It’s a great time to shop online. Supply chains are becoming more efficient, shipping methods are getting cheaper, and now more than ever people from all corners of the world can have their favourite products shipped straight to their front door. Amazon is taking advantage of this more than any other company in the world at the moment, and there’s no sign of them slowing down.
It’s also now easier than ever to start your own online store, sell your own products or become a distributor for different markets. At the time of writing, there is currently around 2-3 million ecommerce stores, with less than 100,000 of these businesses operating as ecommerce-only. This means that now more than ever it is important to carve out your own space in the market and really work hard to define your competitive advantage.
But… this is very hard to do. Research has shown that nearly 90% of new ecommerce stores fail within the first 4 months. And It’s likely because they either failed identify their target market, failed to identify what their target market needs, or failed to deliver on those needs. To be successful, you need to be in touch with your customers and be able to anticipate changes in the market. One of those changes is a big one – Amazon.
Amazon has been entering new markets at a faster pace than ever, and it’s literally killing some ecommerce stores. Amazon’s economies of scale, product selection, and supply chain efficiency are 3 of its competitive advantages that most other ecommerce stores cannot compete with. The purpose of this post is not to say whether amazon pushing out other ecommerce stores is a bad thing, rather the purpose is to give guidance to ecommerce stores (big and small) about what they can do to prepare for the inevitable event of Amazon opening up shop in their country.
Amazon was founded in 1994 as an online retailer focusing on only 5 types of products: Books, CDs, videos, computer hardware and computer software. They quickly grew to now being the 4th largest company in the world, and the second largest employer by workforce in the United States. Amazon is no stranger to growth, They have entered into 12 other countries since 1994, and now ship to over 100 countries around the world. These numbers are growing every day as Amazon opens up new country-specific domains with products that can be shipped more quickly through its Prime membership program.
Amazon’s Competitive Advantage
There are some key aspects of Amazon’s business that other ecommerce stores simply cannot match. Amazon’s low-cost, high product availability, fast shipping model touches on the 3 things that consumers want most in shopping online. And they do these 3 things very, very well. Let’s break each one down:
1. Low Cost
Anyone who has taken a basic business course has probably read a case study or two about economies of scale. Essentially what it means is that the more turnover a company has, the more efficiently it can use it’s money. This efficiency primarily comes from the ability to leverage suppliers to negotiate low-cost deals due to high volume. Much like Walmart has done and continues to do in the retail space. This controversial business tactic means that Amazon can beat its competition (most of the time) on pricing. Great for consumers, arguably bad for competitors, and both good and bad for suppliers (another topic for another post).
2. Product Availability
Amazon’s inventory has growth from a few thousand products in a handful of categories to nearly half a billion products… Yes that’s billion with a ‘b’. Amazon uses a system of holding a certain amount of products which can be ordered and fulfilled by their own distribution centres, as well as a partnership program where companies can sell their own products through Amazon and are required to give between 10-30% in sales commission.
What this means is that consumers can find nearly anything they’re looking for on Amazon, giving them a more convenient place to shop (fewer orders needed to satisfy their needs). Most other eccommerce stores simply do not have the network of external suppliers and the money to open hundreds of distribution centres around the world. Housing large quantities of inventory is not cheap, and requires high levels of collaboration across the supply chain. A feat that is very difficult to replicate without billions of dollars of might and a strong brand name. Walmart, Asos, and Zalando are 3 examples of retailers that are currently very successful in the United States and Europe in the ecommerce industry, however the success of the latter two are partially a result of Amazon’s neglect for the fashion industry and the high cost of shipping outside of key European markets.
3. Fast Shipping
Fast shipping (in addition to low-cost shipping) is of paramount importance in 2018, and has previously been a barrier of growth for some ecommerce stores as they failed to capture the consumers who are used to getting products instantly in a retail setting. Amazon has solved this problem with their Prime subscription program. For a set yearly fee, you can get expedited shipping costs waived on all orders with Prime eligible products (usually only products which can be fulfilled by Amazon distribution centres.
Most other ecommerce stores have failed to keep up with Amazon in this regard, because while they may offer low-cost shipping, many do not have a wide enough selection to warrant the extra subscription fees. Amazon relies on the fact that it’s customers expect to make purchase multiple times a month, and they feel they will be able to recoup the cost of the subscription fee.
