Current business reports suggest that e-commerce strategies need to adapt to tough economic conditions and the strategies that brought success during growth periods are likely to be entirely different from those suitable for economic downturns. The urgency for adopting the right strategies is further compounded by the reality that online retail has fallen prey to many negative trends, as society shifts toward greater dependence on digital technologies and experiences cybersecurity concerns.
This then raises the question of understanding what factors contribute to resilience in e-commerce.
How likely is it that businesses can bounce back from troubling reports?
What are the relations between e-commerce and the general economic conditions?
The need for e-commerce leaders to take proactive steps is further emphasised by the suggestion that many business experts are wondering whether economic downturns in the Western world are merely cyclical or if other factors have impacted the precise timing of their occurrence.
Mitigating economic-related risks poses considerable challenges for a variety of businesses and organisations, partly because they underpin a reliance on carefully planned, well-designed, and adaptive strategies that can ensure performance and progression during all types of societal conditions. But this level of analysis and subsequently the development of resilience strategies remain somewhat elusive and underexplored in e-commerce and retail trade. Understanding consumer resilience , market fluctuations, and technology trends are key factors to consider when building strategies for e-commerce growth businesses during economic downturns.
Aligning your e-commerce strategy with the current economic state
One factor guaranteed to impact the success of your e-commerce business is the economic climate. If you act in harmony with your economic mood, you are likely to get the maximum result from it, and if you don’t, you will face a slew of costs that weaken your position for future opportunities. This is why continuous updates and market surveys are needed to ensure you keep a pulse on the market when there are various economic fluctuations in play. Successfully spotting the right opportunities, and by implementing proven conversion strategies deeply rooted in neuroscience and human behaviour theory, brings a big advantage allowing you to build resilience and even growth when the economy is slowing down or seemingly stagnant.
Aligning your e-commerce product and marketing strategy with the economy in real time is no easy feat, but it will help you respond more quickly to the regular shifts in consumer spending behaviour and even help you predict those shifts. Being able to plan your product offerings and allocate marketing resources more effectively can only help the bottom line and multi-billion e-commerce brands and retailers have already begun doing this or are planning to do so with great effect.
They are already successful in using the neutral economic climate to great effect. Leaders and followers have both used data to build a picture of the most in-demand products, showing fluctuating market trends and consumer behaviour. The activity sits there and acts on the data to deliver insight and context to enable leaders in e-commerce to make better, more informed business decisions when it matters most.
Understanding and Mitigating Economic Downturns
Many businesses lack an understanding of economic downturns and the proven strategies required to weather these difficult times. In terms of a generic downturn, it is defined as a “period of stagnating or slowing economic growth.” Essentially, during an economic downturn, the population at large has less money to spend and in such times, e-commerce businesses need to adapt and build strategies for the future. When businesses are aware and armed, oncoming obstacles become less like the proverbial iceberg and more like any old pothole with warning signs of coming changes. Being able to recognise these signs gives business leaders enough time to make any necessary adjustments as needed.
Causes of Economic Downturns
Economic downturns can be attributed to external factors like financial crises, economic recessions, political and geographical disturbances, and changes in commodity prices. Demand for goods declines and just like the share market, consumer confidence has to recover before the economy will rise again.
Changes in the rate of inflation can result in a fall in disposable income and increasing national debt, in turn having an impact on global e-commerce businesses. For instance, in a recession, people will be looking to the internet to capitalise or make a little bit of money; people also have more time to sit at the computer, compare prices on items they want to purchase, and find cheaper alternatives. Reduced consumer disposable income particularly affects the luxury goods or luxury travel sector though companies that predominantly provide specialised offerings are weatherproofed. Having these insights can provide a commercial advantage if you’re are able to predict when the next downturn is likely to occur and respond by swiftly implementing strategies to mitigate the impacts. And, should catastrophe happen, many of the same strategies can also be used to revive consumer activity.
The Impact on E-commerce Businesses
While a buoyant economy might drive e-commerce growth, unfortunately an economic downturn can have a similar inverse effect on them. The most immediate impact is on sales, is decreased spending. Additionally, reduced consumer activity also means increased competition in terms of companies struggling for very limited customer inflow, which can diminish consumer interest in new companies or smaller brands, as they may seem less trustworthy compared to the established bigger brands.
