This is a guest post by Andrew Youderian of eCommerceFuel.com.
Few companies can strike fear into the hearts of ecommerce merchants like Amazon. Its massive scale and focus on growth over profits allows Amazon to offer pricing that many smaller merchants simply can't compete with.
As an ecommerce entrepreneur myself, I would have an easier time hating on Amazon if it wasn't such an outstanding company. But unlike many huge organizations, it does a great job of providing quality customer service. And if you're an Amazon Prime member – like I am, full disclosure – you get free, fast shipping on just about anything you'd ever want.
So how can small merchants like us compete with such an appealing giant?
Brand Yourself as a Specialist
Amazon's massive size allows it to benefit from economies of scale, but such a wide scope can also be a weakness. With so many products for sale, it's impossible for Amazon to offer specialized, expert guidance.SonicsOnline founder Dave Huckabay has taken the opposite approach, choosing instead to become laser-focused with his ecommerce catalog. He focuses exclusively on ultrasonic cleaners for jewelry and industrial use, a niche most people probably don't even know exists.
Take a product found on both his site and Amazon: the GemOro Ultrasonic Jewelry Cleaner. The item costs $120 on SonicsOnline, almost double the $67.95 it's listed for on Amazon. Yet it still manages to sell well on Dave's site.
Amazon
SonicsOnline
So how does SonicsOnline compete with Amazon? Though not professionally designed, the SonicsOnline page is chock full of information, including videos, manuals and detailed specs. Perhaps most important is that customers know they're buying from a company with highly focused niche expertise. They can get specialized help for specific questions or problems.
The combination of quality information and industry expertise is powerful and has helped SonicsOnline grow to approximately $300,000 in annual revenues. When asked about successfully competing with Amazon, Huckabay said:
When done properly, real expertise comes across in a website. You can't fake it, and reviews by your customers are not a substitute.
By becoming a true niche expert – and successfully conveying that through your ecommerce store – you'll be much better equipped to compete against Amazon without having to rely on razor-thin pricing.
Create Your Own Products
Creating your own product is undeniably the hardest (and most expensive) way to get started with eCommerce. But if you have a great idea and the resources to pull it off, it's probably the best way to build a highly profitable business and successfully compete against Amazon.Just ask Dan Andrews of ModernCatDesigns.com. He and his business partner, Ian Schoen, were surprised at how expensive – and ugly – cat furniture was. So they decided to create their own line that would blend in with modern homes. Here's their popular 'modern kitty litter box' as an example:
One of the biggest advantages of manufacturing their own product was drastically better margins, which led to increased profits and growth opportunities. While many small resellers don't have enough margin to profitably advertise, pay-per-click has been an integral part of helping Modern Cat Designs grow to approximately $120,000 in annual revenues, despite having a catalog of only eight products.
Perhaps best of all, manufacturing allows you to control product distribution and set pricing guidelines to protect your margin. On competing with Amazon and pricing issues, Andrews said:
People buy from us because our products are unique. You just can't find them on Amazon. We also make sure that the dealers we do sell through follow strict pricing guidelines to prevent pricing wars.
Creating your own product isn't for everyone, but it's a great way to successfully compete against Amazon.
Sell With a Deeper Purpose
By connecting with the core values of your customers, you can build a loyal and passionate customer base that isn't shopping based on price alone. A quick Amazon search reveals more than 330,000 different shoes for sale. Yet Tom's Shoes has built a successful business based on the premise of donating a pair of shoes for each pair sold.Hipcycle.com is another site with a deeper purpose: to reduce waste by selling products made from previously discarded material. The concept, called “upcycling,” is used to turn bike sprockets into bowls and computer waste into light fixtures. Here is one of their most popular products, Grey Goose Vodka rocks glasses:
Founded barely a year ago by Andrew Sell, the company already has two full-time employees and a sizable presence on Facebook.
When asked how Hipcycle positions itself to compete against Amazon, Sell replied:
We are passionate about diverting materials from landfills, and our customers want to support that. And we're definitely in the business of building the company one customer at a time and turning them into evangelists for our brand and for waste diversion.
Notice that he didn't mention fast shipping or insanely low prices. Instead, Hipcycle connects with customers over a deeper purpose – one that can't be found on Amazon.
Opportunities Still Exist for Small Merchants
Amazon's rapid growth, scale and pricing power make it a force to be reckoned with online. But despite its sizable influence, it's still very possible to succeed as a small merchant. You just have to be smart about how you position yourself in the market.
