EcommerceBytes-Update, Number 393 - August 07, 2016 - ISSN 1528-6703     3 of 5

How to Compete with Amazon

By Parag Mamnani

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As readers know all too well, Amazon presents both opportunities and challenges for online merchants. In today's guest column, Webgility founder and CEO Parag Mamnani provides ways to identify and capitalize on the ecommerce giant's weak spots.

Parag Mamnani is a former Amazon executive who launched the WebStore Developer program. He founded Webgility to help online retailers stay ahead of their business, and it's now a leading multi-channel ecommerce solutions company that helps merchants gain better perspective, make strategic financial decisions, and run all operations from a single software.

By reviewing Amazon's strengths and weaknesses, Mamnani shows online sellers how they really can find opportunities to compete successfully with Amazon.

It's a classic David versus Goliath story. In 2015 alone Amazon raked in net sales of $107 billion and swallowed up 72% of online users in the U.S., making it both the Goliath we love to hate and the price leader we love to shop. But online retailers often wonder, Am I fighting a losing battle trying to compete with the monster of all monsters? Isn't Amazon going to eat me alive anyway?

I say it's all in the approach. For those with the smarts, creativity, and fortitude, there are a few ways to save your e-tail village from Goliath and run a thriving ecommerce business. In any battle, it's best to start with an understanding of your opponent's strengths and weaknesses. Let's start with the strengths.

Amazon's Strengths
Captain Obvious would tell us that one of Amazon's strengths is its massive catalogue of products. Like any business that wants to launch into a new category in a business, Amazon does their market research - and they've got some of the brightest people on the planet working for them. These folks are able to identify new and existing markets that have room for opportunity on price optimization.

Five years ago, Amazon wasn't selling a ton of custom apparel items, and then they started to encroach in that market. Ten years ago they were not selling a lot of golf equipment, but then they figured out how to optimize their catalogue.

Take batteries, for example. Amazon recognized that the category of batteries had been dominated by Duracell and Eveready for a very long time. By sheer volume, they figured out the unit economics and profit margins of selling so that they could manufacture, or white label, their own basic office products. With this data, they launched a whole brand called AmazonBasics and now you can buy Amazon-branded batteries, USB cables, and HDMI cables. For Amazon, it's all about their massive catalogue and tackling massive markets.

Amazon also has a massive customer base about which they know a heck of a lot, thanks to data analysis. And given its power of marketing and distribution, they also dominate in the areas of access and reach. In fact, they look at new distribution strategies to change the way people buy.

They're looking at search behavior and they even have an ad network, so even if they don't sell that product, they've got ads for third parties that sell it so they have data that tells them when it makes sense to pursue that product.

Amazon's Weaknesses
Yes, the monster does indeed have an Achilles heel, actually a few, which I will break down in detail, so stay with me. The most important thing to remember is: Amazon does not have the creativity of a small business entrepreneur.

There are many creative things you can do to set your business apart from Amazon, none of which is easy by any means. Depending on your catalogue and the stage of your business, you must find creative ways to differentiate your customer experience and products.

Different sites that have had success but sell the same products usually give the user an experience that Amazon cannot. One Kings Lane, for example, provides a beautiful visual experience with curated content and creates the illusion that you have an interior designer at your disposal. But you can often take the same product on One Kings Lane, type it into Amazon, and see it for almost the same price.

Visually, One Kings Lane is far more appealing and better, prettier, more pleasant shopping experience. Basically, it doesn't feel like you're sorting through an Amazon warehouse.

Amazon does not have a brick-and-mortar location, at least not yet. They're not around the corner to give customers the personalized face-to-face experience. I'd like to believe that the trend of home delivery will eventually swing in the other direction, toward local shopping and community.

We can draw a parallel to the large retailer Nordstrom. Nordstrom has continued to grow over these last years despite all the pressure from Amazon, because it's coming up with creative ways blend the offline and online, or omnichannel, experience. Gradually folks will say, "I've forgotten how the air smelled outside my house - enough staying at home and getting everything delivered to my doorstep."

Be ready for that day. When your customers are able to search for something online and can actually go to your physical store, try it, and pay for it, you have an opportunity to elevate their experience.

Think about getting to know your customers and their buying habits in a way that's not available to Amazon's data robots. Do you offer an in-store customer loyalty program? Do you serve coffee and donuts in your store? Do you hold instructional classes in your particular area of expertise? Amazon can't offer any of those perks, but you can.

Products and Distribution
Sometimes it seems like every product on earth is available on Amazon. If you're an SMB that's just getting started, do not be discouraged by Amazon's sheer volume. Instead, look at your own market and your own products and ask yourself: What makes my product and brand unique? Are there new ways for me to sell it? Are there interesting ways for me to price it and package it? How do I identify unique products to differentiate myself from Amazon?

Consider new distribution ideas, like selling razors as a subscription service where folks sign up and pay monthly for their razors to be delivered automatically. That model didn't exist before.

Maybe it's a model of service that will help you stand out, for example, the brand Bison Coolers offers a five-year warranty on their products, but their coolers are only available from authorized dealers. Bison even goes so far as warning their online customers that buying their "unauthorized" product on Amazon, eBay, or Overstock disqualifies them from the warranty.

Bison controls who sells their products and in doing so they elevate, differentiate, and protect their brand from the Amazon masses.

If you can't beat 'em, join 'em
Realists know that no one can really compete with Amazon, but there is a way to use its size to your advantage. One strategy is to sell products on multiple channels, including Amazon. For example, by selling on Amazon, Oru Kayak enjoys massive exposure and brand recognition in exchange for Amazon fees and expenses. They also make their foldable, portable kayaks available at REI and on their own website.

They use Amazon for its huge audience, to spread the word about their product. They use REI for its brick-and-mortar locations, to give their customers a place to experience their kayaks in person.

Some retailers break down their inventory and sell just a specialized sub-section on Amazon to move larger amounts at lower margins. Or maybe you sell in bulk on your site versus single product on Amazon.

Keep in mind that Amazon also buys companies and distribution centers, so one could argue there's a path of acquisition or for Amazon to become a reseller of your product. Winning online is all about finding creative ways to use Amazon - or any other sales channel - to your advantage.

So we're all in agreement - the size and scale of Amazon is daunting. But our whole economy is built on massive companies. The size of Facebook, the size of Google, and the size of Apple are equally scary. These companies have boatloads of cash with which they gobble up entire industries at will. For example, Amazon is buying planes to do their own shipping, Google is building cars, and Facebook own virtual reality as we know it.

Even though it sounds like the end of days for SMBs, but we must acknowledge that these Goliaths are also supporting hundreds of businesses. Technology is still growing so rapidly that new paradigms and new user experiences are developing before our eyes.

Citizens of ecommerce, creative upheaval is our only hope. We must have faith in our own abilities of survival through innovation. It is the only way the mother of all disruptors can be disrupted.

While none of us individually is likely to take Amazon down, the ecommerce industry as a whole and individual sellers can do incredibly well by finding innovative ways to present products, rethink methods of distribution, and breathe new life into the customer experience.

About the author:

Parag Mamnani is founder and CEO of Webgility. Follow him on Twitter at paragmamnani.

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