December 13, 2017

7 Essential Things You Need to Know About Working With – and Competing Against – Amazon

Originating as a small online bookstore, ecommerce giant Amazon has completely disrupted the retail category. Today, the business has more than 310 million buyers, more than 2 million sellers, and 55 percent of all product searches start on Amazon. So how does a business even begin to compete?

VML, in partnership with WPP The Store, sought answers to this at its "Amazon Day" in New York. More than 180 WPP partners and clients heard from 14 unique presenters, including VML's Andy Heddle and Scott Hamm.  

Here are seven of the day's key takeaways:

1. Amazon is spending a significant portion of its profits on research and development

Jeff Bezos is continuing to invest in capabilities like fulfillment centers, technology, getting into the movie and cloud business, and getting closer to the customer -- all to grow his core retail business. Amazon's significant share of all ecommerce growth and the rise in digital retail means Wall Street will continue to give him a pass on these R&D investments.

2. The majority of growth is in ecommerce

Paul Sweeney, director of U.S. research at Bloomberg, disclosed retail sales growth in the U.S. is inching ahead, but the real growth driver is ecommerce. While only 10 percent of U.S. retail sales are in ecommerce, growth rates are still in double digits.

3. Amazon's rise is largely due to its "meaningful difference" to consumers

According to Martin Guerrieria, director of BrandZ research, Amazon ranks extremely high on the "meaningfully different" scale. This means it meets a consumer need in combination with an emotional connection while standing out from the competition as a leader and trendsetter.

4. Businesses can win with operational marketing

Eric Heller, CEO of Marketplace Ignition, stated that Amazon is not a "partner" to its vendors in the old-fashioned sense: It is an algorithm and a channel. Amazon challenges its vendors to start from the beginning, not the end goal. Rather than asking what inspires people to buy a product, it instead has the right team in place to understand assortment, supply chain and operational marketing.

5. Respond quickly, and know how to respond

Andy Heddle, group channel director of digital commerce at VML, presented five key lessons from Best Buy's rebuttal of the Amazon threat: Run in the direction of trouble, reappraise your assets and act accordingly, accept that you will be a low margin player, speak to someone (not just anyone), and create a value delivery platform to allow partners to come on the journey with you. 

6. Use data to win inside and outside Amazon

Scott Hamm, VP of ecommerce analytics at VML's Rockfish Division, pointed out the importance of winning with data. He said to be comfortable with operating with less than perfect amounts of data, acting quickly is critical. Data sets should be centralized and connected in a data warehouse environment to unlock strong performance-based metrics. Putting the focus on top sellers, as well as retailer search performance, is critical to this success.

7. Competing and collaborating are not mutually exclusive

The overall takeaway from the day was that to be successful, businesses must learn to truly understand Amazon's business model and have a strategy to both collaborate and compete. As an advantage, VML and its Rockfish Division have the tools to work with client teams to demonstrate exactly what that means for them individually. 

If you are interested in hearing more about competing and collaborating with Amazon, please email andy.heddle@vml.com.