So how do you plan to compete against Amazon? Let us know in the comments.
Written by Andrew Youderian. For more on successfully competing with Amazon, download Andrew's popular free eBook on growing a successful ecommerce business. You can also follow him on his blog, eCommerceFuel.com.
I have my MP3s on both iTunes and Amazon and I am grateful for the sales, however, both those giants of e-commerce have a very different pricing structure leading to the same files on my being 50% cheaper. I have complete control over the pricing on my site. As the apps make the AJ brand more popular, more people will buy from me (i hope)
We actually do sell to Amazon – I feel that being able to take advantage of their huge existing customer base is a resource i should be fully utilizing, the increased number of sales far outweighs the smaller margin I get. However, we also brand our products and packaging clearly enough that people are often directed to our own website for repeat sales. The dynamic pricing on Amazon can be annoying, however I still make my wholesale price on products whatever they sell them for.
@Andrew & @Nick – Using Amazon as a sales distribution channel is an interesting strategy. Obviously, being able to tap into their massive network and platform of customers is attractive. But for some merchants, the fees will simply be too much – I know they are often around 15% or higher. In an industry where a 30% margin is good, you’re giving up HALF of your profit margin for distribution.
Also, call me paranoid, but I’m not I’d want Amazon to see the raw sales numbers of how my niche was doing. I don’t know if they actually do this, but this data would potentially allow them to see what niches are doing very well, and then stock up with their own inventory to take advantage of the strength of the market. For unique niches, selling through Amazon could potentially lead to increased competition from them directly.
I think @Nick’s approach is smart – use their channels for distribution but make sure you’re doing a lot of branding to drive customers back to your site in the future.
We actually sell to Amazon directly, we don’t have an Amazon store. They purchase our products at wholesale price and place re-orders every week to be delivered to their various DC’s to top up stock. I agree that I would never use them for a distribution house – they take far to large a %age, it works if you’re making huge margins, but unfortunately that’s not the case for us.
@Nick – Thanks for clarifying! So you’re using strategy #2 – Create Your Own Products – to compete with Amazon. Having Amazon as a wholesale purchaser sounds like a big win, as long as they don’t undercut your market if you’re selling retail. Thanks for sharing!
Great post. Nice to help the little guys compete with the big guys.
@Eric – Thanks! Us little guys have to stick together…. ;-)
Right on time :)
Great post with lots of useful information that can be used.
Thnaks
Great post guys, very interesting to think about how Amazon may effectively be usurping their own customers in uncompetitive / attractive niches.
Thanks Sam! Glad you enjoyed it.
Actually I do not know SonicsOnline sells it for $120, dozens shops on the Internet sell out for less than $80. Everyone has Google and everyone can compare!
The best way to start would be choosing option 1. Unless you do have a high capital and already earning well, selling for a cause or even creating your own products would be a risk. Providing the best information possible to the products you sell would increase buyer’s trust and reliability on your offers, IMO.
@Erick – Agreed! I think branding yourself as the expert is easiest way for most small shops to compete with Amazon. Creating your own product and getting involved with a broader cause are viable options too, but just may not be for everyone.
We also sell to Amazon as well as several other retailers. It’s another channel for us (along with Urban Outfitters, Art.com/AllPosters, Fab.com, several indy retailers, etc…) with our own website (http://www.eyesonwalls.com) being the only place customers can get a complete selection of what we offer. These retailers all have their own customer bases that might never know our brand existed if we didn’t put it in front of them where they like to shop. It’s working well for us so far.
Tom
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I have a niche that I’m very active in. (Photography). I’m involved in social media like Flickr, RedBubble and Faceboook. The photography community is very generous with sharing resources, so I’m very lucky that my clients often attribute my textures in their photo descriptions.
Be involved in your community. Word will spread.
I sell Omega wrist watch parts. Now this is very specific niche. I started selling on eBay and became power seller + top seller with 100% feedback in one year. I am planning to build my own store. Interestingly, my prices are higher than the same item sold on eBay. My listing is simple but have all the information while others do not have… Now we have started to purchase inventory, get description and resell it..
In addition to that, I am building a store . aleady purchased a domain [ findingpart.com / omegawatchpart.com ] and will start operating on it soon
I feel description and pictures help ALOT !
In case of our niche, people are mostly looking at description..
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I agree that becoming an expert is important, but I think it is even more importance to focus on strong and unique branding.
Thanks for the interesting article!