From silos to centralization in the new age of exponential ecommerce growth

There is no growth without pain, and online retail activity has been growing at an exponential rate.

U.S. online retail sales as a percentage of total retail grew 10 points from 5.6% to 16% between 2009 and 2019. As of April 2020, this figure grew to 27% — an 11-point increase in a fraction of the time.

As ecommerce explodes, brands are increasing their advertising efforts without realizing the potential negative impact of a siloed ecommerce operation.

Ultimately, the separation of paid media and ecommerce activities is a recipe for disaster. Of course, no brand is doing this purposely. Rather, brands fail to emphasize the importance of internal communication between their departments or they enlist advertising agencies who solely focus on paid media and increasing spend totals. So how exactly is this hurting brands?

First, there is the subject of poor advertising performance. Some brands begin advertising before their pages are fully optimized, without realizing they are paying more money just for a failed conversion. If the paid media team, whether internal or external, is not conversing with the ecommerce team, the adverse impact to advertising performance caused by issues such as sub-par imagery, egregious pricing and product unavailability (out-of-stocks) goes unnoticed.

Conversely, brands with a holistic view of customer experience and advertising performance can diagnose problems and adjust more accurately and easily. For instance, the brand that advertises a three-star product may wait two weeks before realizing their campaigns are not performing well, whereas the brand that is constantly monitoring pricing fluctuations can adjust quickly if they see a price hike to their product that might adversely impact conversion rate.

Successful advertising efforts can also hurt a brand if there is a separation between paid media and ecommerce management. Positive advertising performance typically increases the ranking of a product on any marketplace. Increased ranking leads to better organic positioning, resulting in increased sales.

If brands are achieving growth through their marketing efforts but are not prepared operationally, the consequences could be grim. Strains on the supply chain due to unanticipated growth result in increased chargebacks (for 1P, or first-party, vendors) and out-of-stocks. While chargebacks hit margins directly, out-of-stocks result in lost sales in both the short- and long-term. Not only do out-of-stocks result in an average sales decline of 42%, but it could also take six or more days to regain organic placement depending on the length of the outage. Additionally, 75% of customers are willing to switch brands in the event of product unavailability.

However, if paid media, ecommerce and operations teams are all communicating, brands can be proactive in adjusting forecasts and even improving facets of the supply chain. Centralize your advertising and ecommerce management efforts with an agency that can handle both, and your brand will succeed in advertising, avoid detrimental operational issues, and outperform competitors who fail to realize these truths.