As Online Shopping Booms, Will Amazon End Up Supporting SMBs?
What consumers really want in an online transactional experience can be summarized in seven criteria:
1) Convenience of a one-stop shop
2) Trust that the merchant is reputable
3) Inventory in the form of an extensive product catalog
4) Best price
5) Product reviews
6) Instant delivery, or local pickup
7) Customer service in case something goes wrong
For 2014 and beyond, Amazon is poised to beat down brick and mortar retailers by eventually matching or exceeding their service levels across these seven categories. As a one stop shop offering a massive catalog of products, Amazon’s sales are larger than the next twelve online retailers combined. It has nurtured its portal status by being recognized as the most trusted brand in America year after year, a testimony to its customer service. By virtue of its portal position, consumers don’t make the initial hit or miss Google search for merchants, they type in Amazon.com first.
Products have become commodities
Marketing once defined the product, but today consumers trust reviews over marketing messaging. Reviews sites like Yelp and product reviews on Amazon and other commerce sites are deemed credible based on critical mass of crowd opinion. For example, consumers don’t buy printers by brand name as they did ten years ago — they compare utility and value of a specific product by reading reviews from other consumers. They then match up the most relevant reviews to their needs and make the purchase. The depth of Amazon’s database of product reviews, more massive than any other review resource, makes it the go-to resource for product evaluation.
Alternatively, when consumers decide they want to buy local, they target specific product(s) using reviews, check Yelp to locate reputable merchants, call them up to compare prices and availability, and finally go back to Amazon or search engines to assess whether it is worth buying local (or whether that can perhaps save money by purchasing online). That’s three more time-consuming steps in the purchase cycle than simply ordering from Amazon.
Pricing is critical when products become commodities
Comparing prices online only requires opening one search tab. Showrooming, the act of comparing online prices with in-store prices, is here to stay, and all local retailers will eventually be forced to enact a price match policy with online retailers. Best Buy did.
But what about “Buy Local?” The often-heard refrain that buying local supports the community requires a shift in consumer attitude to consciously pay higher prices to support local brick and mortar. From a purely economic viewpoint, getting customers to pay higher prices simply to support a specific kind of business when they can get the same products conveniently elsewhere doesn’t seem sustainable in the long run.
Online retailers will hasten the speed of delivery until it’s better than driving to the store
Instant gratification has always been brick-and-mortar’s advantage. However, almost 20 years of online commerce have conditioned consumers to wait a few days for UPS. Amazon Prime, the $79 annual fee that provides subscribers with free delivery, has been lauded as an ingenious way to encourage customers to buy more stuff from Amazon because they have prepaid for delivery and they may as well use it.
Amazon “drone” delivery may sound fantastical, but it is faster, more efficient and less costly than getting in the car, going to the store and buying it. It is the future. But until drones start flying, Amazon is building out more local warehouses to cut shipping times. And building its own trucking fleet city-by-city to deliver groceries and products, a new logistical development that looks to expand after the Christmas delivery fiasco caused by third party delivery services like UPS. By building localized distribution systems, Amazon can further burnish their street cred by touting that they are local employers.
Why Amazon and Walmart must support small businesses
So how does local retail avoid this online steamroller?
Rick Caruso, developer of The Grove, an outdoor shopping venue in LA reminiscent of Disneyland Main Street, recently told the L.A. Times: “Stores and malls can’t survive when they’re just a destination. The amount you’re going to spend is so limited.” Local retail differentiates itself from online shopping when it offers unique products or entertaining experiences that only physical venues can provide. Caruso is correct in his perception that offline shopping itself has become a mundane activity, the need to go to the store to buy something is now just an ordinary even reluctant option. People want to go shopping as entertainment just like they did when malls were in fashion thirty years ago, and that requires new kinds of shopping “centers” like revitalized downtowns and farmers markets where a critical mass of retailers and consumers congregate.
Amazon and the other large e-tailers and big box chains that have squeezed smaller retailers need to demonstrate a commitment to sustaining local retail as a community service. Local retail is essential to the fabric of a community, and the specter of half-empty malls and dilapidated storefronts will spur negative public reaction. Yes, Amazon has won over the consumer, their next challenge is to win over the small business community simply by helping them making more money.
A new business model for local retail is to leverage local distinction into a national brand. One way Amazon might support local retailers would be to extend their Amazon Webstore product, used by merchants to create an online commerce presence on Amazon, to promote local merchants in special marketplaces devoted to local product. Amazon can move into retail stores as Apple and Microsoft have done to offer curated products culled from Webstore merchants. They could extend their developing distribution infrastructures to support local retailers with new consumer services like instant delivery.
Patrick Kitano is a founding principal of Brand into Media, a strategy group for social brand management solutions, and administrator of the Breaking News Network, a national hyperlocal network devoted to community service. He is reachable via Twitter (@pkitano) and email (firstname.lastname@example.org).