Sellers are living in uncertain times.
The most recent forecasts indicate a steady decline in the economy that most experts believe will culminate in a recession by the end of next year. If these economic pundits are indeed correct, there’s no better time than now for sellers to carefully examine the inner workings of their Amazon businesses to determine to what degree those businesses are recession-proof (or not).
No Amazon business is 100% recession-proof. There are just too many factors (inflation, across the board increases in costs, lack of consumer confidence, etc.) that will impact the overall health and financial stability of it during a recession.
The threatening recession (if it occurs) doesn’t have to be an inescapable Doom’s Day scenario for Amazon sellers. Sellers should take the time to understand what happens during an economic downturn.
Armed with this information, they can create innovative and competitive strategies that sharply reduce their businesses exposure to the potential negative effects of an on-going recession as much as possible.
How a Recession Impacts Amazon Businesses
A recession can potentially impact an Amazon business in several ways, such as...
- consumers spend less in response to widespread economic uncertainty,
- consumer spending declines because they have less disposable income,
- consumers in every income bracket are more likely to postpone or significantly reduce discretionary purchases,
- inflation and fixed costs will cause product manufacturers to increase their prices, forcing sellers to increase their prices, affecting profit margins,
- niche competition dramatically increases for the same audiences, driving Amazon advertising costs up, further reducing profit margins,
- The number of new Amazon sellers (competitors) increases as people seek ways to offset lost income.
The Four Types of Amazon Customers During a Recession
In a recession, consumers can be divided into four different groups:
- Those who will immediately stop their ‘normal’ purchasing behavior. These people feel the most vulnerable and are usually the hardest impacted financially. While lower income consumers usually define this group, sometimes higher income consumers concerned about a dire economic forecast can also because of a perceived threat to the continuation of their earning ability. This group reduces most types of purchases by postponing, decreasing, substituting, or eliminating them.
- Consumers who are concerned but willing to ride things out. These people are usually resilient and optimistic about the long term but concerned about their situations (ability to maintain present lifestyle) and the prospects for recovery in the near term. They cut back on their spending like the first group, but less aggressively. They make up the largest group, representing a wide range of income levels. As the economic news gets worse, these consumers increasingly migrate into the first group.
- Wealthy consumers who are confident in their ability to be secure throughout the downturn. They may be more selective about what they purchase but buy at almost the same level as before the recession. This group is composed primarily of individuals in the top 5% income bracket.
- Consumers that are unconcerned about the recession. This group is usually urban and young. They spend on experiences instead of products (the exception – electronics) and postpone major purchases during a recession… Unless they become unemployed.
A seller’s capacity to recession-proof their Amazon business will greatly be determined by which of the four groups their core customers belong to and how these individuals categorize their products.
Why Amazon Market Research is Critical During a Recession
It’s essential for sellers to continue to invest in market research during an economic downturn.
When determining an appropriate recession-proofing strategy, sellers should track, through market research, how shoppers are reassessing their priorities, reallocating household budgets, redefining ‘value’ and switching between brands and product categories.
This information will be critical for sellers to target their best opportunities for maintaining profit margins and even growth. It allows them to determine…
- which products have little potential to survive during the recession,
- which may suffer declining sales but can be stabilized, and
- which are most likely to flourish during and after the recession.
It will also be a useful guide as the recession winds down, enabling them to identify trends such as whether shoppers are returning to familiar brands or sticking with recession-motivated product substitutes, and if they are returning to their pre-recession buying patterns.
5 Ways To Recession-Proof an Amazon Business
As a recession looms, sellers should take a step back to reassess their current marketing strategy and processes.
I. Invest in Marketing
As many brands reduce their advertising budgets to cut costs during a recession, smart sellers increase their Ad Spend in order to keep their brand presence high and to further enhance their relationship with their current customers.
Because others are cutting back, there will be fewer advertising campaigns from niche competitors, increasing the odds that the seller can improve their market share (often at a lower CPC).
Investing in strategic promotions can help sellers to acquire new customers which can also help to offset recession-related increases in operational costs.
