GUEST COMMENT To compete with Amazon or not? That is the (wrong) question
Many retailers are faced with a decision: to compete with Amazon or not? Sadly, though, this is not the right question for retailers to ponder. Virtually every company who has considered a third-party marketplace inevitably hesitates, thinking: “We are not Amazon”.
The reality is that no company is like Amazon. Not because they are not successful, but because each company has its own DNA, its own expertise, and its own niche.
Take Farfetch, a British international fashion website that stocks products from 400 independent boutiques around the world. Or consider Etsy - an ecommerce website with over 50m users purchasing and selling handmade or vintage items and supplies. These are successful vertical marketplaces with a high number of international sellers, yet their strategy is nothing like Amazon’s.
The better question for retailers to ask is: “What can I learn from Amazon’s success to date, and how can I apply that innovation in my own situation?” Amazon was truly innovative. The company adapted to its customers’ expectations while its competitors seemed to only see the obstacles to doing so. Amazon innovated even when it was controversial.
For example, Amazon:
• Questioned its very own DNA by developing new categories when it was already a well-established US book retailer
• Allowed its third-party Marketplace sellers to compete directly with Amazon’s own products because it was the right thing to do for customers and for the overall business
• Added a recommendation tool that provides customers relevant products to purchase based on order history
• Became an e-reader manufacturer with the Kindle
• Created the Amazon Prime loyalty program, a paid service that gives its members distinct advantages
“Failure is success if we learn from it” - Malcolm Forbes
What is central to Amazon’s DNA is the company’s propensity to take risks with the goal outcome of meeting (or better yet, exceeding) customer expectations. But these risks do not come without failure.
Today, Amazon is one of the most successful Marketplaces in the world, with third party sales representing 50% of the company’s sales units. But, it took two failed attempts to identify the right Marketplace model.
First, Amazon created a site for auctions that failed to gain traction. It followed that with zShops, which allowed sellers to create shops that were not integrated with rest of the Amazon marketplace.
Eventually, the company evolved their model to the current Marketplace, which integrates its core retail offering with third-party products offered via the Marketplace. Amazon learned from its failures – the first two attempts at including third-party sellers did not help the company accomplish its mission of the best possible customer shopping experience:
“Our focus has always been on providing services that help customers find the right product for them, and then ensuring that ordering and delivery is a fast and seamless process.” - Xavier Garambois, Vice President of EU Retail at Amazon.What other retailers can learn From Amazon’s mistakes
The truth is, trying to replicate what Amazon has done is not a realistic goal for any business. And imitating Amazon out of sheer admiration for the company’s business model is not a sound strategy either. Rather than toss and turn at night over the dilemma of competing - or not competing - with this Amazon, retailers should instead leverage the lessons learned about creating an effective customer-focused business model and develop it into a winning Marketplace strategy:Play within the brand DNA
Customers have expectations of a retailer based on its brand. For a fashion retailer, creating an online Marketplace where customers can buy musical instruments will not make sense. Creating a Marketplace where customers can buy clothes from sellers that do low-volume, high-price business may make complete sense.Provide the best possible customer experience
In ecommerce, friction is a no-no. Out-of-stocks, re-directs, bad product information – all of these things frustrate consumers and will send them running to competitors’ sites where the purchasing process is straightforward and integrated. A well-run online marketplace can help to avoid all of these things. Offer a large selection of products
If a consumer can purchase things at one site versus two, chances are that he/she will. Retailers should offer the right set of products that make sense for the brand DNA (see bullet point number one). That said, there will always be brands that a retailer is not able to carry directly or small sellers that the retailer is not ready to make large inventory investments with. Products from these kinds of sellers fit the Marketplace model perfectly. Set the right pricing
The ubiquity of the internet allows consumers to do price comparison analyses quickly and easily. This does not necessarily mean that all prices are on a race to the bottom; rather, it means that the right price is the fair price. The competition inherent in the Marketplace model ensures that prices will be fair. Create loyalty with high quality service
Amazon gets so much repeat business because its customers know they will get quality service. Amazon ensures this by holding its sellers to high quality standards. Any retailer that launches a marketplace should be sure to set up Key Performance Indicators (KPIs) that are closely monitored and enforced.
The marketplace revolution is sweeping through the ecommerce world. The question is not whether or not to compete with Amazon, but rather how to best serve customers. The marketplace model is a proven driver of profitable growth that also benefits customers with broader assortments, fair prices, and high quality service. What better way is there to meet the increasingly high expectations of today’s shoppers?Adrien Nussenbaum is co-founder of Mirakl