In the first few weeks of any new year, we get to hear just how well - or not - the leading online retailers have performed over the key Christmas trading window. 2016 was a challenging and turbulent year and it was clear that no-one could really accurately predict any outcomes.
However, I think most people are united in the expectation that Amazon would have a strong trading period and their results have certainly proven this to be true.
They’ve had their most successful Christmas ever - shipping over 1 billion products worldwide and accounting for 38% of online sales. Even more incredible is that 72% of their orders were placed on mobile, facilitated by their ultra-personalised approach and highly efficient apps.
With such power in the market, when we develop eCommerce strategies for our clients, Amazon is almost always placed on the ‘Threats’ and/or ‘Opportunities' somewhere in the plan. It’s clear to see why with such a great portion of market share.
To ignore Amazon is a fatal error - you either need to find a way to dodge them or a way to use their colossal power to grow your own brand.
So the question is - can you compete with Amazon? Well, I think it depends. I’ve worked with businesses who’ve made a real success with Amazon and I’ve also see businesses plummet close to the edge and Amazon has eroded their margins to single digits. Either way, Amazon is in your space - you need to develop strategies to acknowledge this and foster the best outcomes. Here are my three tips to consider:
There’s a reason people are so loyal to Amazon. From order to delivery, they have it nailed. They’ve invested billions in a highly efficient ecosystem, from product selection and checkout right through to their own delivery and returns network.
You need to honestly audit your complete customer experience and identify improvements, then put in place a plan to deliver against this. Your customer is judging your service against their experience with Amazon. Yes, I know that’s not fair and it’s unrealistic, but it’s how it is.
See evaluating your own customer experience as a continuous process and strive to deliver the best wherever you can across the whole business.
You’ll need to:
Yes, you may not be able to be as a good as Amazon because you don’t have their resources, but strive for best in class wherever you can and be relentless with this throughout your business.
Very rarely do brands win on price against Amazon. I’m referring to Amazon directly here, rather than other third party marketplace sellers.
So, why not to compete with Amazon on price? Well, they don’t care if they lose a few pence (or pounds sometimes) on an item - they have a bigger goal to capture as much market share as possible and to encourage consumer lock-in to their ecosystem.
If your strategy is just to compete on price with Amazon, it’s a dangerous one and you’ll probably lose. Trust me, I have seen this first hand and engaged in a price war with Amazon on a product myself. It was a stressful battle where we won for a few weeks but then faced weeks of downward pressure on our margins where, ultimately, we started to lose money.
The lesson was a tough one but is valid: don’t try and beat Amazon on price - you will rarely win! Instead, focus on other tactics and target the products that Amazon isn’t interested in… yet.
Today it’s more and more difficult to make money selling branded items. Distribution networks have changed and many manufacturers are now selling direct to consumer via their own websites or Amazon.
Unless you have a solid distribution agreement with your brands, at some point, you’ll likely be locked in a price battle with either Amazon or the brand itself. Your margins will be eroded and you’ll feel like your business is out of control.
You need to look at a sustainable platform for your business’ future. If you don’t already, consider the value in having your own brand where you can build brand equity, loyalty and value.
Don’t get me wrong, it’s not easy and is a major project in itself, but if you can achieve success in doing this then you reduce risk. You can then use Amazon as a platform to sell positively without some of the traditional threats.
Ultimately with this approach you’re in control as you control the supply, so you can leverage the power of Amazon’s reach as a selling channel, without the worry of a price war looming. Plus, with platforms like Shopify now integrating direct connectors into Amazon, selling on Amazon is now easier than ever.
Amazon isn’t going anywhere and their dominance of the consumer retail space is set to continue. As a smaller merchant, you need to be constantly aware of this and developing strategies to counter the competition, create differentiation and build sustainability in your model.
Alternatively, see Amazon as an opportunity and, if you have your own brand, consider using it as a channel to further expand your reach, but on your terms.
Want to find out more about how Statement can help you formulate an eCommerce strategy? Feel free to get in touch, we’d be happy to help.
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