All Financial Wisdom

Amazon Has An Achilles Heel

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Undoubtedly, Amazon is already a giant. The company that began more than fifteen years ago with great pretensions and projections, but with many losses and little business, has ended up eating a large part of  the global retail industry.

Traditional retailers finally understand that Amazon is not just another competitor, but that it is a company that is redefining the concept of retail, and that threatens to leave many of the current players in the sector permanently in the dust (ahem…Sears).

But never give up. There is always a way to confront any competitor, however hard and disruptive it may be. For players in the retail sector, it’s time to analyze the situation, determine your strengths, diagnose Amazons weaknesses and attack its Achilles heel. A company has already done so. Yes, you can compete with Amazon and win customers.

Some Amazon strengths over traditional retail

We are not going to begin to conduct an exhaustive analysis of the many advantages that Amazon has brought to its customers around the world. That does not make much sense in a limited format. But we’ll look at a few specific issues.

Amazon has a very extensive catalog. Amazon offers (mostly) very competitive prices. Amazon “commoditizes” the products that can be made basic. Amazon has a convenient and affordable commercial policy for shipments of its products. Amazon has reinvented many things in the logistics and parcel industry. Amazon has been turning towards an integral business model that is not limited to simply “selling” products, but to satisfy needs with a 360 degree approach with the goal of acquiring loyal customers (Prime).

Amazon gets its CRM system to offer products to its customers that they did not know they wanted. And, finally, Amazon promotes and gives priority support to the verified opinions of its customers, creating a community that allows them to help each other with accurate and useful information about the products they sell.

Given the strengths of Amazon, what comes now is to analyze their weaknesses, and to be able to find the precious Achilles heel. Because it is sure has one; we just have to detect it and counterattack effectively.

The weaknesses of the Seattle Colossus

Well, the weaknesses of Amazon may seem very obvious. It is obvious that the great “but” in the business model of the company of Jeff Bezos is that while logistics lies in the key to its success, logistics also hides the key to how to compete successfully with Amazon.

The fact is that Amazon can not avoid in any way (with permission of 3D printing technology, which is advancing by leaps and bounds) that the shipments have to be sent and, what is worse, also received by the customer. Amazon is fully aware that it has already reinvented the logistics, but still knows that it is still key to its survival, so it is not resigned to stop innovating continuously in this field. Good example of this is the Seattle giant’s commitment to drones and their applications for parcel delivery, especially useful and profitable in areas of dispersed or difficult to access populations.

But worse than the shipments, are the returns. Shipping is a cost to discount the sale price, which only reduces your margin. But the returns are a net loss, since their subscription customers do not pay them, rather Amazon assumes them themselves, and there is no longer an income for a product sold, since that product is being returned and the amount is reimbursed.

However, Amazon can not avoid refunds. In fact, they are one of the success factors (and risk) of electronic commerce, in which we must not forget that the customer assumes the risk of buying without physically seeing the product, and without being a 100% sure of what he/she is really buying. This is the true Achilles heel of Amazon, the one that Amazon itself recognizes and tries to protect.

These returns are especially bleeding in sectors such as fashion, where even many customers try many different clothes for the mere pleasure of doing so. However, fashion is also one of Amazon’s goals as a strategy of (even more) future growth.

It is very revealing at the level of business intelligence to see how in the fashion sector Amazon is trying to innovate by all means with returns. These innovations go through traditional formulas of the electronic giant regarding logistics, which now with its “Closet Robo Prime” will also make flexible and facilitate the options so that its customers can try on their garments and return them.

But the most disruptive innovations come not only from taking the sizes of its huge customer base, but also to develop models of how the sizing is changing over time or other factors, and for this Amazon even bets on such disruptive technologies such as 3D scanning of human bodies combined with deep-learning. Be vigilant with your market strategy, because the enemy always inevitably gives clues to their weak points: it is generally fair in those who attack more aggressively, and so Amazon is also doing with their new formulas of returns.

The success story of a company that already exploits this particular Achilles heel

Indeed, in this ultra-competitive world, what is certain is that, if a company, country or person has a weak point, it won’t be a long time before someone exploits it. And the case of Amazon was not going to be an exception.

The counter-attacker who has dared to raise the sword against the almighty Amazon has been Kohl’s. This department store chain, whose origins date back to 1927, was seeing its future seriously threatened by the ubiquitous company of Bezos. And Kohl’s decided not to resign themselves to die like slaughtered lambs.

After analyzing in detail their asphyxiating competitor, they got down to work and developed a survival strategy to face their biggest enemy. Indeed, the weak point of Amazon were the returns. Also effectively, it was now Amazon that had the upper hand when it comes to a large customer base. And from the combination of both factors arose the desired strategy of success.

At Kohl’s they opted for a “friendly counter-attack”, and decided paradoxically to make life easier for Amazon customers, make the giant’s return options more flexible, help make these returns less burdensome for Bezos & Co … and, in turn, attract their customers.

The strategy was a success in terms of its objectives. While it is impossible to propose to unseat Amazon (at least in the first rounds), the truth is that, after the pilot program of accepting returns from Amazon in a selection of establishments, the chain has been able to observe how in Chicago, for example, the influx of visitors in the stores that participated in the pilot has seen an 8.5% increase in customers over its national average.

But there are more eye-catching figures that have delighted the marketing department of Kohl’s (and the envy of other retailers), such as that 56% of Amazon customers who made returns at Kohl’s stores were new customers for Kohl’s! The figure drops to 43% for visitors to other Kohl’s stores that did not participate in the pilot. And keep in mind that new customers (or those recently lost) are one of the most precious objectives of marketing strategies.

These figures have been collected by an independent company, called Gordon Haskett Research Advisor, based on the analysis of geolocation data and tracking the data traffic of customers’ smartphones. In addition, the data also showed that, in stores where Amazon returns could be made, customers stayed at the store longer. Kohl’s is so excited about the experience, that they are already in talks with Amazon to extend the pilot to more establishments.

The lessons we can learn from Kohl’s success story may be clear, but they are still essential (and vital for threatened companies). What you have to do is engage in new adaptive strategies and, like Kohl’s, if your enemy is sinking you, analyze him, look for his weak point, and use it to counterattack.

It’s called business intelligence today, but that’s  just a remodeled version of the old phrase “If you can’t beat them, join them.”

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