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Direct Response Marketing

The Amazon Effect: It’s a Jungle Out There

1 Jun, 2017 By: Doug McPherson Response

No matter what role you play in your company’s campaign, Amazon’s expanding tentacles are likely affecting how you market, sell, and fulfill to your consumer. Response checks in with three executives who share their thoughts on staying afloat in Amazonian waters.


It used to sell just books. It has turned the page.

Today its product offerings are encyclopedic — 450 million items and counting — including its own products like batteries, almonds, suits, and speakers linked to a virtual assistant who can control everything from your grocery list to your music.

We’re talking about Amazon, the elephant-in-the-room e-retailer. It now accounts for more than half of every new dollar spent online in America. And it’s the world’s leading provider of cloud computing. Plus, this year, Amazon is expected to spend twice as much on TV as HBO.

Consider these facts:

  • Since the start of 2015, Amazon’s share price has skyrocketed 173 percent, seven times faster than in the two previous years — and 12 times faster than the S&P 500 index.
  • Its market capitalization equals $400 billion, making it the fifth-most-valuable firm in the world.
  • Last year, cash flow (before investment) was $16 billion, more than quadruple its level five years ago.
  • Sales hit $136 billion last year and are expected to hit half a trillion at some point in the next decade.
  • 92 percent of its value is due to profits expected after 2020.

So those who think Amazon is just getting started may be right. Some predict it could become more profitable than any other company in America.

In April, Amazon posted its eighth straight quarter of net profitability, fueled by growth in e-commerce sales and its lucrative cloud service platform, Amazon Web Services.

It easily topped earning expectations for the first quarter of 2017, reporting $1.48 per share, above the $1.12 Wall Street predicted. Net income rose to $724 million from $513 million in the year-ago period.

Aside from investors, consumers are enamored, too. The latest Harris Poll on corporate reputation named it the most well regarded company in America. The poll singled out Amazon’s “strong performance and integration into our lives” and said those factors continue to earn the company an “excellent” reputation for the seventh consecutive year. “Defying any single sector, Amazon is unmatched when it comes to emotional appeal,” the report said.

Amazon is showing no sign of slowing down, as it continues to pour a foundation for serious growth and continued competition for retailers. It’s building a fleet of physical stores to sell everything — groceries, refrigerators, furniture, and more — a move that would further Amazon’s ambitions of delivering internet orders within hours.

And it’s not just fast shipping that’s making waves. With Amazon’s rapid expansion of free shipping, many shipping companies, from startups to the large package handlers, are vying to help small retailers compete.

Analysts are reporting a growing demand for fulfillment services in light of Amazon’s larger shadow across the retail world and the shipping market. And retailers are seeking ways to offer faster, cheaper delivery to keep customers from opting for Amazon Prime, the company’s service offering free two-day shipping, among other perks.

FedEx has responded by starting a new service earlier this year managing fulfillment for smaller retailers. It can pack merchandise from up to 400 sellers in a distribution center in Indianapolis and, soon, a second facility in Southern California. So FedEx customers are able to reach 98 percent of Americans via two-day ground shipping.

Response spoke with three executives who were part of a panel titled “The Amazon Effect” at April’s Response Expo, posing questions related to the giant’s impact on smaller retailers:

  • Jaffer Ali is the co-founder and CEO of PulseTV.com, an e-commerce site that uses video to drive sales. Ali has been in the direct-to-consumer marketing space for more than two decades. A graduate of the University of Illinois, he is also a pro bono adjunct professor at Bradley University teaching media and marketing.
  • Matt Fiedler is the co-founder and CEO of Vinyl Me, Please, a music and lifestyle subscription box. Hailing from Chicago, Fiedler attended Belmont University in Nashville, Tenn., where he earned degrees in music business and entrepreneurship.
  • Rus Sarnoff is the president of Integrated Marketing, an agency serving the direct-to-consumer marketplace. His career spans success in television production, broadcasting, and direct response marketing. He’s held executive positions at Viacom, KingWorld, CBS, Hearst, Eyemark, and Columbia Pictures.

How would you define the Amazon Effect in today’s marketplace?

Jaffer Ali: The Amazon Effect can be viewed from multiple perspectives: the consumer, the online retail competitor, the offline retail competitor, and the vendor/manufacturer. Amazon wants to have everything one can conceive of to be purchased from its platform. Amazon touches the entire commercial landscape.

Matt Fiedler: The Amazon Effect is probably the greatest barrier to entry for any new e-commerce startup. The consumer expectations that have been bred as a result of things like Amazon Prime make it incredibly hard for another retailer to compete. 

Rus Sarnoff: The Amazon Effect describes a profound shift in consumers’ buying behavior — impacting marketers, retailers, consumers, and the marketplace at large.

What concerns you most about the Amazon Effect — now and in the future?