How to Compete With Amazon
Is it possible to compete with Amazon? Yes. Is it wise to compete with Amazon? No. Is it possible to be successful even after Amazon enters your market? Absolutely.
The best way to compete with Amazon is to not compete with them at all. 99% of ecommerce stores simply do not have the brand notoriety, money, turnover, and logistics to compete with Amazon on any meaningful level. This does not mean that Amazon is a black hole that swallows up all other ecommerce stores that cannot do these things well.
1. Identify Gaps in Amazon’s Product Selection
Although Amazon sells clothing products in select markets (the United States being one), They are not known for their fashion selection, or do they wish to compete in the fashion industry beyond low-cost, basic clothing. This means that retailers like Asos, Forever 21, H&M, etc., are relatively safe from Amazon’s grips because they offer their own brand of clothing which will never be sold on Amazon. In the case of Asos – they offer a selection of both high and low cost clothing from a range of international brands.
This does not mean that you need to start your own clothing brand to avoid Amazon’s fierce competition. It just means that you need to figure out what product categories they are neglecting (purposefully or not), and carve out your own space in these markets. A good rule of thumb is that specialization is a good way to differentiate. Amazon sells nearly every book, beauty product, and computer accessories that are worth buying – so these categories are not great things to sell.
2. Customer Experience. Period
This is probably one of the only things that Amazon cannot beat other stores in. The reason is simply because they are way too big. Customer experience is something that is very difficult to scale in an efficient way and even Amazon, with their many billions of dollars in profit cannot do in an exemplary way. This presents a massive opportunity of other ecommerce stores to build a customer experience strategy from the ground up that even Amazon would be jealous of.
What is customer experience? How do you know what to change, or even where to start? Well… you need to collect data before you make any changes to your business. An ecommerce store operating without customer data is like a surgeon operating without eyeballs – sure you can make changes, but you’re probably going to do more harm than good. A great customer experience strategy uses customer feedback as the core, and builds outwards from there. In other words, you need to be collecting customer feedback in a smart way.
The best way to do this is to start drawing up customer journey maps. A customer journey map is simply a visualization of all of the stages that your a person must complete in order to become your customer. At Feedbackly, we pride ourselves in being customer journey experts, and we honestly believe that customer journey mapping is the best way to get the most value out of your customer feedback. And by using Feedbackly, you can create customer surveys that can be shown only in the relevant stage of the customer journey. This means that when you identify problems in your customer experience strategy, you can be confident in knowing what to change and where to change it.
Let’s say you open an ecommerce store that sells niche clothing from international brands. Great, your probably aren’t competing with Amazon. But you are still not guaranteed to be successful. To ensure your success, build a customer journey map, then publish surveys at each stage of the customer journey. You can sample a small number of your population to be as unintrusive as possible. After a week of reviewing customer responses, you find that customers from Germany are interested in your low cost clothing, and customers from Singapore are more interested in luxury brands. In this way, you can then set your product targeting algorithm to recommend low cost clothing to users from Germany, and Luxury brands to users from Singapore.
The use cases are endless in this sense, and we have seen companies identify problems with their checkout workflow, alter product selection, and even redesign their entire web store as a result of reading, and actually answering customer feedback.
Choosing the Right CX Tool
I know, we’re a little biased, but we created Feedbackly to be the best tool to collect customer feedback and build your customer experience strategy with feedback at it’s core. We even wrote the guide on choosing the right features for your CX tool. We are true believers in the value of customer journey mapping – so much so that we made some customer journey mapping templates that you can download for free right here:
- Basic Customer Journey Mapping Template (Excel File)
- Retail Customer Journey Mapping Template (Excel File)
- eCommerce Customer Journey Mapping Template (Excel File)
In addition to these, we’re now offering Feedbackly to use for free. So give it a try and let us know how much you can improve your business in just a few weeks. We love to hear all our our customer’s success stories – so you might even get a feature on our website
Jaakko is an award-winning CX professional and entrepreneur at Feedbackly, founder and community professional at the biggest entrepreneurial digital community in Finland – Yrittäjä.io. He is a notorious keynote speaker from entrepreneurial stories to day to day human communications and customer experiences.