Five ways ecommerce merchants should adapt to the cost of living crisis

Consumer attitudes shift quickly and in recent years customers have swerved away from bricks-and-mortar retail and towards mobile shopping – a change which was accelerated during the pandemic.

Ecommerce has become a key way to shop for nearly all consumers. However, the Covid-19 pandemic and Vladimir Putin’s invasion of Ukraine have twisted the retail landscape into uncertainty.

Progress made during the pandemic – in terms of delivering a successful omnichannel experience for shoppers or scaling a supply chain to deal with the logistical nightmares that have hampered the industry over the past 18 months – is starting to wear thin amid a new hurdle: the cost of living crisis.

“Not long ago, all people wanted was a bit of release,” Analytic Partners associate vice president Kevin O’Farrell told Charged.

“But since coming out of lockdown, challenges have been mounting for consumers – from rising energy prices to supply chain issues and now a worsening cost of living crisis.”

British consumers have started to sharply cut back on spending over the past two months as the rising cost of living hit budgets hard, according to industry data.

Last month saw households adopt a more frugal approach to living, as inflation climbed to its fastest pace in 40 years as a result of the 54% spike in the cost of average gas and electricity bills a month earlier.

Retail sales also fell off the back of the rising level of inflation, tumbling by 1.1% in May, making it the worst month since January last year, according to data from KPMG and the British Retail Consortium trade association.

“With the drop in purchasing power for individuals, people’s priorities have shifted from pleasure-seeking to practicality and making ends meet,” O’Farrell pointed out.

“Consumers want brands to show empathy and understanding to their situation, by offering fair prices on products and helpful promotions – they want rewards in return for their loyalty.”

How can brands help consumers navigate the crisis and maintain a steady business relationship?

Make sure your fulfilment operation is slick

Consumers on a budget still expect fast and efficient delivery practises, especially if they have had to think twice before purchasing the item.

Econsultancy analyst Ben Davis said: “The slickness of an online retailer’s fulfilment operation makes a big difference – consumers on a budget won’t be keen to order something from a brand if their last experience with them was of waiting three weeks to get their return processed.”

Delivery has fast become one of the biggest deal-breakers for the ecommerce sector in the UK, with around two-thirds of UK consumers (65%) saying they wouldn’t order from a marketplace if they don’t offer a convenient delivery option, according to a recent survey from Sendcloud.

With frugal consumers spending more time deciding whether to purchase an item, a convenient delivery option and fulfilment network is a must.

Ensure communication is up to scratch

Communication is key to maintaining consumer-brand relationships during the crisis. Letting customers know when their orders have been shipped or offering helpful product information and price drops on their favourite or bookmarked items will all help merchants keep transactions flowing.

“Generally speaking, consumers will be looking, beyond price, for all the encouraging signs from ecommerce UX that point to a trustworthy transaction and quality products – great photography and product information, helpful and genuine reviews, reassuring messaging post-purchase,” Davis said.

“Of course, from a pricing point of view, consumers are looking for a deal, and so retailers who are smart with their customer relationship management (CRM), letting customers know of price drops on products they have shown interest in, for example, could drive some sales in the short term.”

Offer consumers cheaper alternatives

As prices climb, cheaper essential ranges will become more relevant to consumers.  Brands offering different price points could see an upturn in sales as consumers spend longer browsing to see if they can get a cheaper deal elsewhere.

“In economic crises, consumers become more sensitive to prices and tend to switch to cheaper products such as own-brands, or those with a clear price proposition,” said Edge by Ascential’s vice president of retail insight, Xian Wang.

“Retailers and brands will face a dilemma: raise prices to protect margins or hold prices to protect demand. Brands without a clear proposition on either pricing or quality will be deprioritised by shoppers.

“Consumers’ reduction in spending will not be evenly spread across the board either, as the essentials share of wallet will increase, compared to non-essential goods.”

Wang pointed out that retailers are already starting to realise this and are funnelling more resources into expanding essential product categories.

“We’ve seen Asda invest more than £90 million to expand its new Just Essentials value range and price lock campaign and Sainsbury’s has gone further, investing £500 million to help cut the cost of essential items,” she added.

“We are likely to see more decisions like this from retailers to meet consumer demand for affordable products.”

Wang believes that brands should ensure they are in sync with retailers’ loyalty programmes but should also consider offering discounts and unique value propositions via the direct to consumer (D2C) route.

Keep promotional campaigns as relevant as possible

When sending out promotional emails to customers via email, ensure that only the most relevant messages are being sent out.

Research conducted by Treasure Data in November 2021 found that 45% of consumers will unsubscribe from brand communications that are not relevant to them.

This figure is likely to increase as low-income families or those tightening their belts are unlikely to appreciate being shown unaffordable items as household bills skyrocket. In the midst of tightening budgets and shorten attention spans, consumers are putting their money where their mouths are when it comes to targeted marketing communications.

Increase personalisation

Shoppers worrying about how they are able to afford their usual products are likely to become “more selective about the companies they choose to do business with”, according to Aaron Begner, general manager at digital commerce trust platform Forter.

“Instead, they’ll invest their money online and in-store with companies they trust — companies that prioritise the total customer experience, invest in loyalty programs, and offer superior customer service.”

A personalised shopping experience is an opportunity for merchants to “differentiate themselves by optimising every step of the buying journey”, from pre-purchase and checkout to post-purchase, which could encourage repeat business.

Begner emphasises that this is crucial for retailers who are increasingly unable to undercut competitors on price, allowing them to “focus on building trust with consumers” instead.

Cut back – in the right places

Businesses are finding their margins squeezed by rising costs as well as facing pushback from both retailers and consumers.

Many will be streamlining all areas of their business in order to keep costs low internally, but O’Farrell believes that brands should continue to invest in certain areas, such as marketing.

“While some may feel inclined to pull back on media spend, this can have detrimental effects on the brand long-term,” he said.

“On average, brands that reduced media investment during the last recession suffered a 18% loss in incremental sales. However, the brands that maintained or increased their media investment during the recession came out stronger in both the short and long term, and saw a 17% growth in incremental sales and ROI.”

Click here to sign up to Charged free daily email newsletter

AnalysisFeaturesLooking ahead


Leave a Reply

Your email address will not be published. Required fields are marked *

Fill out this field
Fill out this field
Please enter a valid email address.