In slower times there’s a greater chance of supply chain disruption means keeping products on the shelves is an issue; hence, more companies potentially raising prices in response to reduced supply, delaying the recovery of trade further. Research has found that as a result of recession, the average e-commerce executive expects a reduction in the sales turnover of their companies and a significant percentage of those companies also face deteriorating cash and financial flow.
Consumer Behavior During Economic Downturns
Consumer purchasing behaviour during economic downturns is generally triggered by two factors: their opinions of the economy and their personal finance. As previously mentioned, reduced consumer income as a result of large-scale layoffs and reduction in disposable income due to more saving can directly decrease the income of e-commerce businesses as a result of a fall in sales.
Both of these factors can dampen the spirit of consumer spending and therefore prevent customer attention from buying new products, as their purchasing motivation moves to necessity and not luxury. The most common aspect consumers compromise on is trying a new or unknown brand. In order to navigate through such tough scenarios, an increased marketing budget to gain the attention of customers is needed, but businesses may not have the budget to invest in advertising amidst the loss of sales.
Even if the business has plenty of cash at the start of the downturn, the successful management of cash flows to counter such a hefty loss in sales can become the key factor deciding if a business survives the slump. But for businesses seeking a glimmer of hope, converting customers is more than four times more costly than retaining existing customers and therefore nurturing activities can assist with this and can be more cost-effective than awareness campaigns.
How Consumer Thinking During Hard Times Changes Their Purchasing Behaviours
Changes in consumer thinking and behaviour during recessions are generally well-documented. First, financial constraints lead consumers to base their purchase decisions mainly on price considerations instead of brand and product-related attributes. This trend is particularly strong in developing countries where brand loyalty is generally low. Similarly, studies have shown that price was the most important attribute for choosing a product in many product categories during recent recessions. Second, consumers began to give priority to the purchase of essential goods and products over the non-essential and luxury ones. This makes the economy difficult for businesses that aren’t ready to pivot and adapt their products and services. It’s with some luck though, that e-commerce has the advantage of retargeting consumers and this is a marketing strategy that’s more important than ever in a challenging economic climate.
A profitable and simple approach during a recession is to pay attention to existing customers, especially those who bring a large part of the income and profits into your company. The relationship with current customers becomes even more beneficial as new acquisition expenses, such as advertising, are typically high during a downturn. Therefore, focusing on maintaining stable situations with existing customers is considered a natural strategy for protecting the company from any economic crises.
Strategies for Resilience
Consumer needs and demands are constantly changing, and a company that has a broad enough product line can be more resilient to downturns. Beyond product offerings, marketing and consumer outreach should also adapt to fit our modern audience’s sensibilities. With privacy increasingly at the forefront of the digital conversation, your targeting should be transparent about data collected and used. Usability and on-site consumer experience have become vital components of customer satisfaction directly affecting results. Primed-to-buy customers may never even convert if they’re overwhelmed by the choices on your website and reach the point where they decide to look elsewhere. All of these factors can be adjusted no matter how difficult outside economic conditions become. Plenty of businesses have adapted to pandemic life and uncertain times by adopting or adjusting their strategies that follow and while doing so isn’t a guarantee to safety in a downturn, isn’t it better to focus on what can be done to succeed rather than worrying and waiting for the axe to fall?
3 Simple Action Steps
E-commerce businesses should consider an action plan that allows them to be adaptive to the consumer changes that will inevitably occur in economic downturns. Any underlying assumption that governments will continue to be responsible stewards of the economy should be removed from the equation. As such, businesses need to take control of their own destinies.
- First and foremost, businesses should nurture their existing customer base and strengthen relationships with loyal customers.
- A solid financial plan is necessary to manage cash flow during slower economic conditions. This may involve budget cuts in areas such as marketing and advertising, but it also means being prepared for potential supply chain disruptions.
- Adaptability is key – whether it’s through product offerings or consumer outreach, e-commerce businesses must be willing to adjust and pivot to meet changing consumer demands during a downturn. This can also involve exploring new markets and diversifying revenue streams.
By taking these steps, e-commerce businesses can increase their chances of surviving an economic downturn and come out stronger on the other side. It’s important to remember that consumer behaviour is constantly evolving, and being prepared for change is crucial in any business endeavour.
Let’s talk. Why not reach out for a conversation to learn more about this process and take steps to increase adaptability in your e-commerce strategy.