This defensive posture is a major mistake.
While Amazon may be setting a frighteningly high bar with low prices, selection and convenience, retailers actually have many levers to pull to build sustainable brand loyalty and efficiently grow their business. Here are five misconceptions many retailers have about competing with Amazon, and why they are misplaced:
Misconception #1: You must compete on price to beat Amazon
Reality: There’s no other way to say it. Competing with Amazon on price is a losing proposition. For most retailers, there’s simply no way to win against Amazon, which changes its prices in many categories more than 2.5 million times per day. Rather than offer the lowest price, focus instead on providing value through a seamless and relevant consumer experience. According to a recent study by The Economist Intelligence Unit, “value for money” is one of the top three differentiators for high-performing retailers – clearly as a way to avoid a race to the bottom on price. So, what does that mean?
Create better content. Amazon is essentially a bare bones search engine for shopping, providing the most basic product information without any real “customer support” features. You can differentiate your business by providing consumers with a beautiful and authentic window into your brand. The research firm L2 notes that “content remains a domain where brands have the home field advantage, leveraging flexible platforms to support unique content/commerce integration.”
Launch (or enhance) a loyalty program. Loyalty programs (good ones) are a great way to offer customers exclusive incentives to keep them coming back. Building a community of customers who are eager to engage with your brand, and redeem rewards, enables you to build intelligence, provide personalized interactions and ultimately create stickiness.
Misconception #2: Amazon is either friend or enemy
Reality: Amazon is your frenemy. Many retailers mistakenly believe that Amazon is either a direct competitor or the best opportunity they have to expand their business. The reality, of course, is somewhere in between; Amazon can be both an ally and an adversary depending on your goals and strategy for growing your business. To remain competitive and maintain customer loyalty, you must think strategically about if, how and when you will engage with Amazon. The Gap CEO Art Peck said in May that he’d be open to selling on Amazon, a channel it had long shunned, noting that it would be “delusional” to ignore such an opportunity.
Retailers can leverage Amazon’s reach to expand into new geographies or customer segments or offload surplus inventory. Indeed, one of the primary benefits of becoming an Amazon vendor is reaching your target audience wherever they shop. However, it is not without risk. Some retailers have expressed distrust about how the company uses valuable customer data, and whether Amazon will sell items in direct competition.
At the end of the day, if you have more sales to gain than brand equity to lose, selling your products on marketplaces like Amazon is likely a smart business decision.
Misconception #3: Brick-and-mortar stores are an albatross
Reality: Physical stores can be an expensive waste of space IF you don’t use them wisely. But, with more than 90% of retail sales taking place in stores, brick-and-mortar retail has a golden opportunity to deliver a level of personalized service that Amazon simply can’t offer.
For example: empower associates with technology to more effectively serve consumers, including endless aisles, mobile checkout and product recommendations. As the CEO of Birchbox recently declared at ShopTalk, “I only think about store technology that makes associates feel like superheroes.”
Retailers should also consider using stores as distribution centers and showrooms, in order to create inventory visibility across stores and efficiently fulfill orders based on what makes sense for margin and service.
Misconception #4: You must ship for free
Reality: While Amazon has certainly trained online shoppers to expect free shipping and, oftentimes, returns, there are tactics to minimize the hit to margins forced by free shipping. Consider implementing a free shipping threshold, including prompts that alert a shopper that, for example, they are only $10 away from free shipping. At the same time, retailers should never overlook the importance of the “unpacking” – the experience shoppers have when they open their parcel. Items should be bundled in an inviting way, perhaps wrapped in colorful tissue or maybe even with a personalized note and a self-addressed bag for returns. Remember, unpacking is one of the only opportunities you will have to engage with your online shopper.
Further, you don’t have to offer same-day, next-day, or even two-day shipping to compete. Whatever your shipping policies are, the key is giving choices that fit a range of budgets and timeframes. Most consumers care more about shipping costs versus delivery time.
Misconception #5: Amazon knows your customers better than you do
Reality: If Amazon knows your customers better than you, sorry, but that’s on you. You can deliver at least the same (and often better) shopping experiences to your customers by using the data you collect. Every new visitor, every abandoned cart, every sale, every customer service interaction, and every return is an opportunity to collect and leverage valuable data so you can deliver personalized, relevant, and contextual experiences that will boost sales, increase loyalty, and improve your bottom line.
Amazon is extremely impersonal when it comes to customer service. You can gain an edge by building personalized interactions online and off. Most retailers collect reams of data on customer activity, then fail to operationalize it. That’s a cardinal sin in our data-driven world, and retailers that refuse to fall victim to it are the ones who will succeed in the long-run.
Rob Garf,VP of Industry Strategy and Insights for Salesforce Commerce Cloud.