Amazon Strengthens Advertising & Supply Chain; 2021 Outlook
Brands continued to lean heavily into paid search in the fourth quarter as 56% reported increasing their spend compared to only 6% cutting back. Also, 33% of brands report spending more on media and DSP with Amazon in 4Q compared to their plans entering the year, vs. 13% that have cut back. Further, brands moved towards using more digital activations in 4Q compared to prior quarters this year, including vendor powered coupons, Amazon Live, and even Alexa promotions. Our research indicates Amazon’s advertising options will continue to lead their industry peers and most manufacturers plan to invest more into both paid search and DSP in 2021. However, the data suggests the pace of increases may lag sales growth as many brands work on fixed budgets and have been unable to convince the organization to increase ad spend at the same rate as sales have grown. This should benefit firms that base budgets on the percentage of sales basis and/or those firms that have built in flexibility to increase spend in ‘21.
Amazon Supply Chain Progression: Amazon continues to progress its supply chain with the recent purchase of eleven Boeing 767-300 aircraft. The new additions will join the Amazon Air network by 2022. At a time when eCommerce is growing and customers expect typical delivery time frames, additional capacity is crucial. According to our most recent manufacturer benchmark, 52% of brands experienced delivery or supply chain disruptions on Amazon during 4Q20 due at least partially, if not primarily, to Amazon. As Amazon’s FC networks remained strained throughout the pandemic and holiday, it is no surprise the eTailer is placing an increased emphasis on supply chain. So much of Amazon’s success has been built on its leading supply chain capabilities, honed since it was founded and now reaching every corner of the US and throughout much of the world. The pace of these investments has only accelerated through the years, with 2019 featuring the widespread launch of next day delivery on Amazon, and 2020 investments including expanding fulfillment capacity by 50%, adding over 100 new distribution points in September 2020 alone. Over the last several years, many manufacturers have made their own supply chain a key focus as well, recognizing eCommerce, and Amazon in particular, often requires a new way of getting goods to the right end point.
Source: Software Advice
CRC is projecting the overall US eCommerce market to grow 10% in 2021, after the 54% growth estimated for 2020, and we do see more upside potential than downside. It is challenging to forecast digital demand in 2021, but manufacturers are typically falling into two groups based on our conversations; Some are acknowledging the tough comps of 2020 that they will face this year and are therefore more conservative with their forecasts. Others are viewing 2020 as an anomaly and are using 2018 and 2019 as a base trend for 2021, which tends to result in more optimistic forecasts. Few eCommerce professionals expect digital mix to decline in 2021, regardless of which forecasting group they fall into.
Subscribe to 3 Things Weekly email
*all fields required