The impacts of COVID-19
eCommerce for both small and large brands has been crucial during these times. This has truly been the year of digital retail, thus also an unprecedented year for eCommerce advertising as US consumer spending shifts online and marketing budgets follow suit.
After the dramatic fluctuations earlier in the year, where will we end up, and where are we going? Black Friday and Cyber Monday are right around the corner, and the eCommerce surge is likely to be further accelerated by the demands of the holiday season. The next few weeks will be telling for online marketplaces, but what we know for sure is that eCommerce sales growth has become a reflection of a fundamental shift in consumer behavior.
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Both leaders and upstarts are riding the eCommerce wave
Amazon, Instacart, new direct-to-consumer channels… marketplaces and brands alike are leaning into eCommerce to reach consumers wherever they can. Many brands found themselves experimenting with new online channels this year, while the eCommerce marketplace leaders are investing heavily in their advertising and marketing solutions to stay ahead of the curve, and in so doing, they have set the pace for the industry.
For the first time ever – Prime membership surpassed 50% of the US population (+15% to 142.5M). With a strong captive audience, Amazon has solidified its position as a necessity for any brand. It’s no longer a question of if brands need to sell on Amazon, it’s a question of when and how much to invest. As it turns out, Amazon is the only company for which eMarketer is now estimating higher 2020 ad revenues than they had forecast pre-pandemic, up about 6% from their original forecast to $14.5B in US ad revenue.
However, Amazon isn’t the only online channel to claim its spot as an eCommerce leader this year. While prepping your eCommerce advertising campaigns for the peak holiday periods, one channel is likely top of mind: Instacart. As another wave of stay-at-home requirements sweeps throughout the US, online grocery is poised to continue the rapid growth it experienced in 2020, and increased order volume around the holidays presents a unique opportunity for brands. In fact, as shipping delays and inventory concerns grip brands trying to sell on Amazon, the distributed shopper model of Instacart offers an enticing option.
Naturally, consumers are taking notice too and doing a wider range of their household shopping via Instacart. Holiday grocery shopping is sure to bring an unprecedented peak. In fact, just Q3 of this year Instacart experienced 33% growth over last year’s Q4. Food is still, by far, the most shopped category, but other household goods, including cleaning supplies, grew 19% year over year.
Brands that lean in to new eCommerce trends will have the upper hand in 2021 to maximize their sales
here is a natural first-mover advantage when it comes to eCommerce. Not only do early-to-adopt brands benefit from lower competition, and thus, more cost-effective advertising, but they are also able to gain valuable learnings, giving them a competitive edge. For example, here are four advertising trends many brands are seeing during the holiday season that could set them up for success in the year ahead:
1. Items: Pick a broad assortment of products to sponsor in your campaigns. Search is the dominant placement across the major online retailers, so make sure you’re giving the customer multiple options in their search results, as if they were looking at different flavors or pack sizes in the store. Promoting a broad assortment also protects against out-of-stock and thus losing visibility for a given item at a given store.
2. Keywords: Target trending keywords, for example “powdered cocoa” around the holidays, and lean in to spikes in traffic. Think about complementary items that you can promote on searches, as this year has brought many new-to-online and new-to-brand consumers that are still using generic searches in categories. “Walk the store” to see where you’re winning on Search and what terms your competitors are bidding on in order to maintain category share.
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3. Bids: The most important place to be on eCommerce marketplaces is Top-of-Search, which are the top ad placements at the top of search results. On Instacart, for example, these account for the majority of clicks and have a higher Return on Ad Sales than the platform average. Use an integrated ad strategy to bid more aggressively on products and terms that rank low on organic search. Experiment with display advertising to retarget customers and increase sales, thus increasing ranking.
4. Budget: US eCommerce retail sales are projected to finish out 2020 with 32.4% growth year-over-year, according to eMarketer. Though the growth rate is expected to slow to 6.1% next year, total eCommerce sales will nearly double over the five years to 2024. Similarly, eCommerce advertising is growing as well. Brands spent an average of over 40% more in Q3 2020 compared to a year ago, according to first-party data from Pacvue. It’s important for brands to continue to invest in eCommerce advertising to stay ahead of the competition, and it’s also important to maintain ad visibility when and where consumers are actually shopping. For example, an interesting consumer trend to be aware of is that Instacart orders tend to happen earlier in the day around the holidays, rather than the peak evening periods throughout the majority of the year.
What’s ahead for 2021
Delivery alternatives – Since the influx of online shopping, “shippagedon” is a major issue with no easy answers. Real-time protocols that are being developed in 2020 due to the pandemic will continue into 2021. The supply chain is still perilous, as brands struggle to produce enough product and another wave of shutdowns, both domestically and globally, are disrupting production and transportation. Many brands are turning to fulfillment vendors outside of retailer warehouses to make sure they can meet delivery windows. Consumers, though, have very little patience for shipping delays, so channels that offer same-day delivery and a distributed network, such as Instacart, will fare well.
Online grocery – Speaking of Instacart, online grocery shopping shows no signs of slowing down. By 2025, in-store grocery shopping is expected to grow by 1.2%, but online grocery is expected to grow by 18%. In fact, 89% of Instacart users say that they see it as an essential service. However, it’s not just food items anymore. Now that Instacart partners with Sephora, Best Buy, Walmart, and others, brands across categories, from beauty to consumer electronics, should think about how Instacart fits into their strategy.
Gift cards – While many online retailers are not only reaping the reward of lockdown orders, the gift card has also never held such a bright spotlight. Sales of gift cards among major US retailers increased 114% in Q3, compared with the previous year. Gift cards increase cash flow for retailers, but they also lead to easy profit, as not all gift cards are redeemed in full. While Q4 2020 is likely to see the highest peak for the holiday season, gift card sales are expected to remain high in 2021 for birthdays and other holidays, especially as the pandemic limits travel and in-person gathering to give physical gifts.
Self-serve advertising platforms – One of the key drivers of Amazon’s stellar earnings this year has been the growth and profitability of their advertising solution, which more and more brands are adopting, both self-serve through Amazon and via third-party software partners like Pacvue. Other retailers and eCommerce platforms will follow suit in 2021, using Amazon’s model as their playbook.
Beyond all the trends experienced in 2020 and the expectations for 2021, the guiding principle for many brands right now is to be where the customer is. We may not know how consumer shopping habits will further shift in the next twelve months, but the brands that stay nimble and the marketers that test and learn, using the best available data to make informed decisions, will be the ones who come out ahead.
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