A guide to survival in Amazon’s e-commerce jungle
June 2, 2015 12:12 PM
Watch certain nature shows and you’ll see fierce lions step aside for elephants, the big cats crouching in the grass as the largest land mammals on the planet plod toward a water hole or stop to give themselves sand baths.
You could easily imagine such a scenario Tuesday morning at the Internet Retailer Conference & Exhibition in Chicago, during the annual “Amazon & Me” pre-conference workshop. As one speaker took attendees on a tour of Amazon’s strengths—and areas where the No. 1 merchant in the Internet Retailer 2015 Top 500 Guide might get stronger—and others talked about winning more sales via the Amazon marketplace, a room full of retailers, technology experts and others listened carefully, as though their careers depended on the information.
That may indeed be the case.
“The endgame for Amazon is delivery of anything, anywhere, instantly,” said longtime Amazon observer Colin Sebastian, e-commerce analyst at Robert W. Baird & Co. His presentation, “Examining Amazon: What All Retailers Need to Know to Compete Against or Cooperate with Amazon,” amounted to a blunt pep talk for those brave enough to take on the leading online retailer in much of the world.
Consider this: With the launch of the Amazon Fresh grocery delivery service, along with the e-retailer’s continued fulfillment push—Amazon operates 85 fulfillment, sortation, returns and similar centers in the United States, Sebastian said—Amazon seems bent on taking share from some relatively old-school companies, and not just retailers . “Traditional shipping companies will ultimately see Amazon as a competitor,” he said, “so look out UPS and FedEx in the coming years.”
He predicted that Amazon will continue to move ahead with its drone delivery program called Prime Air, with a launch in India “for small towns where it doesn’t make sense for delivery by traditional trucking and other means.” Beyond drones, Amazon will test a service in Munich that will have delivery drivers put goods ordered via Amazon into trunks of consumers who may be at work. The delivery workers will have the locations of consumers’ cars and use one-time digital access codes to gain access to those vehicles, he said. Amazon did not immediately respond to a request for comment about that program.
Much of Amazon’s power comes from its Prime two-day-shipping-and-loyalty program, whose estimated 40 million members typically pay $99 per year for quick shipping on eligible products, free access to some 17,000 movies and TV shows, and other rewards. Amazon, in fact, spent about $1.3 billion on Prime streamed content last year, Sebastian said, and continues to pump out its own original video content—some 3,000 projects, he estimated—to further win the loyalty of relatively high-spending Prime members.
Amazon, however, has yet to fully exploit all the consumer data it has acquired, he said. “Amazon at some point is going to push the pedal on advertising,” Sebastian said.
Daunting, right? Well, there exist ways to thrive in the shadow of the elephant, as speakers pointed out at another morning workshop session, this one entitled “Pricing Strategies on Amazon.”
Among the main messages was that marketplace sellers should cull slow-moving, low-margin products from the Amazon marketplace. There is ever-shrinking room for poor performers, with some 100,000 or more sellers joining the marketplace each year and consumers becoming “more sophisticated” about comparing scores of products being sold through Amazon, said James Thomson, a former Amazon executive who works as managing director of MarketplaceAccelerator.com, which offers consulting services to online sellers.
His co-presenter, Nathan Franco, co-founder of consumer electronics reseller Limited Goods, urged attendees to use software that can respond to certain rules—such as when a competitor’s product is out of stock—to automatically reset prices lower or higher in a bid to win the “buy box” on the Amazon marketplace. That’s the box consumers click when they want to buy the highlighted product, without considering other retailers selling it.
Franco also advised attendees to join the Fulfillment by Amazon program, through which the Amazon handles warehousing and shipping of marketplace products. The costs of using the program can lead to higher prices for marketplace goods, but the use of the fulfillment program can lead Amazon to award the buy box to those higher-priced goods. As an example, he showed a pair of headphones shipped via FBA that had won the buy box even though its price was about 10% higher than what was offered by a competitor.