Amazon shines with superlatives: the widest selection, the best price, the largest market share. But are eCommerce heavyweights like Amazon or eBay destined to rule alone? Or do smaller online shops still have a chance?
There are, in fact, a few strategies to be successful even against the billion-dollar competition. These involve on one hand to identify and highlight your unique selling points, and on the other to learn the best practices from the market.
Finding your unique selling points
1. Offer products exclusively
We are all familiar with Amazon’s nearly maniacal ambition to become an everything store. Despite definitely being on the right track, there will always be products not available on Amazon or eBay.
Offering such products will allow you to differentiate yourself and be more flexible in pricing. An option, for example, is to import foreign goods which are not distributed in your domestic market. Or to concentrate on products that can only be found in physical stores: many product categories still have a relatively low eCommerce penetration.
One of the most exciting, and also more complex approaches, is to introduce your own brands and products. For example, Juniqe sells unique posters, t-shirts and mugs with designs by young artists, giving them access to extensive distribution. There’s no need for the whole product range to be exclusive to your platforms. If the customer gets the thrill of discovering something which he can’t find elsewhere in your shop, all purchase behavior will become more emotional and spontaneous.
2. Be more favorable
Let’s face it: getting into a price war with Amazon is no fun. Amazon has the entire merchandizing process under control: Every aspect of their business is optimized, and they will work with negative profit margins when it comes to pushing competitors out of the game. If you want to beat Amazon’s price, optimizing and streamlining won’t cut it: you must adapt your business model.
Take for example shopping clubs like vente-privee.com, the online equivalent to the factory outlet. In a shopping club, registered users have access to limited time offers at low prices. There, since products can only be seen by members, leftover stock can be offered at low prices without hurting brand’s market prices in an otherwise transparent internet. Drop-shipping and on-demand orders also can save costs.
Another alternative is a subscription based model. Just like in traditional newspaper subscriptions, customers sign a contract and periodically receive items delivered to their door. The offers range from toys to diapers to razor blades, and shops may specialize in a few products driving down costs with bulk discounts and their own product lines. Subscriptions, by nature, are also a very good way to increase customer lifetime value (CLV).
3. Offer more than just shopping
In addition to offering convenience, variety, and great prices, Amazon is one of the largest sources for product reviews. Feedbacks are written by customers themselves and negative reviews remain untouched, increasing customer’s confidence and providing extra value: for an objective opinion about a product, they don’t even have to leave the page.
In order to compete, along with the correct price and product strategy, online shops need therefore to develop methods to further enrich the digital shopping experience. Let’s see some examples:
- The premium discount Lesara offers its customers a special consultancy service on their website. With a click, you can open chat session with their customer service, and ask questions about products or simply get shopping advice.
- Online shop Amorelie, gave a new image to the otherwise infamous sex toys store, and focuses successfully on the target group of women. The shop’s design is accordingly high quality, and an integrated magazine offers information and advice on the subject of love life.
From a brand experience perspective, Amazon is a jack of all trades but a master of none. The advantage of smaller and more focused online shops, is that dedication and expertise can really shine through the store. Especially when dealing with non-commoditized goods, detailed product descriptions, or a simple blog with informative and transparent storytelling about the products, their use, or their origin, will go a long way into establishing an emotional connection with the customer. This will ultimately amplify the appreciation of the product and in turn increase its perceived value and customer loyalty.
Another way to enhance the shopping experience is to personalize recommendations. Amazon is basically a product search engine with a huge range of goods. This has the advantage that you can find a lot, but also the disadvantage that you have to know what to look for. While not a problem with electronics, when dealing with products that are purchased on the basis of personal taste, even the best suggestion algorithm is pushed to its limits.
Being so poorly suited to discover new products, shop owners should exploit this dent in Goliath’s armor by promoting a more tailored and emotional shopping experience through more targeted recommendations based on their specific product expertise.
Learn the best practices from the market
Working data driven
In stationary retail, decisions must often be made looking at historical data and by making assumptions, since customer data can be obtained at most by sampling. This is completely different in the age of big data and internet: from the first contact, to the last interaction with the shop, all needed customer data is available.
And yet, too often unused data collects dust in servers. This has (I hope) technical causes. If nobody is working data-driven, it does not matter whose gut decision is taken, because everyone is equally running blindly. But this is not the case for Goliath. If something on Amazon is to be changed, it goes through a very scientific procedure. First, a testable hypothesis is made, then the hypothesis is tested on a subset of customers. Based on this, it is determined whether the test was successful, and whether the change should be rolled out to all customers.
Every successful shop does this. It does not matter how creative and emotional is the hypothesis. Even if two buyers argue about whether the red or blue shoes are better. In retrospect, sales figures will determine exactly who was right. In this regard, a paradigm shift is taking place. Causality occurs in the background, while correlations are decisive. Shop owners need not know the social reasons for which more red than blue shoes are bought – they just need to know that it is so, in order to act accordingly. Every decision you meet should follow a clearly defined, measurable goal in advance and will be evaluated in hindsight. And this applies to everyone in the company, from the intern to the CEO.
