Starting in 1995, Amazon first competed with the likes of Barnes and Noble and Borders Bookstore for a foothold in book retailing. In the years since, Amazon has expanded into markets as far afield as cloud infrastructure and SaaS, to logistical support and IoT. In each instance, Amazon’s growth has been a constant plan for market domination.
One trend in Amazon’s expansion has been the repurposing of internal projects as public services. For example, AWS was developed to deliver scalable computing power for Amazon. FBA (Fulfillment by Amazon) was created to support 1P Vendors (Amazon wholesalers) and only later offered to third-party Sellers on Amazon. This approach, combined with a tight customer focus (and some clever uses of customer data) have spelled success for Amazon.
In truth, “Amazonification” isn’t just ‘one’ thing, but for a third-party Seller on Amazon it’s worth understanding how and why Amazon does what it does, and how you can use the increasing amount of customer data from Amazon to “Amazonify” your own brand and product offerings.
Platforms and network effect
Amazon, like Google, is more than a product or service. It’s a platform that provides the underlying technologies that others use to drive their own businesses.
But there are different types of platforms, with different motivations, and understanding those differences is key for anyone looking to compete against or do business with Amazon.
First a few statements to get us in the flow.
- Amazon is a transaction and innovation platform
Transaction platforms bring together different market players, for the most part they bring together buyers and sellers.
Innovation platforms are technology foundations that bring together users with outside creators. For example, in the case of a smartphone, those outside creators were third-party software app vendors.
All platforms tend to fall into one of these two categories. Amazon falls into both.
Amazon grew out of being an e-commerce retailer and transitioned into being a transaction platform — a shift reflected in the fact that 3P Vendors now make up 58% of Amazon’s GMV (gross merchandise volume).
This strategy demonstrates a great way of building a platform without having to worry about who will come first, the sellers or the buyers. A similar, but much lower scale approach could be followed by Amazon retailers.
- Amazon makes use of economies of scale and network effects to dominate
The network effect can create a bandwagon. The network becomes more valuable and more people join, resulting in a positive feedback loop. The classic example is the telephone, where a greater number of users increases the value to each. Online social networks work similarly, with sites like Twitter and Facebook increasing in value to each member as more users join.
Amazon’s network effect is easily visible in its dominance of ecommerce. About 50% of US online sales occur on Amazon, that means a presence on the site is more or less non-negotiable. That also means that success on Amazon has knock-on benefits to your reputation and success. What’s more, exploiting engagement and sharing features such as reviews and questions can generate its own smaller network effects where you can build your own community of customers.
How Amazon does it
So, Amazonification is about platforms and network effects. There are signature moves that Amazon put in place to become the platform it is today. Some of these moves can be replicated by Sellers on Amazon — potentially to create their own sub-marketplace by clever use of customer data. Vendors on Amazon, 1P suppliers that wholesale to Amazon from an effective part of Amazon's network. In some ways, so too do all 3P Sellers — the more products on Amazon, the more powerful platform.
Create a marketplace by being a store.
Start to build your product reputation, get consumers hooked, and used that traction to build your brand and open up more of your product offerings. Product bundling, for example, is a good way of offering complementary products while also ensuring you have a unique product that is hard to copy. You can even move to have your own store within Amazon. Amazon storefronts provide cohesiveness in content across multiple channels, and allow you to maximise the sales potential of customers searching for your brand on Amazon.
Price products competitively. Use AI and machine learning software to monitor your pricing and always aim to win the Buy Box.
Amazon has long been known for special deals and rewards — for example, Amazon Prime. By combining analysis software, an extensive data set and diverse product range, it’s possible to copy some of this approach by incentivizing a cross-sell of products based on customers’ behavior. Consider 7-Day or Lightning Deals — featuring an item as a Lightning Deal may be an effective way to reduce your inventory. Featuring an item as a 7-day Deal may help increase sales. Also look at whether you can use discount vouchers on particular lines to drive sales.
For a long time, Amazon support was purely online, and while they do not support some assisted channels, their online help is very strong. Do the same by following up each order with great customer service for an excellent buying experience. This can lead to excellent feedback ratings for you as a seller and instill confidence in other buyers when they find your products.
Amazon already provides Alexa as their conversational interface, making it easier to place orders or add items on a wish list — services are being added and may be a way to sell support or professional services. For the future, keep an eye on Alexa developments to increase your customer interaction.
What you should do
For a Seller on Amazon Marketplace it’s not so easy to create unique value. So let’s look at the Amazonification of this problem — taken from Jeff Bezos’ letters to shareholders:
Focus on results and not process
As a company grows, it becomes easy to rely on making sure your process works rather than the result. To stay focused, look at the results of advertising campaigns, and use analytics to constantly review your Advertising Cost of Sale (ACoS) and click-thru rates (CTR).
Make decisions quickly
Companies do usually make good decisions; the problem is that they make them slowly. Speed matters in business. Understand what levers you have to pull to increase sales and profitability. Use AI and machine learning dashboards to quickly understand where you are and automate as much as possible to really accelerate your time to action.
Third-party analytics tools can be of great help to understanding your customer data and making the right customer-focused choices. But what’s important is that you have a system in place that will allow you to analyze your Amazon data and take action based on insights. For more advice on that, read our Sellers Guide to customer data.
Look outside the company
The world is currently involved in a major trend involving machine learning and artificial intelligence. Amazon has embraced this trend in a number of ways, including experiments like its delivery drones and the Amazon Go convenience store, Much more, though less visible, machine learning is quietly but meaningfully improving core operations. With the data you have available, get expert help to make the most of it.
Go all in
If you are looking at Amazonification and at using analysis of your customer data to do what Amazon does, you will have to go “all-in” as a business. If you don’t, according to the Harvard Business Review, you will fail, Here are six ways to avoid that happening:
- Optimize “openness” — overshare information between you and your customers, different internal departments and further down the supply chain.
- Engage developers — don’t build all the apps and tech in-house
- Share the surplus — recognize the contribution of one product line or campaign to overall success — support the halo effect.
- Look after the right side of the balance — understand and agree who matters more to scaling success and at which stage: your buyers or your suppliers?
- Put critical mass ahead of money — agree when you start advertising or monetizing?
- Keep an open mind — opportunities presented by long-term investments may be much greater than those in the short-term. Focus on your product and outcomes, but also think long-term.
Customer data to customer value
Jeff Bezos regularly points out Amazon’s customer value propositions:
- Low prices
- Fast delivery speed (often same day and with options of free 2-hour delivery) and a
- Vast selection (“Earth’s biggest selection”)
- Great customer service
By being part of Amazon Marketplace, selection and delivery can be taken care of — the Amazonification of the rest is down to the right approach, good customer data, excellent data analysis and a focus on the customer and their outcome.