How to stay relevant in the age of Amazon

Retail is slowing down. Profits are shrinking year after year, and it seems a week doesn’t go by without new news about store closures. According to CNN, there have been 5,300 closure announcements through June 20, putting 2017 on track to be the second worst year on record for retail businesses. During this same time, retail bankruptcies have also soared. 345 retailers have filed for bankruptcy so far in 2017 per Bankruptcydata.com, up 32% from this time last year. And, perhaps most tellingly, there are some big names among those 345: RadioShack, Gymboree, Rue21, Payless Shoes and Toys ‘R’ Us have all filed for bankruptcy so far in 2017. It’s the type of alarming trend that makes you wonder which business is next.

Of course, every bankruptcy is caused by a different reason. Some are the direct result of inadequate investments in technology, marketing and improving the customer experience. Others are caused by over-investment in real estate. Still more are caused by a lack of capital, or inadequate infusion. In nearly all cases, bankruptcy is not a sudden event. Rather it is a slow spiral to retail death – and companies and consumers know it.

On the other end of spectrum, pure-play E-Commerce companies have their own challenges. B2C market is hyper competitive. Costs of paid search are increasing, market places like Amazon, EBay are cornering a lot of online traffic. It is not a given that a pure-play E-Commerce company would be successful. The Amazon juggernaut continues to roll on, launching more products, services and methods to strengthen its ever-expanding reach to the consumer. Amazon is the market leader in virtually every aspect of the entire value chain, from merchandizing to warehouse management to fulfillment. In fact, it is so successful at these various facets that it can afford to offer these aspects as independent services to other businesses, transforming individual and pre-existing parts of the chain into profit centers.

So, what can a retailer do to stay relevant? In an increasingly competitive market, how can a retailer stay ahead of the competition? Sometimes it’s simpler than we make it out to be.

Know your customer

The shift to online shopping continues to accelerate, leading to consistent declines in store traffic. However, the same shift that decreases store traffic provides unprecedented opportunities to get to know your customer and better understand their buying behavior. This is especially true today, as technologies designed to help understand consumer behavior have reached their inflection point. But what does it mean to know your customer?

Understand your customers’ journey

How are they finding about your business?

Your customers perform research in a wide variety of ways. The first step is probably doing some basic research using a search engine like Google. If they find your website, they may click down to browse further. Similarly, they could find your products on social media, like Facebook or Instagram. Potential customers could be coming to your website from any number of locations, limited only by the amount of locations in which you’ve promoted your business. Find out where and how they’re finding you so you can better tailor your messaging and marketing.

How are they interacting with you on social media?

While your website is likely the most significant and robust way prospective customers interact with your brand online, it is far from the only one. In addition to a site, you likely have a Facebook page, an Instagram account or a presence on Pinterest. Keep a close eye on those pages to understand what your customers are saying and doing. There are tools designed to make this easier. Social media monitoring aids like Hootsuite, Brandwatch and many others provide exactly those capabilities. Better yet, most of these offer a free package with access to a limited (but still incredibly useful) set of capabilities. Get your feet wet with a free or entry level plan and start exploring!

What are they doing once they land?

Once a prospective customer arrives at your website, do you have any idea what they’re doing? This is where free tools like Google Analytics and moderately priced options like Crazy Egg (and many others) can help. If you haven’t already, you should quickly deploy one or more of these tools to track and monitor visitor behavior on your site. Even basic insights like where customers are spending the most time, what information they’re downloading and how many pages they’re viewing in an average visit can help you understand what actions a visitor typically completes before placing an item in the cart. Taken together, this forms the most critical piece of your customers’ online buying journey.  

Shape Customer behavior

Step up your game with machine learning.

If your current website is attracting more than a few hundred visitors, it’s time to take advantage of Artificial Intelligence and Machine Learning. The tools we’ve described so far do a great job of providing valuable insights into a slice of your customers’ journey, but they don’t provide you with an integrated picture of the whole journey. With the right toolset, AI and machine learning can help you understand how your customers are traversing various parts of the customer journey and, ultimately, how they arrive at a purchase decision.

Understand what leads to success.