Ali: I am responding to this question as a competitor to Amazon. Fifty-five percent of all product searches begin on Amazon. Amazon has more than 450 million items listed in its marketplace. For any product, there are dozens selling the same product and possibly thousands selling similar products. This creates brutal price wars and there’s an erosion of margins for online retailers. Imagine going to a flea market and everyone at that market is selling the same product. If there is no or very little product differentiation, price becomes the chief method of competing. This becomes a race to the bottom. Also, Amazon has approximately 20 million products that it owns and takes inventory. It uses the marketplace to see what items sell the best and then often will pick up those items as proprietary. The online retailer ends up with nothing to show for identifying hit products. Amazon uses its marketplace to do research and development.

Fiedler: The sheer size of Amazon and the amount of money they have to spend is unmatched. The talent they have and the number of products they have are insane. 

Sarnoff: For marketers, I worry Amazon’s increasing market share — while offering significant distribution opportunity — may ultimately shrink margins and expose them to unexpected competition from Amazon-owned products and unforeseen new competition. For service providers, I worry Amazon’s proficiency at the vertical integration of its marketing and backend services, along with an ever-increasing allocation of money and resources towards strengthening its own in-house logistics and customer services, will make it very difficult for vendors to compete and grow their businesses in the future.

How has your company been battling and/or adjusting to the Amazon Effect?

Ali: Amazon satisfies demand and rarely creates demand. PulseTV is in the business of creating demand by pushing advertising messages to consumers. Amazon is passive, waiting for you to search. This is a pull strategy. PulseTV is an electronic version of knocking on people’s doors — much like direct response TV pushes marketing messages. Also, Pulse TV specializes in selling impulse items. If we sell an $8 flashlight, people are less likely to spend time price shopping inexpensive items. People will spend a lot of time searching for an $1,100 television — but an $8 flashlight? Not so much.

Fiedler: We operate inside of a niche, and we offer a service that caters specifically to that niche. We are not trying to be Amazon in an everything-store type of way. In fact, we’re almost the antithesis of that. We focus heavily on curation and limit our available products to what we think matters inside the great world of music. We use our content engine to give context and present new music to people via stories and then link them directly to our store. In that way, we employ the 80/20 principle, focusing on 20 percent of the music coming out — the stuff that actually matters — and we’re okay ignoring the rest. 

We also know there are areas in which we can’t compete. We’re bootstrapped, so we can’t afford to lose money on things like shipping. But we can win with customer service and by providing an experience that meets and exceeds the specific needs of our customers.

Ali: Understanding that trying to compete with Amazon according to their rules will land you in a world of hurt. The stock market has given Amazon a pass so they don’t have to make money with their e-commerce business. So they can offer free shipping and have some of the lowest prices anywhere. We will not go there. We offer real deals but are content with the 60 percent of the audience that doesn’t think of free shipping as the end all and be all of everything.

Fiedler: The expectations Amazon Prime has set have a real impact on the expectations consumers then have on your business, regardless if you think you’re competing with Amazon or not. For example, people will get antsy if they don’t know exactly when their items are shipping and when they’ll be delivered. We try to do a lot of pre-emptive communication and education around how our service works to set expectations specific to our business versus trying to achieve the expectations that Amazon has set.

That’s not to say we’re fine being okay — we’re always trying to improve that experience, but regardless, communicating what’s happening and when it’s happening gives customers a feeling of trust.

Sarnoff: Amazon is very good at satisfying consumer demand but not very good at stimulating it. If you know what you’re looking for, it’s great; however, it’s not the best place for window shopping.

What are your most practical tips for competing against Amazon?

Ali: Every competitor needs to find a way to differentiate itself from Amazon. PulseTV has done this with great human customer service and a push marketing philosophy with impulse items that are generally under $10. PulseTV does its own fulfillment and has a 1.5-percent return rate. We believe it’s critical for online retailers to own their customers. Selling on marketplaces is not the route to do this as Amazon owns the customer and says you are not even allowed to email them.

Fiedler: Operate within a niche and build a community around your brand or product. Do something Amazon doesn’t do in regard to curation or otherwise. 

Sarnoff: Online competitors focusing on innovative curation while stimulating consumers’ ability to discover great new products will do well. Competitors trying to be virtual department stores offering multi-category, available-everywhere kinds of products will probably fail.

How do you see the Amazon Effect playing out for its competitors in the next few years?

Ali: Amazon will continue to put its thumb on the scale and give more preferences for those it does fulfillment for. It will become more and more like a logistics company. More and more vendors will restrict their products being sold on marketplaces. Vendors and manufacturers are being undercut by retailers they sell to on marketplaces.

Fiedler: They’ll keep getting bigger, without a doubt. And the companies like ours, the small, online mom-and-pop shops, will have to continue to find ways to succeed despite what Amazon does. 

Sarnoff: We’ll continue to see the closure of many big-box chain locations. While some, notably Walmart, are beefing up their digital efforts and offering enticing incentives to drive shoppers from online to brick-and-mortar retail, the jury is still out. My hope is that retail will be reborn in a world where consumers can find unique products with real value — not just products with high-margin, low-cost, made-in-China labels fitting into the old big box model. For those of us old enough to remember the term handcrafted — what a world that would be. ■


About the Author: Doug McPherson


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