For the american reader, Amazon has been a constant presance within the ecommerce space for the past decade and have completly changed the competitive landscape across ecommerce niches. For international readers, Amazon is constantly expanding into new markets, including smaller markets such as South Africa where people in the past assumed would be "safe" from Amazon's expansion.
These days, no matter where you are located in the world, you must consider Amazon as an already existing or upcoming competitor, and you must define a strategy that allow you to stay competitive and continue providing unique customer value for the customers in your ecommerce store.
As one of the largest companies in the world (1.5M employees!), Amazon have access to a lot of resources that grants them a competitive advantage within the ecommerce space. On top of that, they are also a Marketplace rather than an inidividual store, which grants them additional advantages when it comes to range and product assortment.
Some of the advantages for Amazon are:
All of these competitive advantages are driven from scale, and the hard truth is that, at the time of writing this article, Amazon is the clear winner within the ecommerce space when it comes to these dimensions, and trying to compete directly with Amazon on these three bullets will make it very challenging. We must find new ways to compete.
As a ecommerce data platform that help businesses with competitor price monitoring, Grindbyte's team have unique insights into how businesses are pricing themselves versus Amazon. Time and time again, we see that Amazon's convenience comes at a cost -- that cost being 10-25% higher product prices than normal ecommerce stores.
As a marketplace, Amazon's business model is to charge a commission or referral fee from the store for each item that is sold on the Amazon platform. For most product categories, this fee is between 8-17%, and in some cases all the way up to 45%.
In practice this means that retailers must price things more expensively on Amazon if they want to retain their gross profit margins, which we can see is the case when we look at Amazon price indicies versus the rest of the ecommerce industry. It is very common that Amazon is at an index of 120+ (+20%) which is very signficant in the world of pricing and customer value perception.
Its worth noting that this may be less true for some specific niches or product categories that are highly competitive and where there is simply no room to price higher, but instead retailers intentionally take a cut in margins for increased volume as they sell the item on Amazon.
Given we already established that competing with Amazon on product assortment range and convenience will be a challange, and we've identified that Pricing is a weakness of Amazon retailers due to the hit in gross profit margins driven from Amazon's business model and referral fee's, it shows us that one of the dimensions where we can outcompete Amazon as an ecommerce store is by an improved and more sophisticated pricing strategy.
Grindbyte's data platform will support ecommerce businesses on Shopify, Prestashop, Magento, WooCommerce and other ecommerce platforms to enable a data driven pricing strategy that is made up by the following pieces:
By combining these three things, we can create a sophisticated pricing strategy that automatically adjust the prices of your products to keep you competitive versus Amazon and other retailers, while still retaining high margins within your ecommerce store.
So as we talk about price monitoring, should Amazon be the primary competitor that you monitor the prices of and adjust your prices relative to? Generally, since Amazon is so much more expensively priced than the average ecommerce store out there, the suggestion would be to not price versus Amazon but instead price versus one of the key players within your niche.
Imagine the following example for "Product A":
Let's say that Product A is one of your key value items that you want to be priced very competitively on, and you want to constantly undercut the price of your main competitors. If you decide that Amazon is your main competitor, you are likely to still remain relatively high within the overall market.
For example, you may setup a strategy to price Product A 95% of Amazon's price, which means you'll likely be priced at $6.49 while the rest of the competitors within your industry is at $5.99 or $5.49. So even though you perceive yourself to be priced competitively (since you set 95% versus competitor price), from the customer perceptive you're still priced relatively high.
For this reason, by pricing yourself against one of the "main competitors" within your space rather than Amazon, you are likely to both outprice Amazon, but also be positioned more appropriately within your niche and market.