How to Adapt to Competition from Amazon and Win

It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.” – Charles Darwin

Introduction

The idea about this blog came to me when I was reading the book “How to Sell Better Than Amazon” by Sam Mallikarjunan  and Mike Ewing about applying inbound marketing in eCommerce.  (1)

 

I was passionate about applying digital technology in retail since my first project to develop interactive retail kiosks for Wal-Mart in 1994. Later while working on many eCommerce and marketing automation projects including the Dell online store, I was always considering the Amazon.com store as the industry benchmark of internet retailing.

 

Amazon is rapidly extending their product offering to more retail categories including Grocery & Gourmet Food department almost every retailer today see Amazon as a direct or future competitor.

 

Back in 1998 Nicholas Negroponte in his famous The Future of Retail article in Wired Magazine predicted the end of traditional retail. (2)

 

“Another kind of retail, however, is truly about to end – the type where you can’t park, the checkout lines are interminable, the staff is disagreeable, and the product has always run out. Owners of such operations should be advised: The digerati don’t need you any longer. And very soon everybody will be digital?”

 

Will the competition from Amazon drive most retailers out of business or they will adapt and survive?  We witness difficult times for many retailers but not all of them are going out of business and to the contrary some of them grow their revenue and market share by riding strong omni-channel retail wave.

 

This blog will be published in a multi part series that cover different retail sectors and tactics that help medium size retailers to adapt to competition from Amazon.  In this first part we will review Amazon.com as the major player in online retail. In the second part we will discuss how personalization and persona driven marketing can be applied to win retail competition. In future blogs we are planning to examine omni-channel retailing concepts and how the physical brick and mortar stores can apply mobile commerce data science and the internet of things (IOT) as part of the integrated in-store/online experience.

 

Amazon.com and its competition
jar-blog-Jeff-Bezos

Amazon’s Jeff Bezos

 

According to Wikipedia (3) Jeff Bezos incorporated the company (as Cadabra) in July 1994 and the site went online as Amazon.com in 1995 The company was renamed after the Amazon River, one of the largest rivers in the world .

 

Amazon started as a an online book store with a simple tag line “Earth Biggest Bookstore”, and today they are grown to millions of products in many categories: digital, electronics, apparel, grocery and many others. It became the biggest online superstore with own credit card , Amazon Prime  – free two-day shipping on all eligible purchases, for a flat annual fee and  the online catalog  with over 200 million items.

 

Amazon.com – in facts
Founded 1994
Headquarters Seattle, Washington, United States[1][2][3]
Area served Worldwide
Founder(s) Jeff Bezos
Key people Jeff Bezos Chairman, President and CEO
 
Industry Internet, online retailing
Revenue Increase US$ 74.45 billion (2013)
Operating income Increase US$ 745 million (2013)
Net income Increase US$ 274 million (2013)
Total assets Increase US$ 40.159 billion (2013
Total equity Increase US$ 9.746 billion (2013)
Employees 117,300 (January 2014
Online catalog size 200+ Million Items (end of 2013)
Amazon R&D budget 6.5 Billion 2013 (8.7% of revenue)

 

Amazon competition

Amazons’ current company vision: “At Amazon, we believe that innovation has the power to change the world”. Sounds intimidating for the rest of us but lets analyze it deeper.

 

The 3 main competitive factors in retail are product selection, price and convenience. Amazon tries to win in all three of those factors with giant easy searchable catalog, personalized product recommendations, product reviews, low pricing due to economy of scale, easy checkout and effective fulfillment. Who are Amazon competitors?

 

According to Amazon Annual report:  “Our current and potential competitors include: (1) physical-world retailers, publishers, vendors, distributors, manufacturers, and producers of our products; (2) other online e-commerce and mobile e-commerce sites, including sites that sell or distribute digital content; (3) media companies, web portals, comparison shopping websites, and web search engines, either directly or in collaboration with other retailers; (4) companies that provide e-commerce services, including website development, fulfillment, customer service, and payment processing; (5) companies that provide information storage or computing services or products, including infrastructure and other web services; and (6) companies that design, manufacture, market, or sell consumer electronics, telecommunication, and electronic devices.”

 

By reading this we understand that almost all retailers and also not retail businesses are current or potential future Amazon competitors. 

 

What are retailer’s options to adapt, compete and grow?

Amazon’s economy of scale would force in most cases other retailers to avoid price competition. In the same time retailers may compete in specialized product offering, superior personalized shopper experience that leverages local presence, mobile and location based marketing, omni-channel retailing models and innovative loyalty programs. Specialized local retailers may offer superior convenience because of deeper understanding of their customer personas unique needs and life-cycle, as well by integrating digital and physical store to provide seamless shopper experience. In many cases medium size retailers have better chances to adapt to competition from Amazon due to their ability to faster implement new models vs big box retailers which primary rely on their economy of scale.

 

In the next part of this series we will discuss how retail marketers may use personalization, persona driven and content marketing with data science to enhance their competitive positioning.

 

Resources
  1. Inbound Commerce – How to Sell Better than Amazon,  by Sam Mallikarjunan, Mike Ewing, Infinity Publishing – December 21, 2012
  2. The Futureof Retail , By Nicholas Negroponte, WIRED Ventures Ltd. All Rights Reserved. Issue 6.07, July 1998 http://web.media.mit.edu/~nicholas/Wired/WIRED6-07.html
  3. Amazon.com http://en.wikipedia.org/wiki/Amazon.com Amazon.com 10-K 2014.