adjust in a way that giant retailers simply can’t.
Take marketing. There’s no doubt that digital channels will play a central role in 2020 holiday selling. The last few months have been a seminal period for ecommerce: From April through June, online sales increased 44% year-over-year, with online representing nearly 21% of all retail sales, compared with about 15% in Q2 2019. That extra 6% in the grand scheme of a $3.7 trillion retail market can be a game-changer for emerging retailers.
Meanwhile, consumer confidence is rebounding somewhat.
CFOs See Light Ahead
|The latest Duke University and Federal Reserve CFO Survey shows a boost in optimism.|
|On a scale of zero to 100, respondents rate their own firms’ prospects at 70, up from 60 in Q1.|
|For the U.S. economy as a whole, respondents rate their optimism somewhat lower, at 60, but that’s still up from 51 in Q1.|
|Respondents expect their own revenues to decline 2% this year then rebound to 7% growth in 2021.|
“As the world does start to move back toward the positive, there’s room for a smaller brand or a smaller retailer to become much larger,” said Matt Rhodus, director of strategic initiatives and industry principal at Oracle NetSuite. “Some of the big retailers are struggling or falling, and as more people move online, they’re discovering a lot of new brands.”
To capitalize on this moment, small sellers need to make every dollar count as they compete against much larger rivals with eight- or nine-figure marketing budgets. Here are five tactics that retailers with more moxie than money can use to drive sales now.
5 Ways to Optimize Your 2020 Holiday Marketing Budget
Front-load digital ad spending
Challenge: Competition heats up during the holidays. More retailers bid for the same keywords, so advertisers can charge a premium — meaning per-click costs may spike by more than 100%. Industry insiders expect even steeper price hikes in 2020 due to the outsize importance of ecommerce. Big brands will shift budgets usually spent on billboards or mall banners to Google, Facebook, Amazon and the like. (Check out 5 Tactics to Beat Amazon at Its Own Game.)
But ecommerce is not the only factor driving up the price of digital advertising. Retailers that historically relied on stores to generate most of their sales are sitting on a lot of inventory after stay-at-home orders closed most outlets for much of the spring. In an effort to move that product, mall mainstays may offer deep discounts and heavily advertise these sales.
Solution: Start digital ad campaigns early, and consider spending more than usual before Thanksgiving. Costs always peak around Black Friday and Cyber Monday and will likely remain high through December. So companies may find better value in the early portion of the holiday season.
“We’re planning for that and trying to make sure that we aren’t dependent on heavy marketing spend in November and December, when we think it will be the most competitive,” said Drew Cook, CFO and head of operations at apparel brand Pact.
For Now, a retail incubator that showcases numerous small brands on a rotating basis, is taking a similar approach.
“We really want to get a lot of momentum going early this fall because the ad rates will hike up as we get closer to the holidays,” said co-founder Kaity Cimo. “[Our plan is to] heavily promote the online store in the beginning of the fall and then sometime early November, start to shift to more local ads that could drive people into the store and won’t be quite as expensive.”
The more shoppers who discover your brand early on, the better, so pay attention to ecommerce trends that can drive awareness.
Rethink promotional strategies
Challenge: The economic conditions that make this holiday season so unpredictable for retailers could also influence consumer behavior.
“Consumers in a time like this are deal-hungry,” Rhodus said, so retailers may need to run more frequent promotions, thus squeezing margins. For example, in the past, For Now has run sales only if a brand partner discounted the items on its own site. But the retailer is thinking about running a major sale in September.
“Basically, it would be a sale that we would run for our brands, and they won’t be running it on their websites,” Cimo said. “It would be a chance for them to try to sell some inventory that they’ve been sitting on.”
On the flip side, some businesses are short on inventory because of supply chain issues, a dramatic increase in sales or both. Pact found itself in this position but is confident it will be in a better place inventory-wise by the end of September.
However, sellers that are not as fortunate are stuck between a rock and a hard place: Do we reduce promotions to avoid running out of product too quickly? Or do we play to customers’ smaller shopping budgets?