Once you’ve implemented basic machine learning tools and established an understanding of every step of the customer journey, the next step is understanding what results in conversion. Of course, AI isn’t magic, and it won’t provide you with a one-size-fits all solution capable of driving sales among each and every demographic. But it is based on powerful science, allowing you to identify data patterns and help you understand what works and what doesn’t. Machine Learning, with its algorithms and the processing power we throw at it, is able to make complex computations regarding customer behavior. This is something typical reporting and analytics tools just aren’t made for. With the help of AI, you can track customer actions throughout the customer journey, identifying points where prospective customers slow down or drop out. Once you have a sense for how each of the customer segments handles the journey, you can understand and tweak each variable that may impact conversions.

Repeat your success stories.

Once you know the key to success, you’ll be able to repeat it, at least in the short term. But the underlying environment is constantly shifting and changing. That means that what worked last time might not work this time. And what you put into the field today may not be the best option tomorrow. This is why it’s so important to integrate Machine Learning driven approaches into your core marketing workflow. This is made possible by continually feeding all the data points throughout the customer journey to the Machine Learning models to identify new patterns and new success stories.

Leverage Amazon for Marketing, Sales and Fulfillment

You are probably competing with Amazon in the same product categories. But it could also be a platform for your growth.. In addition to leveraging every sales channel at your disposal, you should explore the opportunity to sell through Amazon. There are a variety of ways to do so, which means there is no one-size-fits all solution to selling on the massive platform.

Selling Direct to Amazon

If you are a manufacturer or a distributor, you’re looking at Amazon as your customer / retail trading partner. In this scenario, you sell your products to Amazon and Amazon in turn sells to its consumers. This appears to the end consumer as “Shipped By Amazon, Sold By Amazon.” This is no different in concept from selling to another Big Box retailer such as Walmart or Target. The difference is in undesirable side effects from selling to an online behemoth like Amazon. The decision to sell to Amazon is strategic. As a supplier, you cede all control over pricing and positioning. Amazon could be selling at a price much lower than you would like. It could be bundling the product in ways that didn’t anticipate. Since you sold your product at a negotiated price to Amazon, whatever price Amazon chooses to sell at doesn’t really impact your profitability in the short-term. But lower Amazon prices could potentially cause brand erosion and pressure other products that you sell.  If you sell direct, or through other channels in addition to Amazon, be sure to carefully consider all the benefits and repercussions of partnering with the e-commerce giant.

Selling through other Amazon Channels

If you’re not willing to give up that much control over your product, you can still take advantage of Amazon as a marketplace. In this scenario, you maintain control over pricing, shipping options and customer service. The end consumer will see this as “Sold by Supplier X, Shipped by Supplier X.” This allows retailers with efficient logistics and warehousing practices to move significant volumes at relatively low cost, especially with the ability to offer Prime shipping. The big negative? A listing fee (typically 12%) Amazon tacks on to every sale.

A variation of the Supplier Fulfilled approach is Supplier Fulfilled Prime shipping. This generates more sales, as consumers like prime shipping, which conveys implicit trust, not to mention 2-day shipping. But this comes with high costs. To begin with, you need to use 2-day shipping, which often means shipping by air depending on where you are shipping from. On occasion, you may have to ship overnight. The warehouse has to be highly efficient to be able to accept and fulfill orders on the same day.

Fulfilled By Amazon

In addition to allowing other sellers to feature products on it’s website, Amazon also provides warehouse and fulfillment services. You have to carefully weigh the economics of asking Amazon to fulfill for you, but it makes sense under certain circumstances. You will probably choose to have fulfillment handled by Amazon in the following four scenarios:

1. You want to offer Prime Shipping, but your warehouse and logistics operations are not fast enough to ship on the same day.
2. You don’t have enough warehouse locations to offer 2-day shipping to all of the zip codes you want to sell.
3. You don’t have enough warehouse space.
4. You want to flex warehouse capacity to meet the big holiday rush.

Fulfilled By Amazon (FBA) is expensive and costs add up quickly. You will pay handling fees, storage fees, long term storage fees, listing fees, shipping fees, returns, restocking and re-listing fees. Typically, it can run up to 30% or more of sale price, but the benefits are obvious:

• The highest rate of conversion, since consumers implicitly trust Amazon’s fulfillment compared to Supplier fulfillment.
• Prime shipping is included.
• Amazon handles customer service and returns as well.

