As inflationary rates continue to climb, consumers and sellers alike are faced with a host of volatile variables and unknown outcomes - where to cut, and where to spend? How do you decide what to prioritize, and what to sacrifice? How do you plan for the future when that future seems increasingly unpredictable - COVID, supply chain disruptions, ongoing geopolitical conflicts, rising interest rates, industrial action, inflation and who knows what is next?
Out of the many disruptions affecting the future of business, we decided to do a deep dive into inflation. Studies have shown that online retail prices are rising at a slower rate than other consumer prices, so we wanted a firsthand look at what this imbalance means for the day-to-day operations of e-commerce businesses. We sat down with some of our brand managers here at Razor Group who gave us their insight on how inflation is actually affecting their FBA brands, what they’ve been doing to combat it, and their thoughts about planning for the future.
Given the complex, entangled nature of global trade, this might seem like a hard ask. But year-to-year, some things stay the same - Father’s Day in June, Black Friday in November, Christmas in December. Take a look at the calendar - what holidays do you need to stock up for, what marketing needs to happen when? For example, if you use Chinese suppliers, you’ll need to make sure you can make it through the 2-3 weeks they take off to celebrate the Chinese New Year in January or February.
And then there’s Prime Day. Over 200 million people across the world subscribe to Amazon Prime, 64% of which say they plan to shop on Prime Day, according to a report by Profitero. Our brand managers start prepping months in advance to make sure their brands hit every deadline. Submit your deals to Amazon in March or April, and get your inventory into fulfillment centers far ahead of time. It’s crucial to have everything in stock if you want to take full advantage of the digital holiday - brands without supply problems saw their sales multiply 4.2x, while those with problems only saw a 3x increase on Prime Day.
Prices are going up in many sectors of retail, but they’re rising more slowly online. According to the Adobe Digital Pricing Index (DPI), online retail prices increased 3.6% YoY in February 2022, compared to a CPI inflation rate of 6.2%. Right now, when it comes to ecommerce the move seems to be not to move, at least not yet.
Raising prices too quickly or without a strategy puts you at risk of losing customer confidence. Develop a systematic, data-backed pricing strategy that will allow you to stay competitive - for example, placing your cost increases on secondary, less frequently bought items, a McKinsey study recommends. Consider raising prices granularly - in time, you can offer discounts and deals to your customers at appealing prices without cutting too much into your margins.
It might be tempting, on the other hand, to lower prices to appeal to consumers who are tighter on spending. But the last thing you want is to be the first seller in your category to run out of stock, then be taken off the listings for two to three months. You’ll only leave your competition free to sell their stock at a higher price than yours.
Does this mean the best option is not to change your prices? Not necessarily - it depends on what your competition is doing, how your production prices change, and a host of other factors. Keep monitoring your margins and the broader market and adjust prices accordingly.
If you do choose to keep your prices the same while your suppliers raise theirs, then it’s even more important to review your spending and find ways to cut down on costs to keep your margins stable. Our brand managers stay busy with monitoring their brands’ revenue and spending across the board, from week to week. Track your marketing - where are you advertising, and what kind of impact is it having?
Our brand managers are experts on SEO - by taking a little time to optimize your keyword search, you can increase your visibility at a basic level for free.
Another tip they shared was to explore the idea of ordering larger quantities of inventory at a time and saving in the long run. It might not be the right move for everyone depending on what products you stock and your capacity to hold them, but investing now could pay off later. Again, this solution is situation-dependent. Be conscious of how pre-ordering impacts your working capital, and ensure that a relative imbalance between assets and liabilities is actually manageable.
High-quality customer service is an essential part of making it on Amazon - good customer experiences lead 42% of consumers to buy from you again. Think about how you can go beyond the average customer experience and stand out from your competitors - your ratings will thank you.
Go the extra mile and send out an email after your customers receive their products and ask them to give you a review on Amazon. Not only will reviews enhance your SEO rankings, but they have a huge impact on consumers - products with five reviews are 270% more likely to sell than with none.
Find ways to make personal connections with customers after they’ve purchased your product. Make them feel like they belong to something exclusive and personal by keeping in contact, whether that’s through a newsletter, engaging with your reviews, or actively engaging with an audience via social media or livestreams.
If you want to stay afloat, you have to swim. Find a new niche product that other sellers haven’t capitalized on yet and add it to your catalog. Less competition will help you rack up more sales, and can sustain your audience’s interest longer.
But even if you stick to selling just one product, find new ways to sell it. For example, launching a holiday edition of an item can drive sales up significantly. You can also try changing up your marketing, improving your listings, or expanding to new social media platforms. Getting featured in magazine or web articles listing top products in your category is a good way to increase your visibility.
You can also be innovative in how you use the technology available to you. Here at Razor, take a data-driven approach and analyze historical data from the time of a product’s launch up to the present. This enables our brand managers to forecast an optimal price and marketing strategy based on seasonality, competition, as well as the product itself. By applying these innovative optimizations, we’ve often been able to increase both our revenue and our margins.
If a lot of this advice sounds familiar, it should be - managing an ecommerce business in an inflationary period is not necessarily that different from managing it on a regular, day-to-day basis. As long as you remain on top of operational and marketing strategies - using both hard data and the expertise of your team - you’ll have no reason to panic.