Pro Tip: Be sure to track the ROI for your advertising campaigns to maximize every ad dollars and to identify which PPC campaigns should be halted because of poor performance.
II. Offer Incentives
Sellers must be creative and innovative to increase sales during a recession. Offering product incentives motivates consumers to buy a seller’s products even in hard times.
During a recession, unless a shopper is part of group 3 or 4 (wealthy – don’t care), they will most likely be spending less (except for essential items), but at the same time are seeking to squeeze as much buying power out of every dollar as possible. If consumers believe they are receiving something extra (added value) from a purchase, they will feel less anxious when clicking the Buy button.
Incentives are one of the easiest ways to make a seller’s products more attractive that require little effort from the consumer and can be very effective for boosting sales during a recession. They entice current customers and shoppers who are looking for lower-cost alternatives/solutions that meet their needs.
Offering incentives such as discounts, limited promotional pricing, “buy one, get one free,” a rewards program, and post-purchase bonuses, keep current customers loyal to a seller’s brand (repeat buyers) and are a proven way to bring new shoppers into the brand.
Sellers, however, should be cautious of the number of special temporary price promotions/discounts and how deep they are so as to not alter their customer’s perception of what ‘normal pricing’ consists of and revise their expectations.
Once a recovery from the recession is in full swing, those shoppers may strongly resist what they now perceive to be steep increases as price points return to ‘normal’.
III. Prioritize Customer Service
Prioritizing customer service is an effective means to help guarantee the long-term stability of an Amazon business during a recession. Customer service is essential for fostering customer loyalty that drives repeat sales, and repeat sales are vital for a business to survive during a recession.
Depending on a seller’s chosen niche, attracting new customers often costs more than nurturing existing ones and turning them into repeat buyers. Sellers should focus on discovering the recession-inspired changes of their current customers’ buying behaviors (needs) and priorities, in order to implement different strategies for resolving them.
Great customer service starts by obtaining crucial insights into these areas through the use of Brand Analytics data, the Reviews and Questions areas of your listings, and via any support you provide via Amazon’s compliant communication system. For off-Amazon customers surveys, website data, chat and email are all great ways to get deep insights into your customers.
Ensuring excellent customer service and satisfaction (customer care) is an important centerpiece for recession-proofing any Amazon business.
As a bonus, it also helps sellers to adjust their product selections and advertising to target the most responsive audiences.
IV. Reduce Excess Inventory
When demand is high, maintaining excess inventory can help sellers to prevent stockouts. During a recession, however, demand goes down. Sellers therefore need less inventory. Sellers should figure out what their minimum inventory requirements are vs. volume discounts you receive, and stay within those levels to save money (e.g. FBA long-term storage fees).
V. Protect Your Supply Chain
Sellers should optimize and protect their supply chains so that they are efficient and flexible enough to swiftly adapt to the impact of higher fuel prices, shipping costs and storage fees which can drain needed capital from other important areas of the business like PPC budgets.
They should communicate with their suppliers about which products are more important for the survival of the business (the most popular products with their consumers), so that they are prioritized should a manufacturing bottleneck develop.
Sellers should also explore alternative suppliers to safeguard their inventory levels from unexpected delays in manufacturing, or disruptions in global shipping logistics.
Don’t Just Survive - Thrive
A recession will impact every Amazon seller’s business.
Some will thrive based upon the products they are selling. Others will struggle to keep their heads above water (once, again depending on niche).
But no Amazon business has to fall victim to a recession (closing their doors forever).
Businesses fail during an economic downturn because the owner lacks an understanding of the changing personality of the marketplace and hasn’t developed strategies to creatively respond to this new environment.
Recession-proofing an Amazon business is an incremental process which begins with the owner resisting the urge to stand on the sidelines waiting to see what ‘really’ happens during the downturn.
They take the reins, actively pursuing the practical knowledge, insights and data needed to chart a successful course through the economic storm.
Entourage: Software to Scale Amazon Ads and Results Driven Management.