Amazon is Vulnerable: How Retailers Can Compete

Amazon's commitment to competitive pricing and its willingness to operate as a break-even business has clearly changed the retail game. Although its business model is not for everyone, a careful examination of its approach offers retailers insight and opportunities to beat the giant at its own game.

At Manhattan's Momentum 2014, May 5-8, Forrester Research's Sucharita Mulpuru provided a deep analysis of Amazon's business model and offered some rays of hope to retailers hoping to compete with the Big A. In the session titled "Does Amazon Keep You Up At Night?" Mulpuru asked the audience just that and said if it doesn’t…it should.
Despite Amazon's clear pricing advantage, Mulpuru pointed to a few key vulnerabilities and provided some insight into how retailers can best compete. Among the chinks in Amazon armor discussed were: its relative weakness in grocery and apparel, its limited international growth, its less than perfect investments (LivingSocial), its limited same-day delivery capabilities and its minuscule profitability.

Three pieces of advice were bestowed upon retailers looking to compete and grow in an Amazon dominated landscape:

Copy what works.  Amazon's supply chain is a thing of beauty — it can get almost anything to its customers in a matter of days. Things like co-binning, drop shipments, cross-docking and predictive shipping should all be explored. The ability to look at past purchase behavior and ready product for delivery before it is even ordered can greatly reduce the time to doorstep.

Aggressively protect your turf. To compete with Amazon retailers need to aggressively monitor pricing on extremely price dependent items like electronics. Amazon adjusts its pricing numerous times daily based off of shopper habits and website activity — the completion needs to do the same.

Retail Your Customers. Retailers can ill afford to lose their most profitable shoppers. To retain their best customers and reengage with customers who haven't shopped in a while retailers need to cultivate dynamic loyalty programs and direct mail and digital marketing campaigns with multiple touchpoints to stay top of mind. Retailers need to embrace the mobile revolution and connect with customers on smartphone and tablet enabled websites and vibrant mobile apps.