i posted on facebook a couple of days ago that i was pondering selling on amazon and most people seemed to think we'd be mad not to. well, i certainly felt quite privileged when i got the phone call from them. how flattering! imagine amazon asking little funky rascal to sell on their huge store.
but i was wary too. having worked for 2 big global corporations, i know they don't have an altruistic bone in their corporate cores when it comes to business, so what was in it for them? sure, we pay them £25 a month for maintenance, etc, 15% of every sale and they transfer revenue generated to us every 14 days. but there must be more?
of course there is and a quick search revealed why i was perhaps right to be wary. imagine amazon as a huge shopping centre where the majority of shops are amazon. but obviously in their virtual shopping centre there's always room to lease a bit more space to a retailer who carries products they don't. the small guy gets all the millions of customers coming through the doors every week and amazon rents the space and takes a cut of everything the small guy sells. fair enough.
however, you have to use amazon's "EPOS" system, ie they know exactly what you're selling and not selling and they've not become known for their "customers who bought this also bought this..." emarketing database brilliance for nothing. they are emarketers par excellence, right up there ahead of even tesco. so, they know exactly how well your shop is doing... and if it's doing really well then perhaps it makes sense for them to stock the same products but because of their enormous buying power, they'll get them at a reduced cost and because of the scale of their operations, they'll be able to sell them at a much lower margin than tiny little funky rascal.
hey presto, what seemed like a great little earner for us turns into a potential disaster. they've used us as a profitable testbed for a range of products or a new market segment and when we've proven it one way or the other, they make their decision and become the largest retailer of children's didriksons clothing in the uk instead of us.
it might not happen. they might see it as a bit too niche and just continue to cream 15% off our sales. but it might happen, so are we going to do it? of course we are!!
it's a fantastic opportunity to get our products in front of millions of people. people who we can then develop a personal relationship with. who we can introduce to the world of funky rascal. who we can offer discounts and loyalty promotions to exclusively. who we can pull over to buying directly from our own site and who will tell their friends. so whether our amazon venture lasts 6 months or 6 years, we'd be foolish not to do it.
now there's another angle on this and it's one i learnt again at the big boys - commoditisation of the market. i'm sure you're all smart enough to be ahead of me here but it goes, quite simply, like this.
we have incredible success and then amazon start stocking our products and selling them at a lower price. we then have to respond, selling the same products at a lower price and margin. now, i big competitive markets this ends up with everyone selling at a loss and trying to work out just how to make any money. don't believe me? i saw it in the ATM business in emerging/ evolving markets like india, thailand, indonsesia. markets where it is very difficult to differentiate on added value, USPs, etc. the bottom-line price is king and that's that.
fortunately, we're not in a market like that and we're not selling products like that. but i know that certain market segments and geographies for ncr were incredibly painful to do business in. i don't see this getting to that stage. we do sell premium quality products (not saying ncr's ATMs were rubbish) but the sector of that market that crashed was the most basic cash dispense only ATM.
so i'm making a call on this one, knowing what could happen but not expecting it to be anything like as bad as i've seen. and it may never happen, let's face it. however, as a wise man once said, he who sups with the devil should have a long spoon. i'm going to make sure ours is bargepole-long ;-)
but i was wary too. having worked for 2 big global corporations, i know they don't have an altruistic bone in their corporate cores when it comes to business, so what was in it for them? sure, we pay them £25 a month for maintenance, etc, 15% of every sale and they transfer revenue generated to us every 14 days. but there must be more?
of course there is and a quick search revealed why i was perhaps right to be wary. imagine amazon as a huge shopping centre where the majority of shops are amazon. but obviously in their virtual shopping centre there's always room to lease a bit more space to a retailer who carries products they don't. the small guy gets all the millions of customers coming through the doors every week and amazon rents the space and takes a cut of everything the small guy sells. fair enough.
however, you have to use amazon's "EPOS" system, ie they know exactly what you're selling and not selling and they've not become known for their "customers who bought this also bought this..." emarketing database brilliance for nothing. they are emarketers par excellence, right up there ahead of even tesco. so, they know exactly how well your shop is doing... and if it's doing really well then perhaps it makes sense for them to stock the same products but because of their enormous buying power, they'll get them at a reduced cost and because of the scale of their operations, they'll be able to sell them at a much lower margin than tiny little funky rascal.
hey presto, what seemed like a great little earner for us turns into a potential disaster. they've used us as a profitable testbed for a range of products or a new market segment and when we've proven it one way or the other, they make their decision and become the largest retailer of children's didriksons clothing in the uk instead of us.
it might not happen. they might see it as a bit too niche and just continue to cream 15% off our sales. but it might happen, so are we going to do it? of course we are!!
it's a fantastic opportunity to get our products in front of millions of people. people who we can then develop a personal relationship with. who we can introduce to the world of funky rascal. who we can offer discounts and loyalty promotions to exclusively. who we can pull over to buying directly from our own site and who will tell their friends. so whether our amazon venture lasts 6 months or 6 years, we'd be foolish not to do it.
now there's another angle on this and it's one i learnt again at the big boys - commoditisation of the market. i'm sure you're all smart enough to be ahead of me here but it goes, quite simply, like this.
we have incredible success and then amazon start stocking our products and selling them at a lower price. we then have to respond, selling the same products at a lower price and margin. now, i big competitive markets this ends up with everyone selling at a loss and trying to work out just how to make any money. don't believe me? i saw it in the ATM business in emerging/ evolving markets like india, thailand, indonsesia. markets where it is very difficult to differentiate on added value, USPs, etc. the bottom-line price is king and that's that.
fortunately, we're not in a market like that and we're not selling products like that. but i know that certain market segments and geographies for ncr were incredibly painful to do business in. i don't see this getting to that stage. we do sell premium quality products (not saying ncr's ATMs were rubbish) but the sector of that market that crashed was the most basic cash dispense only ATM.
so i'm making a call on this one, knowing what could happen but not expecting it to be anything like as bad as i've seen. and it may never happen, let's face it. however, as a wise man once said, he who sups with the devil should have a long spoon. i'm going to make sure ours is bargepole-long ;-)
