How Companies Can Better Compete With Amazon.com

By Jim Porçarelli, Active International

It’s an all-too-familiar sight these days. A man walks into a local retail establishment. He browses the products. He finds one he likes. He tests it out, asks a few questions of a salesperson -- and then snaps an image of the product’s barcode with his cell phone and walks out the door.

That retailer just did all the heavy lifting for what ultimately ended up being an online purchase through Amazon.com, which -- more than likely -- offers a noteworthy price break. This trend, known as “showrooming,” is one of the single greatest challenges facing brick-and-mortar retailers today. Even those with robust online presences, like Target, Walmart, and Best Buy, are scurrying to keep up by upping their online inventories, offering exclusive products, encouraging in-store pickup for online sales to save on delivery fees, and matching online prices and offering free shipping. 

But ultimately, Amazon is winning where it matters to the recession-traumatized customer: price. According to a William Blair & Co. study, Amazon is offering prices 14% lower than Target's and 9% lower than Walmart's. And while most retailers once hoped that often-substantial shipping costs would dissuade online shoppers, services such as Amazon Prime (which offers free shipping and other benefits to Amazon customers for $79 a year) and companies like Zappos (the online shoe retailer that famously offers free domestic shipping and returns) are quickly breaking down any e-commerce hesitations that once existed in the minds of customers.

So how can retailers and manufacturers better compete with Amazon and other Internet giants in an age where all the rules of consumption have changed? Brick-and-mortar companies can beat themselves over the heads all day long trying to lower their prices. But ultimately, that’s a losing proposition. Rather, retailers and manufacturers need to consider the ways in which they can make better use of their existing assets, add value to the shopping experience, and foster customer loyalty through exceptional interactions. The following are ways in which successful companies are doing just that.

Create an experience
Today’s most successful companies know that customers aren’t always just buying a product -- they’re buying a lifestyle. Does anyone actually think that Starbucks’ coffee is 10 times better than what they could brew at home? Probably not. But people are willing to pay a 10-fold premium. And that’s because people aren’t buying coffee. They’re buying the cafes. They’re buying the baristas who smile and ask their names. They’re buying the ability to say, “Jeez. I just can’t get going in the morning without my Starbucks.”

Starbucks almost forgot that the experience is what its success is based on. When the recession hit, the company took a dive. It closed hundreds of stores, initiated massive layoffs, and was ravaged by the stock market. But then former CEO Howard Schultz returned and reminded the company about why it ever found success in the first place -- the experience. And in renewing the company’s focus on the customer experience, Schultz brought the brand back from the brink.

Get more intimate
Today’s retailers and brands would do well to take a page from the Starbucks playbook and place a greater emphasis on the customer experience. Customers today aren’t going to big-box retailers because they want more exercise. They don’t enjoy combing aisle-upon-massive-aisle while looking for the specific product that meets their needs. That’s why so many customers are turning online -- where they can find exactly what they need without having to expel the energy required to traverse a warehouse of goods.

Retailers can and should create more-intimate shopping experiences that don’t require customers to wander up and down aisles of merchandise-crammed shelves. This can be done both offline and online. Small, boutique-style stores-within-a-store can be created to improve the shopping experience by showcasing many products in a small amount of space. Likewise, mobile apps and other technology can be leveraged to guide customers through stores and facilitate online buying through the retailer’s own channels.

In a unique execution, Men’s Journal created a pop-up retail experience where the products featured within its pages were put on display in a dynamic and experiential way. Customers were able to peruse and interact with gear and then, while still on-site, access digital kiosks to make their purchases. This enabled customers to experience the brand and its touted products in an intimate setting, without the need to navigate an expansive mall of merchandise.

Leverage unused assets
Today’s retailers and manufacturers often find themselves burdened with excess. Excess inventory. Excess space. Excess locations. Excess equipment. All too often, their inclination is to throw up their hands and eat the loss. But that’s not necessary.

Corporate trade partners can help retailers put their excess inventory and other assets to work for them, frequently enabling them to realize much better returns on these assets than through traditional liquidators. Furthermore, retailers can swap out burdensome overhead costs for services that improve their customers’ experiences. Excess inventory, real estate holdings or capital equipment can be leveraged in lieu of cash to purchase much-needed goods and services such as ad space, freight, warehousing and more. Corporate trade can help create an immersive in-store experiences through signage, custom fixtures, and interactive display units. And then use media to drive consumers to those experiences.

Yes, it’s a challenging landscape out there for the modern companies. But it’s not hopeless. By focusing on the customer experience and better leveraging existing assets, retailers and manufacturers can better compete with the likes of Amazon.com and other Internet giants. Corporate trade partners can help.

Jim Porçarelli is Chief Strategy Officer for Active International


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