Solution: Strategize for various outcomes in which sales fall below, at or above forecasted numbers. Collaborate to determine the best response for each scenario. If sales are on track and inventory sell-through is strong, a single Cyber Monday sale may be enough to hit targets and avoid being stuck with excess inventory. But if orders start to slow in the fourth quarter, it might be time to plan another promotion.
“Price is the biggest lever you can pull to impact sales, so for us that’s the best place to also manage inventory,” Cook said.
Smaller, more nimble retailers could take this a step further by establishing benchmarks around sales and available inventory that trigger next steps. For instance, if sales have hit only 70% of the Q4 number and stock levels are high on Dec. 10, offer 40% off predetermined product categories. If sales outperform expectations and you’re running low on popular items in mid-November, turn the planned “30% off sitewide” sale into discounts on only a handful of products that aren’t turning as quickly.
Promotional strategies will vary greatly this fall depending on your inventory position. Ultimately, those struggling to get the product they need from suppliers will have to make more last-minute decisions and use best practices to increase conversions on stock on hand.
Home in on existing customers
Challenge: Marketers must do more with less. About 21% of retailers have trimmed their marketing budgets in response to the pandemic. And even companies that are not reducing spend may be inclined to hold onto their cash or really make each marketing dollar count in 2020 by keeping an eagle eye on return on investment.
To that end, here are tips on maximizing your ROAS, or return on ad spend.
Solution: Take advantage of familiarity by maximizing existing customer relationships. As most retailers know, it’s about five times more expensive to acquire a new customer than to retain an existing satisfied client who knows about your brand.
“I think going back to that existing customer who has shopped with you before and incenting them to return will pay far more dividends than trying to acquire a new one,” Rhodus said.
Brands already have the names and email addresses of anyone who’s placed an order, so sending these customers emails highlighting a sale or an abandoned cart is a low-effort, high-reward tactic.
The holidays are also an ideal time to target dormant shoppers who haven’t purchased anything in more than a year with an email about an upcoming sale or a Facebook ad for an item similar to something they previously bought. Businesses could even offer these customers an exclusive discount or gift with purchase.
Holiday Retail Marketing: What’s Gold vs Old?
|Brainyard assembled a panel of mostly smaller retailers; 63% have less than $10 million in revenue. So what did we learn?|
|Stat: 60% to 70% of our panel say they’ll use social, online ads and search terms more this year than last. Where’s that budget coming from? Just 10% or fewer will use more direct mail, radio or TV; 90% will use email the same or more than last year.|
|Gold: Social media, online advertising, buying search terms|
|Old: Direct mail, radio, TV|
|Stable: Email offers and discounts|
For Now, which did not even have an ecommerce site until stay-at-home orders closed its Boston store in March, has put most of its budget toward remarketing ads. Those ads reach anyone who has previously visited its site, whether they placed an order or not. Cimo also plans to send emails to anyone who shopped at its summer seasonal store on Nantucket, a vacation destination off the coast of Massachusetts, to tap into a broader national audience.
“I think focusing [on customer retention] is really smart and something I’ve been thinking about more through email marketing,” Cimo said. “How can we segment our list in different ways and offer up things to people that have purchased things in the past to have them come back?”
Find creative ways to engage existing customers. Some of the advice that worked last year, such as showing how you give back to causes that may matter to customers or taking advantage of “micro-influencers” to promote products with posts instead of sponsored ads, is still valid.
Speaking of organic content …
Realize the power of social media
Challenge: Sellers must meet consumers where they are, and that’s increasingly online.
But as ads become omnipresent, prospective customers have learned to block them out. The average person sees 1,700 banner ads per month, and an average of just one in one thousand display ads gets a click, per Invesp. Add to that the tsunami of political ads that will be deployed through election day, and it’s easy to see why people are tuning out or even installing ad-blocker extensions.
As tried-and-true advertising channels become less effective, marketers must find fresh ways to reach their target audiences.
