Ecommerce retailers in the UK face a challenging environment as consumers face the worst cost of living crisis since the 1950s. A recent IPSOS survey found that two thirds of Britons thought that the economy would get worse before it gets better.

During the pandemic, ecommerce retailers saw a huge spike in sales. In addition to brick-and-mortar shops closing, consumers had more disposable income and spare time which drove ecommerce demand. Advertisers were able to scale spend dramatically with strong ROI (return on investment).

As life returned to ‘normal’ after lockdowns ended, this increased demand for ecommerce dissipated and, combined with the cost of living crisis, has made growth and maintenance at this level more difficult.

Why are budgets being cut?

We can all feel the pain of smaller budgets, and we can all recognise that there are efficiencies being made across most marketing activity. So to begin with, why are budgets being cut?

A challenging economic environment

Ecommerce retailers are grappling with a severe cost of living crisis, which has been exacerbated by a widespread belief among consumers that the economy will worsen in the near future. There has also been a worldwide surge in interest rates which has put downward pressure on consumers purchasing power.

Ecommerce surge during pandemic

The pandemic triggered a substantial surge in ecommerce sales as traditional retail outlets closed down. With increased disposable income and free time, consumers flocked to online shopping, allowing advertisers to significantly increase their spending and achieve favourable ROI.

A post-lockdown shift

As pandemic-related restrictions eased and normalcy returned, the heightened demand for ecommerce gradually declined. Coupled with the ongoing cost of living crisis, sustaining and expanding ecommerce growth has become more challenging for retailers.

Key problems when budgets are cut

When a businesses finance team is looking to reduce costs, the first area they usually look to to reduce costs are their advertising and marketing budgets, including digital ads, print media, TV/radio commercials, and influencer partnerships.

Often the stakeholders making these decisions don’t have a full understanding of these channels' contribution to the business, and see these as easy ways to cut costs quickly. However, this inevitably leads to a loss of brand visibility which can impact both customer acquisition and retention efforts.

Although short term results of budget cuts will look effective, there are likely to be longer term consequences for the brand.

Actions to take when budgets are cut

The change in landscape has led to finance teams cutting budget to maintain efficiency in some cases. Below I’ve outlined a strategic approach to budget cuts which could be considered:

Apply a data driven approach

Start by cutting out any inefficient activity that doesn’t show any impact on the top-line site performance. However, don’t assume that this includes all prospecting activity where attribution isn’t clear cut and the impact on total revenue is less obvious. There is always prospecting activity that is harder to measure, but is still creating brand awareness in a key target market.

Avoid short term decision making

Although cutting your upper funnel investment may increase your ROI in the short term, you should always consider the longer term impact of your decision making. Reduced upper funnel investment will have an impact on your brand awareness in the medium to long term, so this should always be a consideration.

Nurture existing customers

Keep your existing customer base engaged with strong loyalty programmes. Existing engaged customers are the most important audience, so ensure your strategy doesn’t lose sight of this segment. If you lose these customers now, you’ll have to spend more in the future on costly acquisition investment to re-engage them with your brand.

Retention campaigns in social

Focus on a retention campaign for existing customers, which includes adverts targeted to upsell, to offer aftercare, or offers incentives to repurchase, for example. Make customers feel appreciated and engaged with the brand to prevent them from lapsing and moving to competitors.

Focus spend and don’t spread it too thinly

Before the budget cuts, you might have been expanding into new territories to drive growth at the detriment of top-line efficiency. With a smaller budget, it makes more sense to focus on core markets and avoid spreading investment too thinly which could negatively impact overall performance.

During Covid, you might have been trying to expand into France and Germany, for example, and spending on prospective customers. You will get better results if you focus on smaller key areas to expand into. For example, you could focus solely on Paris and Berlin initially to introduce the brand, before rolling it out to a wider geographical area.

Continue to test and learn

Always ensure that you ring-fence some budget for testing and trying out new activities. A robust testing roadmap can establish exactly where investment works best.

In a fast-changing world, trialling new creative themes, platforms and products will help you gain your best return on your budget, and prevent you from getting stuck in a performance glut as demand tails off.

Monitor the impact of your changes

Privacy updates have made attribution far less clear, so it’s harder to define which activity is driving your results. Therefore, it’s very important to monitor the impact of your changes, especially on top level site metrics. Marketing efficiency ratio (MER) and cost of sale (CoS) reporting will help you establish the impact of cutbacks on your top-line revenue.

Final thoughts

Even during lean times, there is no need for retailers or marketers to panic. Marketing and paid media budgets should always be flexible, with the ability to increase or decrease budget depending on extenuating circumstances. By increasing efficiency and utilising all the analytics available, retailers will be able to focus their paid media and continue investing in marketing for the long-term.

Our key takeaways include:

• Employ data-driven decision-making to identify and eliminate inefficient activities affecting top-line site performance. However, make sure to consider the nuanced impact on brand awareness.
• Avoid short-term thinking, as cutting upper funnel investment impacts brand awareness in the long run.
• Continuously test and learn, allocating budget for new strategies, creative themes, and platforms to optimise returns.
• Embrace flexibility in marketing budgets to adapt to changing circumstances, ensuring long-term investment despite lean times.

If you want to discuss your marketing and paid media strategy, then get in touch.