ECommerce has experienced a massive boom in recent years and resulted in brands chasing one ambitious mantra: growth at all costs.
But while the sector is continuing to expand, albeit much more slowly, this mindset is proving unsustainable.
Brands which once enjoyed rapid growth are now facing stagnation, while up-and-coming players are struggling to stay afloat amid intensified competition.
This new era is presenting a number of challenges for all eCommerce brands; how can they grow sustainably? Maintain profitability? Achieve great ROI? And attract new customers? Let’s explore these problems and look at the most effective way to overcome them in this present, more challenging environment.
Prioritising runaway growth when the world is in such a volatile state is not a sustainability strategy. Global conflicts have driven up logistics costs, prices are soaring and consumers’ wallets are being squeezed in a cost-of-living crisis. Growth of course means spending more, and when you spend more, you sacrifice profitability.
Doubling down on performance marketing in pursuit of relentless growth is not the answer.
Part of this ‘growth at all costs’ strategy involves pumping more budget into ad spend. In our earlier series ‘How to build long-term effective growth’ we talked about the point of diminishing returns and how it can negatively affect your ROI.
When brands try to chase the highs achieved in their early days, they set ROAS targets based on peak performance. But ultimately, the energy of their paid efforts will plateau, and when it does, finding new customers is expensive and hard – and it will ripple down into sales, market share and ultimately profit. This is the theory of diminishing returns.
We frequently observe brands adopting a siloed approach toward these two areas. The performance team goes for broke with a ‘sale at all costs’ mentality, while the brand team focuses solely on building awareness, neglecting the all-important final sale. It’s not entirely their fault, after all, their KPIs are different. Brand awareness campaigns focus on bringing in impressions, reach, brand uplift, whereas performance is focused on ROI, sales or revenue.
If you look at them independently you’re inevitably going to go in two different directions. Isn’t it time we bridge this divide for a more harmonious marketing strategy?
So how can eCommerce brands face these challenges head on and be on the right side of the growth and profitability curve?
We’ve said it before, but it’s worth repeating: get under the bonnet of your metrics. Knowing your average profit margin and breakeven ROAS will help you to confidently set the right targets for growth. If you align your marketing spend with the desired return, you can maintain that momentum without hesitation.
But don’t let us stop you there – explore other metrics like average customer lifetime value (LTV) and the overall worth of a new customer, as it opens the door for further optimisation and will set you on the path of long-term growth.
Interestingly, there is some pretty solid data out there which can help us work out exactly what we need to spend, before we hit that dreaded downward curve of diminishing returns.
If you’re an online business and you want to maximise ROI you need to spend about 5% of your annual turnover on advertising, according to Dr Grace Kite from the ARC database.
In fact there is more than one study which supports this. Nielsen’s ROI study and an investigation by Paul Dyson both landed on spending 5-10% of turnover on advertising for the highest ROI.
The reality is that brand and performance marketing should not be siloed; they are more connected than most marketers would give credit. And if you create the right strategy, each can actually enhance one another, especially in these more challenging times.
Take for example running a traffic campaign which directs visitors to a blog post. The awareness team is responsible for crafting that compelling content which aligns the brand’s overarching messaging. Then think about it – what if the performance team was able to retarget those visitors, and attempt to generate sales from those which engaged the most?
And it works the other way as well; performance marketing can enhance brand value. Consider user-generated content: when a previous customer or an influencer shares their experience, it encourages potential buyers to make a purchase. But, if your brand messaging shines through these videos and images, you’re not just driving sales; you’re also going to build brand affinity. When the content features relatable figures or recognised influencers, this connection is even stronger.
However, a quick heads-up: while brand awareness campaigns can help improve revenue, immediate sales shouldn’t be the only way you measure success. Instead, focus on upper-funnel metrics like increased brand recognition or website traffic. These metrics take time to turn into sales but will eventually lay the groundwork for future growth. That’s why it’s important to have a long-term evaluation strategy in place.
The tangled phase of the consumer buying journey where shoppers are wrestling with their decisions is what Google calls the ‘Messy Middle’.
They’ve pinpointed six cognitive biases which can sway shopping behaviour.
You can read more about how these biases work on Google’s Consumer Insights Blog.
But why should we concern ourselves with this? Understanding this journey can help us design integrating brand and performance strategies which not only drive sales but also cultivate lasting relationships with customers by making sure we feed shoppers’ needs at every touchpoint.
Welcome to the third article in our series, Redefining Potential: Mastering Growth Through Adaptation. Our goal is to provide you with the insights you need to understand your eCommerce metrics and identify the key drivers behind your brand’s success.
As an eCommerce business leader, you’re likely juggling profitability vs. growth, brand awareness vs. performance. If you’re looking for a bit of extra support to strike that balance, feel free to reach out to one of our team experts—we’re here to help.