Choosing the right metrics:
Which metrics should i pay attention to? Lets’ see some examples:
- Contribution Margins: Contribution margins are very interesting to analyze as they show how well the shop is actually performing. After sales are discounted of costs of good sold, returns, fraud, payment provider fees, storage and marketing costs, often there’s not much left. The analysis becomes really interesting when segmented by other dimensions. For example, by categories, products or marketing channels. This analysis is very important, but requires a lot of manual work because the necessary data often sits in different silos. That’s why automated business intelligence systems like Wunderdata are here.
- Marketing ROI: Marketing metrics help figuring out where the marketing budget should be invested. Unfortunately, still too often optimization is based on the cost per click (CPC) or cost per order (CPO), while the development of the customer is overlooked. This approach is very shortsighted because it makes a huge difference whether a customer buys only once or becomes a regular customer. Marketing channel ROI over a set period of time is thus a far better metric to measure the efficiency of marketing activities. It may even be advisable, in fact, to invest in a marketing channel that has a bad CPC / CPO, if the acquired customers are expected to make many repeat purchases. Of course, these metrics are exciting especially at a higher granularity, broken down by marketing channels and down to the single keyword. In this context, existing customer metrics are also very exciting. It is no secret in fact, that marketing to existing customers is significantly less expensive than acquiring new ones. One of the most important metrics in marketing to existing customers is Customer Lifetime Value (CLV). This metric answers the question of how much a customer is actually worth to the company in their entire lifetime. A cohort analysis on customer repeat purchase rate, or the time between two orders, yields precious insights on how customers develop throughout their entire life cycle and how well we succeed in triggering repeat purchases. Overall, the efficiency of marketing must be considered in holistic and far-reaching terms, rather than just based on acquisition costs, because in the proper optimization, and marketing to existing customers, lies enormous potential.
- Funnel and conversion analysis: Funnel and conversion analysis are very useful to find out at which point of customers or prospects abandon their journey towards purchase. This journey begins with the initial contact – usually through an ad – with the potential customer. Part of the users click on the ad and are directed to the landing page. A subgroup will click on a product page, and then add the product to the cart. Just as with a leaky funnel, more and more users leave. At the end only buyers and repeat buyers are left. Between each step there is a conversion ratio. This approach helps marketers and product managers to optimize the user flow, by showing exactly where a fix is needed.
There are many other key figures for the optimization of product assortment, the warehouse, the purchasing team or customer service. But it is not about amassing as many indicators as one can. After all, if I select everything in a text, I have highlighted nothing. This is no different than financial ratios. Each employee should have no more than a handful of key figures to work towards as a goal. This of course, does not mean that you cannot also add highly detailed figures for an in-depth analysis.
For a more thorough overview on the most important metrics for online shops read: The essential eCommerce Key Performance Indicators (KPIs)
Choosing the right software
While unique features are important to position yourself in the market, it makes no sense to reinvent the wheel in the fields of software or business intelligence. In particular, since we can very easily access valuable information. Even Amazon’s CEO Jeff Bezos speaks openly about copying the competition in things aspects were made better than at Amazon. The takeaway is: learn from the best and apply that knowledge to yourself.
For example, it is not necessary to spend a lot of money in a custom eCommerce solution, when there is standard software that covers most of the requirements. On the open source shopping platform Magento alone run more 200,000 online shops worldwide. The products in the shops couldn’t be more different, but everything is running on the same code, because the purchasing processes are the same. Through this development, the cost to start and to operate an online shop, has fallen tremendously.
In the area of data analysis, things looks a bit different. Despite the importance of business intelligence and data-driven management, very few online shops use their own data to the full potential. The reason is that professional business intelligence has traditionally been used primarily by large companies, due to expensive licenses and extras for customization. But must a solution be a customized every time? The metrics in eCommerce, remain in to a large extent the same – regardless of whether you sell shoes or pens, or 100 or 100,000 products.
Luckily, a rethinking is taking hold in this area too. Just like shop systems a few years ago, the market for business intelligence tools is developing into user-friendly standard solutions for midsize companies. Professional data analysis is no longer reserved to Amazon and co. Wunderdata, for example, has been developed specifically with small and medium online stores in mind. The tool can be linked without any coding to the shop’s transactional database, Google Analytics, Adwords and just about all the most popular data-generating services used today by online shops. Dashboards with key figures, tables, and charts are based on best practices in e-commerce and are available from the instant data sources are connected. Segmenting by any dimension imaginable can be done with one click, and it affects every chart and table in real time. What Wunderdata takes a few minutes to implement and requires no training to use, is usually a process that lasted several months, and ate up considerable internal IT resources. This need not be anymore.
Conclusion
In a head-to-head with Amazon you will lose without a doubt, therefore, like David, you must to play smart and get the best out of your slingshot. Differentiate by a strong unique sell proposition. Use lessons learned the hard way by others at your favor, so don’t reinvent the wheel but learn from best practices: from which software to choose to which metrics to track. And most importantly use your data: it is your best competitive advantage.
This article originally appeared in PHPmagazin in german language, and has been translated and expanded.
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