Solution: Invest more time and money in social media while maintaining email marketing and other digital channels. Today, almost three-quarters of U.S. adults use social media. Instagram, in particular, has become an extremely important platform for retailers.
“To some degree, we’ve seen marketing dollars being spread out a little bit differently,” said Leslie Hand, VP for retail insights at IDC. “More focus on online and social, because you don’t necessarily have the same foot traffic you used to have, and driving foot traffic isn’t necessarily the No. 1 objective.”
Companies that haven’t already done so should start advertising on social media right away, and those that already have a presence on those platforms should increase their spend. For Now has seen an impressive return on investment since it started running paid Instagram and Facebook ads recently. The retail incubator will also promote gift kits curated for the holidays through a small network of influencers, a strategy other retailers should consider.
Organic social media posts are another effective — and free — way to build brand awareness. British online retailer Cox & Cox, which sells home décor and furniture, grew its Instagram following by about 25% over the past six months and expects its larger audience will help boost sales this holiday season. For Now counts on its 11,000 Instagram followers to gather feedback on products and learn about what its audience plans to purchase this fall. Loungewear and candles have been popular responses.
People are more willing to provide social promos on their own channels for small retailers they like, thus increasing the goodness called “social proof,” versus pitching for a faceless megastore.
Constantly scrutinize the data and adjust
Challenge: Everything is in flux. As responses from For Now’s followers demonstrate, the pandemic has changed not only how customers shop but also what they buy. Sales of formal apparel, for example, have fallen off, while casual clothing and outdoor products have flown off the shelves, a trend that will likely carry into the holidays. This has led retailers to adjust their product lines and push quarantine-friendly items.
“I do think consumer behavior is going to change pretty drastically over the next quarter, and frankly over the next nine months it will continue to evolve,” Katharine ReQua, For Now’s other co-founder, said.
Unfortunately, there is no model companies can count on to predict sales by category in 2020 and into early next year. Marketing teams are on their own and will have to adjust quickly based on what the numbers tell them. So, watch your numbers.
Solution: That brings us back to agility. Retailers can make the best of a challenging situation by heading into the busy season with the right mindset. We recommend following the lead of Cox & Cox, whose employees understand that plans will be fluid and changes are inevitable in the fourth quarter.
“It’s going to be dynamic for us,” Aynsley Peet, head of ecommerce, said of Cox & Cox’s approach to marketing this fall. “We may just have to … be brave and make changes that we weren’t anticipating making. But let’s make them and make them early.”
5 Biggest Retail Concerns For 2020 vs. 2019
|Our Brainyard panel also weighed in on what’s keeping them up at night.|
|Stat watch: 80% or more of our panelists said each of these items is much more or somewhat more concerning:|
|1. Forecasting demand|
|2. Obtaining adequate stock|
|3. Keeping staff and customers safe|
|4. Managing shipments|
|5. Managing the in-store experience|
Pay very close attention to sales trends, and be ready to quickly start pushing bestsellers. Evaluate the performance of different marketing channels every day, and increase or decrease spend accordingly. And be creative with outreach to customers old and new.
“We have a weekly pro forma; we are in the weeds with our numbers,” ReQua said. “We’re just constantly looking at what we can do to improve and be better optimized.”
The fact is, you can build brand awareness on a tight budget, with some creativity.
The Bottom Line
Smaller retailers should send a strong message to their teams: We view the 2020 holiday season as an opportunity. Those companies that have seen ecommerce orders take off over the past few months can carry that momentum into the upcoming season with the right marketing and an outstanding customer experience. And for those businesses that haven’t been so lucky, these strategies could help them turn the corner without breaking the bank.
If you can give your team one watchword in the fourth quarter, it should be agility. A willingness to change on the fly will help not only with marketing but also operations and other parts of the retail equation.
Agility will separate the overachievers from the underperformers.
Ian McCue is a content manager at NetSuite who also contributes to the NetSuite blog and Grow Wire. He previously wrote about supply chain challenges and technology at HighJump Software after starting his career as a sports writer. Reach Ian here.