How Ecommerce Businesses Can Beat Rising Ad Costs

The best way to get through a storm safely is to prepare before it hits. For e-commerce startups, this means brace for rising advertising costs, inventory delays, and expensive capital. Jamie Dimon, CEO of JPMorgan & Co, offers building a “fortress balance“Someone who is able to withstand these economic and industry upheavals is an absolute must to weather the storm.

However, the wiser argue that building a solid “offer model” that can withstand fluctuations in advertising costs, buying behavior, and cash flow is another need that ecommerce owners, founders, and marketers need to include in their strategy.

Related: 3 Ecommerce Trends You Need to Know in 2023

Basics

Offer Model is a framework that describes your product or service’s value proposition (i.e., the benefits you provide), features (i.e., the features of your product), pricing (i.e., costs and discounts), and warranties (i.e., e. returns and warranties). ). This is how brands communicate their messages on their website and in advertisements to keep their target audience interested.

The offer model should grab the attention of customers with a unique value proposition, inform customers about the product and its differentiators, stimulate urgency with a purchase incentive, and alleviate any last-minute concerns with a money-back guarantee.

Why do you

What to include in your offer model will depend on your customers. This requires some research. Study the testimonials of your customers, your competitors, and the testimonials of your competitors’ customers. You will be surprised that many customers will simply tell you why they decided to purchase the product and which parts of the proposed model they liked the most.

Having a “unique” offer model is something you need to prove, demonstrate, and/or quantify. If you do not offer a unique solution to the problem, then the question “who else?” inevitably pops up in the minds of customers. With the power of Google, I can bring out all your competitors in seconds.

Competitor comparison tables can be an effective way to showcase your unique value proposition and limit “buying” behavior. Ask yourself:

• What does my product do better than any other competing solution on the market?

• Why does a customer buy from me and not from each of my competitors?

• What are the benefits, features and/or ingredients that my competitors lack?

Create value and show it

There is a difference between how you value your products or services and how your customers perceive that value. A $50 product for a business owner is just the cost of manufacturing the product and shipping it to your door. For the customer, it is the value of using the product to solve a problem or achieve a desired result. This difference in value can be used to your advantage to create more value for your customers.

For example, offering a “free gift” to a customer who buys from you – let’s say he bought a bottle of shampoo and you give him a free trial pack of your conditioner. This free customer gift can cost you about $2-$3 to make and ship. However, the customer’s perceived value of this gift is often far greater than this, as it is more in line with the market value of the gift they receive. Instead of offering the customer a 20% discount that lowers the cost of your order, consider offering them a free gift to take advantage of this price difference.

You can also use free gift cards to keep the same effect. By offering a $25 gift card on your first purchase, you get $25 worth of value for the customer, even though you know the money must be spent in your store to buy your products. The buyer will either use the card himself or give it to a friend – in any case, you will get yourself a new sale.

Showing off the value of any free shipping, free warranties, or free shipping insurance is another way to show value. You pay for them, but the client does not. By informing the buyer about ~$15 free shipping, he can better justify the purchase price.

Related: 4 Ways to Make Value Creation the Core of Your Business

Fighting high advertising costs

There are also ways to use the offer model to increase the average value you get from your customers. There is a difference between a customer who buys the cheapest item in your store and a customer who regularly spends hundreds of dollars. There are levers you can use to influence how much customers spend on your store.

A bundling strategy with tiered discounts and freebies for larger bundles is an option many other CPG brands are using. This strategy probably won’t make sense if you’re selling durable goods or offering services. However, bundling allows you to deliver more value to the customer in the form of bigger discounts – for example, giving them a 25% discount if they buy 3 items instead of 1. This puts more money in your pocket faster, which is vital for business. maintaining cash flow as advertising costs rise.

Many e-commerce marketers who avoid discounts at all costs will find this strategy useful because you are not lowering the price of your brand, but rather only encouraging multiple product purchases.

If you have multiple product SKUs, use pre-purchase upsells that are in addition to the product or service the customer is buying, with post-purchase upsells targeting unrelated products, to gauge customer interest. You can also set up a sequence of emails targeted at new customers to inform them about your other products and encourage them to come back and buy more.

Know Your Numbers

Volatility is inevitable, and we’ve had quite a bit of it – from IOS 14.5, constant supply chain issues to a looming recession – ecommerce businesses have been through it all. Knowing the stats that are critical to your campaign will help you keep your stronghold safe from destruction. Your key metrics will vary depending on your category. For most e-commerce businesses, this typically includes Cost Per Acquisition (CPA), Conversion Rate (CVR), Average Order Value (AOV), and Contribution Margin (CM).

If your AOV is declining due to a decline in disposable income during a recession, your CM is declining due to rising costs or inventory issues, your CPA is rising, or your CVR is declining due to declining buying behavior, you should be able to use the lessons from your past model proposal. tests. Whether it’s creating more value with gifts, kits, and upsells to increase the value of your order, or selling more products to existing customers to increase your margins, having data on what’s working for your brand will be invaluable in balancing these key metrics to maintain. business. humming.

Plan for the worst

When the shit hits the fan, you have to be ready. In the e-commerce world, this can often include losing ad campaigns, technical issues, and inventory shortages. The strategies discussed above will help with the first. Hiring a contract developer that you can trust with your quality assurance system will solve the second problem.

The third one is a bit more complicated and will depend on what works best for your situation. If a customer can expect to receive their product within one month of purchase, including messages directly in your store talking about shipping delays can actually work in your favor if you present the situation as a “flash sale” due to “high demand”. Allowing a customer to pre-order is an alternative, although your ecommerce conversion rates are likely to suffer as many would rather choose a competitor than wait.

However, the most important thing when the “worst comes” should be focused on preserving your customer experience. The damage from a dissatisfied customer can often outweigh the loss of profit, especially when considering the lifetime value of the customer. You are responsible for fulfilling your brand’s mission – you can’t do it without inventory. You must ensure that customers know how long it will take to receive their product, that they understand why their order will be delayed, and that they are kept informed until they receive the product.

Going through this thought process will allow you to create a ready-made system for when these inevitable problems come your way.

Related: How Ecommerce Companies Can Grow During a Recession

Fortify your stronghold

You are only as good as your past tests. You must continually invest in learning what resonates with your customers. There are an infinite number of combinations of sentence patterns that you can come up with. The likelihood that you will succeed on the first try is small.

This includes constant testing and optimization – taking what already works and coming up with ideas for what could potentially work better. You can A/B test your ideas with what works to get hard data to help you make an informed decision. It also involves continuous research. You should continually strive to learn more about your customers’ motivations, pain points, and areas of friction they face using data from your customers’ and competitors’ feedback.

Finding combinations of offer patterns that result in a higher conversion rate will be a win to celebrate in the short term, but there is more value in knowing what your potential customers are more likely to buy. This knowledge will make you more resilient in the face of adversity. When your targets start to fluctuate due to macro factors, you can double down on a combination of supply patterns that has historically worked for you.