With Amazon disrupting and dominating more and more industries, how can your business thrive? Unless your name is Walmart, I don’t recommend competing directly against Amazon. Instead of going head-to-head with Amazon, I suggest focusing on how you can differentiate and out-flank them.
Start by defining Amazon’s strengths so you know what areas to avoid. For example, price. Due to Amazon’s massive scale and efficient distribution channels, it is generally the low-price leader. And it has demonstrated its willingness to sell products below cost for an extended period of time in order to kill off competitors that engage them in a price battle. So trying to compete with Amazon by charging less is probably a recipe for disaster.
Another area where Amazon dominates is selection. Planning to open a book retailer with more titles than Amazon? Good luck. Amazon also has world-class, innovative customer fulfillment that gives it a competitive advantage over its rivals. I advise against trying to deliver products faster or cheaper than Amazon.
So, what’s left? What should you focus on in order to make your business a success? And how can you implement differentiation against a behemoth like Amazon who just runs things so well? Here are some thoughts.
Build a strong brand.
Customers will buy from you if your brand speaks to them, if your message resonates with them, or if what you stand for as a company is meaningful to them. And they are more likely to stay loyal to your brand as long as that continues to be true. Ben and Jerry’s, Toms Shoes, Coke. You get the idea.
Get personal.
Establish personal relationships with your customers. People buy from friends. When I walk into my local running store, they greet me by name. They know my wife and kids. We’ve run races together. I think of them as friends. As a result, I wouldn’t think of buying running gear anywhere else.
Use creative marketing channels.
As a mainstream retailer, it’s difficult for Amazon to innovate in its marketing. This is an opportunity for you to be creative in connecting with your customers, and leverage differentiation in your marketing efforts. For example, develop relationships with influencers in your market. Their personal product recommendations are incredibly valuable. You may want to be irreverent or humorous. Remember Dollar Shave Club’s first video that launched the brand? I can’t imagine Amazon creating something similar.
Out-innovate.
Differentiation is key when seeking to out-innovate your competitors – especially on a scale like Amazon’s. Develop technology or other intellectual property that is superior to what Amazon offers. Stay very close to your customers to understand their pain points and frustrations. Seize opportunities to help your customers overcome these hurdles before Amazon is even aware of them. In terms of product innovation, Amazon is more often a follower than a leader. Remember, when Amazon deploys new functionality, it has to be nearly perfect and ready for massive scale. As a smaller competitor, you can afford to be more on the cutting edge and do things, as Paul Graham would say, that don’t scale.
Be nimble.
As a smaller company, you have the ability to move quickly. As new opportunities emerge, as customers’ needs evolve, act quickly to address them.
Predict where the market is going, and differentiate by getting there first.
In most cases, Amazon surveys the market, identifies promising areas, and then exploits those areas with the benefit of its superior logistics infrastructure and scale. Amazon is less likely, however, to take the upfront risk of inventing new markets and solving brand new problems. This is an area in which a first mover can establish an advantage.
Go high-end.
Amazon is designed to sell huge quantities of products. This need for scale means its products must appeal to the masses. But most markets have a subsection of customers who explicitly do not want to be part of the masses; instead, they seek exclusivity. They are willing to pay more for products that others do not have. Be that provider. Sometimes, differentiation can happen in the details: and for customers, quality is a detail never overlooked.
Play in a niche market.
Since Amazon is focused on scale, it cannot address small niche markets. Therein lies an opportunity for you. And some niche markets are currently, or will become, very large. Pet sunglasses sound like it could be a huge opportunity? Go for it!
Identify what Amazon customers don’t like about Amazon and offer a solution.
For example, I don’t like that Amazon is wasteful and environmentally insensitive when it comes to their packaging. I would (and do) pay more to buy products from companies that provide environmentally friendly packaging.
Differentiate with experiential retail.
This can take quite a few different forms. It can be anything from an amazing wine store with incredibly helpful sommeliers to a Vans store that has a skate park in it. It’s difficult for behemoths like Amazon to replicate these experiences — and it runs counter to their commodity-focused, efficiency-oriented model to compete in these areas.
Focus on a product where consumers seek trust and expertise.
Because I am deeply concerned about my family’s health and about the environment, I buy our household cleaning products from Grove Collaborative (https://www.grove.co). They are experts and I trust that they have curated the best selection of non-toxic and effective products. If I’m buying a tie, I’m much more likely to buy from The Tie Bar because I trust it’ll be good, whereas Amazon is not an expert in ties. I’m more likely to trust Warby Parker when I buy glasses. It’s about curation and domain-specific knowledge and expertise.
Stay local.
Develop a product that is specific to your local market. My sister-in-law built and sold a tour company highlighting the best food and wine in San Francisco and wine country. This is not scalable enough for Amazon, but she built a great and highly successful business. It is important to be honest with yourself about whether you want to build an amazing, highly profitable, lifestyle business or if you want to truly compete with the likes of Amazon.
While it may seem that every company is vulnerable to the Amazon effect, there are always opportunities to succeed. Let me know how you are out-maneuvering the behemoth.
Phil Nadel is the Co-Founder and Managing Director of Forefront Venture Partners (www.forefrontvp.com). You can follow him on Twitter: @NadelPhil or on Medium at https://medium.com/@pnadel.
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