E-commerce platforms and Innovation are the answer
Every day, it seems, we read another Chicken Little story – the world is ending. So we’re tempted to take the next story with a pinch of salt. As business leaders, we have survived many apocalyptic warnings and what we did last year still seems to be working this year.
However, we can all agree that things are changing and getting tougher. That is what we hear from clients and friends. For the most part, it may not be clear how the changes will manifest themselves, or when they will affect the business. So the question hangs in the air: what to do and when to act?
If you are in retail, well, you should be listening, and understand about both Amazon and China. Is Amazon really destroying brands? Is China really challenging the traditional retail? How will it affect you?
The truth is, Amazon is moving to own-label brands in a big way. It’s able to use its platform, and its understanding of customer behaviour to steer customers to its own products. For instance, in a few years, Amazon’s in-house brand has captured 30% of the market for online batteries.
Amazon has overtaken both Energizer and Duracell which spend millions on brand building. In this way, Amazon is destroying brands in the US, and you can expect them to do the same in New Zealand.
China is making moves to integrate the whole retail supply chain. They are attempting to “own everything the merchant and customer do, from purchase to payment, to shipment”.
We’re talking big names here like Alibaba and Tencent. And they are being backed by the Chinese Government which takes a very long-term view on these things.
So, what to do and when to do something? How can innovation help?
Amazon leverages its platform to kill brands
The NY Times reports that Amazon is moving to own-label brands in a big way. By leveraging its understanding of consumer behaviour through data, it is able to steer customers to its own products, to the detriment of companies that spend millions on promoting their own brands. Take batteries:
“In just a few years, AmazonBasics [has] grabbed nearly a third of the online market for batteries, outselling both Energizer and Duracell on its site.”
Some key takeaways from the article: Amazon now has over 100 private label brands on its site, (doubling year on year); it is predicted to account for over half of online shopping in a few years, and it’s in a unique position “to steer shoppers toward its in-house brands and away from its competitors”.
I don’t need to remind you that Amazon is setting up in Australia and it is can only be a matter of time before they are here in New Zealand in a big way.
Clearly, there are competition issues here, but NZ competition law is notoriously weak, and retailers and manufacturers shouldn’t hold their breath waiting for help from the Commerce Commission.
So, what to do?
Start with the Customer
To paraphrase Bill Clinton, it’s the customer, stupid. Amazon, in its pursuit to understand every aspect of customer behaviour, is making it easier for customers to do the things they want. Just as Uber made taking a taxi much easier, Amazon is making buying stuff much easier. And by making it easier for the customer, they are getting a bigger share of customer spend.
They are doing what we always recommend: start with the customer’s problems.
If you understand your customer, you can build and test solutions rapidly. Don’t start with your solution, start with their problem. Remember Amazon’s goal is to become the most customer-centric business in the world.
Data, Platforms and Partnerships
If you are not collecting and leveraging every bit of customer data you will be left behind because you don’t understand your customer. Amazon does that well.
Amazon is also demonstrating the value of its platform – it can leverage that to make the customer experience better. The platform shepherds customers through transactions, collecting invaluable data along the way. It enables a myriad of third parties to interact with customers as well.
Finally, few New Zealand companies have the wherewithal to take on the likes of Amazon directly. But they can partner to provide an end-to-end seamless solution for customers. That will require breaking down the barriers between different sectors, but it will be vital to compete in the global economy.
China wants to dominate retail
According to a report in Axios, the Chinese are trying to take over the retail sector. It has a stark warning:
“U.S. and European companies are being seriously out-smarted while China’s Big Tech rivals compete to pull traditional retail businesses into their exclusive, online corporate universes.”
The Chinese, led by behemoths such as Alibaba and Tencent, are attempting to “own everything the merchant and customer do, from purchase, to payment, to shipment”.
Retail is struggling – in NZ as in the US – and Chinese companies such as JD.com are contemplating automation and personalised tracking (of goods and shoppers) on such a huge scale, that the retail experience as we know it will cease to exist, and with it, the ability of traditional retail to compete.
In order to compete, NZ companies need to use joined up thinking. Success is not defined by their own silo; rather it is defined by the end to end success of the supply chain.
Design around the customer journey
Solve your customers’ problems, and if their problems are in another part of the supply chain, work with the people that are responsible for that. Partnerships will become more and more important.
And recognise that the customer journey is part online and part offline, and build a platform that supports that.
So, ask yourself these three questions:
- Are you collecting and analysing every bit of customer data that you can?
- Are you building a platform that enables you to manage your customer journey?
- Are you building partnerships that enable you to support the customer journey beyond what your business has traditionally done?
If you are, you can solve your customer’s problems and become truly customer-centric. If not, well, then maybe Chicken Little’s warning will come true.
What we have been doing, is helping businesses to answer these questions, put everyone in their customers’ shoes and build platforms and strategies to make it easier for their customers.
For questions, reflections and more, email us firstname.lastname@example.org.