In their latest quarterly results (Q2 2012), Amazon turned in”remarkable” results of $7 million in earnings on $12.83 billion in earnings. That is the equivalent of creating a profit of $5.45 on $1000 in sales.
So, let’s put this in context of most little e-commerce retailers. Assume your annual gross earnings were $750,000. With results such as Amazon, you would take home a whopping $4,087 for your attempt.
Therefore, I ask,”Why bother being in business?” The”smart guys” in the area (such as Mark Zuckerberg who recently marveled at Jeff Bezos'”acumen”) would say that Amazon is sensibly accepting short term low margins for something”larger” down the street.
Unfortunately for them, the brief term has been Amazon’s full existence. You don’t need this sort of existence. Seriously, if you can not make money on $12 billion earnings, you won’t do it on $30 billion, $50 billion, or $100 billion. So as to ascertain the way to succeed against a giant such as Amazon, you need to know and understand your competition.
Amazon needs to elbow out online contest by forcing its own prices unfathomably low. That will not work in the long run like it’s for WalMart since WalMart painstakingly chooses what to market. I am not suggesting that Amazon will go away. What I am suggesting is that it is possible to endure, excel, and flourish despite their presence.
Amazon, unlike WalMart, will make anything available for sale no matter its saleability. So as to do that, Amazon must build gigantic warehouses. They can not force any sort of uniformity amongst its providers or arrange themselves economically for best selling, high-margin products. They basically have to manage whatever tossed their way. This isn’t efficient and it is very costly. Consider the difference concerning cost for Amazon to meet an order versus you walking into WalMart, locating the products you want, and bringing them into the register yourself.
That’s partially the reason WalMart creates a 3% gain on sales and Amazon makes 0.5%.
Amazon pays handsomely to provide”free shipping”. Their transport costs have risen so greatly that they have needed to construct more massive warehouses to be able to reduce transit spaces. This has the undesirable side effect of forcing them to collect sales tax in more states (something they unsuccessfully attempted to skirt by setting up sham subsidiaries in Texas). Unsurprisingly, Amazon supports Congressional legislation to enact a national sales tax in order that all online retailers need to collect it.
So, how can you counteract something so large and so powerful? Pinpoint their weaknesses and attack. Do not attempt and replicate what they do. You won’t be able to do it and even if you could, you won’t be constructing your distinctive brand. You are going to be building a copycat.
Amazon can not market the products they sell at any degree of acumen because they carry too many goods! Create your shop with laser-like precision. Become knowledgeable about what you sell and promote your experience! Provide services that Amazon can not provide. Get creative.
Provide video how-tos, live chats, and extensive FAQs. Try to construct a neighborhood by making yourself (yes, you, the owner) that the ambassador for your own brand. Brand yourself as an expert by being on your own videos. Write articles. Answer customer questions, post them on your website, and make it very clear that you answered . If you sell shoes, you can go so far as to give yourself a title such as”The Shoe Whisperer” (cheesy, yes, but you get the idea). Your customers want to get in touch with your brand, but it is difficult for them to do this without a face or a character for your own brand.
A big-time fear of many e-tailers is that all of the effort will be wasted. Clients will see your amazing site, decide what to buy and then head over to Amazon to place the order.
Yes, that will happen. But do not whine about. Rather, fight back! Work with your suppliers to set up MAP programs so you can compete on an even price area. As soon as you’ve the price nailed down, you can excel concerning promotion (how the item is clarified and introduced ), customer support, and support. What’s more, you could work with your providers to make bundles packed with value which aren’t available on Amazon. Maybe you can provide support contracts. Get creative with your suppliers and you’ll succeed!
Bottom line: Do not kill your margins to improve your top line revenue. Build a brand which depends on more than simply being the cheapest price with free shipping. While this will get you some sales, you will likely end up broke.