How Local Businesses Can Take Advantage Of Their ‘Frenemy’ Relationship With Amazon
As Amazon's local sales ambitions expand, the e-tailer will need SMBs and stores to augment its fulfillment centers, notes Be Like Amazon author Bryan Eisenberg.
As large and small retailers head to the NRF’s Big Show this weekend, the question of Amazon as a friend/enemy or “frenemy” will hang over most of the discussions as the industry seeks to find a way to adjust to the e-tailer’s hegemony and influence with consumers.
Earlier this week, Amazon touted the benefits to SMBs during 2017. Among the highlights Amazon pointed to was that more than 300,000 U.S.-based small and medium-sized businesses joined the Amazon Marketplace.
The company also said that more than 140,000 SMBs selling on Amazon surpassed $100,000 in annual sales, while Amazon Lending surpassed $3 billion lent to small businesses on Amazon since the program started in 2011.
“More and more small and medium-sized businesses are choosing to join the Amazon Marketplace and sell right alongside Amazon to reach customers around the world. Entrepreneurs and small business owners are succeeding on Amazon – they sell half the products that Amazon customers buy, and more than 140,000 small and medium-sized businesses surpassed $100,000 in sales on Amazon in 2017,” said Peter Faricy, VP for Amazon Marketplace. “These businesses are reinvesting in their local communities – creating jobs and supporting local suppliers. We are proud of how the Amazon Marketplace helps empower so many small businesses, not just in the US, but around the world.”
Amazon’s Gravitational Force On Retail
The growth of e-commerce and the decline of store sales has largely been blamed on the gravitational pull Amazon exerts on the space.
And stats cited by Bryan Eisenberg, co-founder of marketing consultancy BuyerLegends and co-author of Be Like Amazon: Even A Lemonade Stand Can Do It, would seem to suggest that this is not a case of mass paranoia: Amazon captured 89 percent of all online holiday spending in the five-week period beginning on Thanksgiving, according to an analysis of credit- and debit-card transaction data by Earnest Research in New York.
In comparison, Walmart, which purchased Jet .com in 2016 for $3 billion, remained a distant second a 4.4 percent, Eisenberg notes.
Amazon has continued to move aggressively in expanding its promise of near-immediate delivery and physical pick-up options for its online shoppers by rapidly opening up fulfillment centers in major cities. But as Eisenberg suggests, there is a lot that local businesses can do to take advantage of Amazon rather than be crushed by it.
The Instant Pot Model
The first thing retailers need to do is come to terms with the fact that Amazon is determined to reach every city, town, and block with ease over the next few years.
“You can’t even say ‘Amazon dominates,’ because it’s beyond that when it comes to retail and retail search,” Eisenberg says. “When someone wants a product, they’re going to Amazon. It’s their choice to be there or not. I think retailers have to be there. Yes, you can keep them as a ‘frenemy.’ But keep in mind two things.”
The first is that when brands are exceptional, and they behave like Amazon, they can grow massively without having to compete with the e-tail giant.
One example Eisenberg offers is the phenomenal success of the Instant Pot.
While Amazon has been adding its own versions of many products sold on its platform, it isn’t going to compete with Instant Pot for two reasons, says Eisenberg: Instant Pot is priced fairly and has built a cult-like community around it. The latter is something Amazon would not be inclined or able to do.
As a result of all those factors, Instant Pot thrives in Amazon’s world.
Another example Eisenberg points to is Anker, which makes cell phone accessories, which has similarly built its brand through Amazon despite facing white labeled items sold under Amazon’s banner. Amazon doesn’t slight or mind Anker because it adheres to what Eisenberg says is Amazon’s “four pillars”:
“They take care of their customers, they get the products to them quickly, they’re constantly innovating and creating new products, they price their products fairly, and they sell well,” Eisenberg says. “So if you live by Amazon’s rules, they leave you alone. But if you’re an Energizer or a Duracell that have gauged consumers on batteries, Amazon will create a private-label knock-off and price it to allow it to take over that market.”
The Amazon Advantage
That product proposition can also be applied to local stores, Eisenberg adds, though many of the benefits are still a few years off.
“The advantage to local businesses is – and I don’t think you’re going to see that today — that you will be able to get global reach,” Eisenberg says. “Amazon has out-Googled Google by becoming a better product search engine. They’re also potentially be competitive in retail services such as plumbers and contractors.”
That’s a space that Google, Yelp, and Facebook have been aiming to capture as well. And that competition from Amazon will give those local businesses a good deal of leverage, especially as the marketing battle among voice-activated assistants heats.
“We know that Amazon is betting the farm on Alexa and implanting that beyond Echo devices,” Eisenberg notes. “Alexa will be more deeply embedded on other people’s phones, it will be on watches and wearables, it will be on refrigerators, and most importantly, it will be in cars. It will have an important place in self-driving cars at some point.”
In the not-too-distant future scenario Eisenberg paints, a consumer will be traveling in their autonomous vehicle and decide they need a shirt for a conference they’re attending next week. They’ll tell Alexa to find it. Considering that Alexa knows the person’s size, where you like to shop, and has their payment info, the voice activated assistant will have the details in seconds. After scanning listings near the route, Alexa will ask if it should navigate to a selected store.
The store will get the sale and Amazon will be able to take a piece of that advertising business, while taking another piece through its payment system. And because Amazon can’t do everything itself, it will be a win-win for retailers, Eisenberg says.
“There are more things that Amazon can offer in terms of services that can’t fit into a warehouse or fulfillment center,” he says. “It’s also more cost efficient to rely on a retailer than on its fulfillment center.”
Eisenberg’s view is already borne out by at least two local retailers that shared their stories with Amazon.
“Since selling on Amazon, we’ve been able to grow our business from three to 40 employees, right here in Delray Beach, Florida,” said Michael Dudley, managing director of Salon’s Choice. “We recently launched on Amazon in the U.K., and are now shipping thousands of orders a day through Fulfillment by Amazon to customers around the world.”
“We launched on Amazon two years ago and are now operating in more than seven countries around the world,” said Phil Williams, CEO and founder of Coffee Gator. “2017 was our biggest year on Amazon, with sales growing by more than 100 percent year-over-year, and we expect 2018 to be even bigger.”
Nevertheless, for those retailers who plan to take their chances in terms of opposing Amazon’s local incursions, Euclid Analytics CEO Brent Franson presented his own battle plan that calls for updating co-op data and marketing strategies.
“Building an effective data co-op for retail is challenging – 55 percent of online shoppers start their product searches on Amazon, says BloomReach – but ultimately worth the battle,” Franson wrote on GeoMarketing this week. “More choice will force the industry’s three major players – Amazon, Facebook, and Google – to improve what they offer to marketers. If the competition is better, then the Big Three runs the very real risk of significant losses. Either way, the consumers – in this case, the marketers – win.
“The right co-op structure will yield better personalization based on actual customer needs and intent. It will earn customer trust by balancing privacy concerns with personalization; for example, the co-op should outline clear rules that ensure obfuscation of certain kinds of data (e.g. PII) before sharing with the pool. Finally, it will prioritize optimized marketing for long-term value. This is about building long-term relationships that reward both the retailer and the consumer; it’s not merely about immediate conversions. Each member of the cooperative should believe in, and be working toward, that goal.”