Effect of Covid-19 on E-commerce sponsorship
Link to Article: https://www.adbadger.com/blog/sponsored-product-ads-during-covid-19-case-study/
Advertising forms a significant part of the revenue of companies like Amazon, Google, and Meta. This blog will specifically be discussing the effect of COVID-19 on the ecommerce industry through changes in clickthrough rate, advertising cost over sales, cost-per-click and conversion rate. In 2021, the e-commerce giant, Amazon, generated $31 billion[1] in revenue from advertising. Though Google made about $70 billion from advertising in 2021[2], Amazon seems to have a much quicker growth rate in advertising than both Google and Meta[3], and Amazon may have the pandemic to thank for that.
In 2020, when ‘virtually every other company’ saw a hit in its stock price, Amazon’s stock price continued to climb. The COVID-19 pandemic, especially in the beginning, made business very difficult for e-commerce sellers, as suppliers were forced to halt and reorganize their logistics in order to find new suppliers or new transportation methods to deal with the sudden appearance of the pandemic. As companies halted their operations, there was a fall in demand for advertising on ecommerce websites, which caused the price of advertising to significantly reduce. Let’s look into the metrics that were affected instantly by the COVID-19 pandemic.
Cost-per-click, as we learned in class, is the amount paid by an advertiser for each click on its ad. In March 2020, as sellers paused their campaigns or halted operations, other sellers who were able to stay afloat and make ends meet (or survive in the market despite having incurred losses) benefitted greatly as the CPC became cheaper than ever before. As the article explains, CPC ranges from $0.90 to $1 generally, but April 2020 saw an average CPC lower than $0.70, as depicted in the graph below.
Figure 1: Impact of COVID-19 Pandemic on Cost-per-click throughout March 2020
The graph above shows the gradual fall from the start of the month and the sudden fall in CPC starting from the 26th of March in 2020, owing to the lack of demand for advertising from e-commerce sellers.
This article also mentions the effect of the COVID-19 pandemic on conversion rate. The website defines conversion rate as the percentage of clicks on an ad that convert into sales. Unlike CPC, conversion rate grew during the beginning of the pandemic. Due to the fall in CPC as explained above, it would be easier for companies that wouldn’t regularly advertise as much online, such as companies in the healthcare industry or the grocery industry, to venture into advertising on ecommerce websites. Furthermore, due to the fear of contracting COVID-19 by stepping out, more people had begun making online purchases, and people’s desires from e-commerce websites would also have increased because of the need to purchase essentials (as well as other things that they would generally purchase in person and not online) from e-commerce websites now, like Amazon. Therefore, conversion rates would increase, as shown in the graph below, and ecommerce sellers would benefit owing to the lower CPC and increased demand online, which in turn benefits the e-commerce industry as well.
Figure 2: Impact of COVID-19 Pandemic on conversion rate throughout March 2020
Another metric that was expected to see a significant change was ACOS (Advertising Cost of Sales). This was bound to happen because of the lower CPC and higher Conversion Rate.
According to the article, ACOS would normally be in the range of 30-40%, but starting March 2020, the average ACOS fell to about 25%, which means that companies would incur a cost of 25 cents for every $1 they earn in sales.
The graph below clearly shows a gradual decrease in ACOS during the month of March, as the COVID-19 pandemic started.
Figure 3: Impact of COVID-19 Pandemic on ACOS throughout March 2020
Lastly, another metric that significantly changed was the clickthrough rate (CTR). As we learned in class, clickthrough rate can be calculated as the total number of clicks an ad gets divided by the total number of impressions. As the graph below shows, there was approximately a 24% increase in CTR from February to March. This could be owing to changes in buying habits, and the drastic increase in online purchases.
Figure 4: Impact of COVID-19 Pandemic on CTR throughout March 2020
To conclude, the COVID-19 pandemic had a significant impact on ecommerce websites, as can be indicated by the metrics shown above. Cost-per-click and advertising cost of sales fell drastically during March as the COVID-19 pandemic began, while conversion rate and click-through rate saw gained a boost.
[1] https://www.cnbc.com/2022/02/03/amazon-has-a-31-billion-a-year-advertising-business.html
[2] https://www.reuters.com/technology/google-parent-alphabet-posts-higher-quarterly-revenue-2022-07-26/
[3] https://www.cnbc.com/2022/08/03/amazon-online-advertising-meta-twitter-snap-and-pinterest.html