Amazon’s Multi-Channel Fulfillment

In this scenario, Amazon becomes your fulfillment partner. They provide warehouse and logistics services regardless of where you sell the product. You can sell on your website and have Amazon ship the products. You can also sell on other channels such as EBay, Wayfair etc. and have your products shipped from an Amazon Warehouse. In this scenario, you are essentially outsourcing your warehouse operations to Amazon. You can also use this to flex your warehouse capacity to meet surge scenarios such as holidays.

Leverage multi-channel fulfillment

Pick up from store and return to store:

If you own a retail storefront, you have an advantage pure-play E-commerce companies don’t – a place to serve your customers in person and a built-in opportunity to encourage further shopping. Walmart, Best Buy, Macy’s and several other industry leaders take advantage of these perks by offering customers an option to pick up their online purchase from the store. This saves the customer time and money on shipping costs in addition to providing them with an opportunity to showcase more of their product in person. When you process online returns at the store as well, you provide even more opportunities for customer engagement.

Managing Last Mile Delivery Costs:

Delivering to the customer’s location is an expensive proposition – so much so that Walmart is offering its customers a pickup discount. Even if you don’t have as many brick-and-mortar locations as Walmart, you can replicate the strategy by implementing collaborate holding arrangements, which usually involve entering a partnership with various franchise locations to hold and deliver to the customer. For example, Newegg allows customer to specify the nearest FedEx location as a hold location. This is particularly useful for pricier items like phones, laptops and other consumer electronics. Mailboxes, public storage, UPS and FedEx are all excellent potential alternatives to your current delivery method, cutting costs for you and adding a layer of trust with your customers by removing delivery-related concerns.  

Use employees / gig economy to deliver

This is another nascent space led by…you guessed it, Walmart. The retail giant has started leveraging its massive network of employees to help deliver packages to customers. This makes quite a bit of sense because, according to Walmart spokesman Ravi Jariwala, “90 percent of Americans live within 10 miles of a Walmart store. There is really strong overlap between where our associates are already heading after work and where those packages need to go.” While you might not have the same employee network capable of doing double-duty as a delivery service, you should explore other gig economy options that may offer savings compared to traditional delivery services.

Make it a subscription

Subscription models have picked up significant traction over the last few years. The model first took off at Netflix, the pioneer and current leader in the subscription business. However, companies have found they can extend that same model to a wide variety of other products, from games to groceries. Amazon Dash buttons are a perfect example of this phenomenon – a type of subscription that allows for immediate and easy reorder. How can you take advantage? Take a closer look at the products you sell. If customers are ordering the same thing three or more times a year, there may be an opportunity to make it a subscription. Product categories that are non-perishable or have a long shelf life make excellent candidates for subscription.

A more recent evolution of subscription business is subscription boxes. Instead of reordering a single item, companies are now creating prepackaged sets of items that often serve as sampler packs, giving companies the opportunity to put a wide range of products in front of their customers early on in their relationship. Products in the box are carefully curated, intended to introduce an element of surprise that keeps customers coming back for more. From books to snacks to cosmetics, anything that is purchased regularly and repeatedly is an ideal candidate for subscription. If your product catalog has a healthy variety, this could be an effective way to get customers to spend consistently and in a more predictable fashion.

Closing Thoughts

In a retail landscape that looks increasingly bleak, you need to adapt to survive. The first step? Get on board with the latest and greatest technology. With the help of recent technological advances and advanced data collection methods, you can better understand your customers and the factors that drive conversion. Armed with that information, you can make informed decisions around how you tailor sales, marketing and delivery methods to better match individual demands. And though it may seem impossible to compete with the online giants rapidly taking over the industry, the old adage still applies: “If you can’t beat them, join them.” 

About Author: Suresh Chaganti, Co-Founder & Strategy advisor at VectorScient. Suresh specializes in Big Data and applying it to solve real world business problems. He brings in 2 decades of experience in architecting B2B and B2C applications across a variety of Industry verticals. Connect with Suresh Chaganti on linkedin