Inflation and the FBA Seller

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Inflation has really taken off this year. Supply chain disruptions due to Covid had already started it off, but the hike in energy and food prices as a result of war in Ukraine are now pushing it further; currently prices are increasing by over 9% year-on-year. That comes after years of low single-digit inflation and, in e-commerce, prices that were actually falling, so it’s a big shock.

How are consumers reacting? First of all, they’re making fewer impulse purchases and buying fewer ‘fun’ products. Rubber chickens, T-Rex costumes, and similar amusements are probably not going to sell well right now.

They’re decreasing their spending overall, and decreasing their online spending as part of that. Often, they are buying less expensive brands than they used to, or buying white label instead of branded products; some are now buying only products that have been discounted, to make their money go further.

That adds up to a challenging environment for the FBA seller. It’s particularly tough if you sell appliances or electronics, because people are deciding not to upgrade or replace kit that’s still working, even if it’s some way behind the curve.

Apparel is another area that’s not selling well. Fashion is getting hit hard, but even kids’ clothes are doing poorly.

What are people still buying? Intriguingly, beauty is a big hot spot in terms of sales, though lower cost products seem to be doing best within that segment. Sports kit is also doing well, and consumables are selling well online.

How can you respond? One thing that really helps is your online reputation. Buyers have become more conservative; if they have a tried and tested brand, they will probably stay with it, unless its price is far above the competition. So the more you promote your brand as friendly and reliable, the more likely customers are to stay.

Unfortunately, inflation doesn’t just mean you can put your prices up. You need to watch what your competitors are doing. Increasing prices may mean you see unit sales fall as customers reconsider whether they need your product right now or not. If you have a large existing inventory, you might decide to lag your competition for a while and grab some business from them; but remember that when you come to replace those stocks, you’ll need to check your profit margin.

If you’re the low cost supplier, of course, make sure you stay low cost.

Looking ahead, inflation looks set to stay with us till at least the middle of next year, so it’s worth thinking about your supply and re-supply strategy. You might want to check whether with the significant increase in freight costs, a local supplier would cost in.

You might also consider launching a ‘bare bones’ version of your product. For instance if I was selling lacquered chopsticks, I might think about ordering a non-lacquered, bare bamboo version to sell at a discount but under the same brand name. Or you might sell a bulk pack of moisturizer where you have really economized on the packaging.

You might also be able to reduce the cost of the product without reducing quality, for instance by reducing the number of parts or variety of colors. Increasing your order size might also let you reduce supply costs, though of course you will be taking a bit of risk there.

Alternatively, offer an attractive price for a package. For instance, rather than sell a steel ballpoint pen, sell the pen together with five or even ten refills. Even if you offer a quite small saving, that’s an attractive offer for the consumer.

Products that help people save money should do well. Repair kits, kits to repaint scratches on cars, food prep boxes, energy meters – you should be able to think of many more.

And reduce your marketing costs by stepping up your use of video and social media; organic marketing is a whole lot cheaper than PPC so make your marketing money go further.

Finally, keep in stock! Doing all of the above isn’t going to help you if your customer arrives on your product page and you’re out of stock, so make sure you track your inventory.

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