In a previous article, I established that, despite its market domination, Amazon makes little or no profits because the pursuit of low prices has led to very low margins. I asked is there a David out there that can exploit this Goliath‘s weaknesses and what we would lose if we didn‘t have Amazon?
Straightaway we need to remind ourselves that at least one online retailer has already grasped the concept of what is unique about the web better than Amazon. Step forward Apple iTunes, a brilliant idea for selling a product that has no physical substance and therefore no fulfillment costs. Amazon has come late to this game with their Kindle e-books.
National retailers like John Lewis or Sainsburys also have a potential edge with their marriage of shop and online. Customers can use the shop as showroom but buy online (rather than using Waterstones as a showroom then buying from Amazon) or utilise the excellent click and collect. There is still a huge percentage more shoppers visiting shops than buying online which means Amazon are limited by having no showrooms. You might wonder what will happen to Amazon book sales, apart from bestsellers, if Waterstones closes and we can’t check out the books before buying online.
Some retailers make a success of selling own brand products because they have a monopoly. Next, White Stuff and even Marks and Spencer (if only M&S had products people want to buy) are examples of retailers who can set their own prices. Again Amazon lose out because they only sell goods in competition with other retailers.
Independent shops like Your Life Your Style do not have the advantage of either a national chain of outlets or exclusive products, but as I said previously the online competition is not so great for niche products- overheads are the reason for us leaving the high street and taking our chances selling purely online.
Amazon tried to tear up the retailing rule book that said competing on price can only end in tears because you end up with no profit. The key to success in the pre-internet days was to compete on quality, service and marketing. The trouble was, back in the nineties, people were reluctant to change their buying habits to this new fangled internet. Offering low prices was probably the best way to get people to switch to buying online. In fact, tearing up the rule book may be proving as difficult as tearing up a telephone directory.
The Amazon website is a wonderful warehouse but the emphasis is always on the cheapest price. Service is excellent but the clinical photos and bullet point descriptions do little to put across the value of the products. This works when it comes to selling a light bulb or something the customer already knows he or she wants but is no help when you need an uncertain purchaser to make an emotional connection with a product. John Lewis or even our own website do a much better job at persuading someone to buy a product. Its the difference between a description of a teddy bear’s size, colour and materials and a story of a child getting a bear, cuddling it and it becoming her friend. Or a picture of a wine glass and a photo of a dinner party with people chatting and drinking from the glasses.
From the early days of e-commerce, Amazon’s tactics have been the same. The company announced from the start that they would lose money for years while they built up their online business. As a result, they led the way, first as a cut-price bookseller who caught all other booksellers unawares. Then it widened its range of products, before moving into e-books which offer a better profit margin. Its best idea has been to invite other merchants to sell on its site. The virtually cost-free commission it earns from these traders may prove Amazon’s salvation.
If Amazon were to go, I would most miss the company’s tremendous commitment to innovations that make online shopping easier and more attractive to the customer from One-click shopping to rating the products to e-books.
Not that I would bet against Amazon winning the battle for the wallets of online shoppers. Nor it seems would investors who sent Amazon shares up when the results were announced.