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Amazon Prime Day: The key to competing and is it worth it?

By Gavin Masters

Amazon Prime Day is just around the corner and with other retail holidays, such as Black Friday, gaining in popularity, retailers are offering more deals and discounts than ever over these periods to try and compete in a saturated market. These offers mean that we are sure to see consumers reaching deeper into their pockets, so it has never been more important for retailers to be prepared for these pressurised periods.

To make matters more complicated, Amazon recently announced that 2019 will be the first year where its annual ‘Prime Day’ will be extended over 48 hours, suggesting that peaks in online shopping activity and traffic are only going to become more dramatic. This is supported by the fact that Prime Day has grown steadily year-on-year, with 2018 raking in a total of $4.19 billion for the Ecommerce giant. This year, it’s expected to break the $6 billion threshold.

Before we jump into what this means for other retailers, we’d like to hear from you. We’re running a short survey to discover people’s opinions on Amazon Prime Day so, if we may, can we divert your attention away briefly to fill it out? It will take less than a minute, and then you can come straight back.

Prime Day survey

And you’re back. Excellent stuff.

While Amazon may be the frontrunner during this particular retail peak, many other retailers also offer promotions over Prime Day to try and obtain a slice of the pie. However, Amazon is the biggest retailer in Ecommerce and therefore trying to compete can be a daunting possibility. The silver lining for retailers is that Amazon’s unique selling point is its super-low prices, and this means that retailers can champion other aspects of the retail experience in order to entice customers.

This can be achieved by ensuring excellent customer service and experience, such as with fast and reliable delivery or easily contactable and knowledgeable customer service assistants. For an online store, the latter can be tricky to achieve because there isn’t a physical touch-point, but allowing customers to contact support staff via multiple channels, such as social media, phone or online chat, is a step in the right direction.

Amazon is a pioneer when it comes to delivery, being one of the first retailers to roll-out same-day delivery in select locations and test innovative delivery drones which, while currently only in trial phases, could be widely available ‘within months’. However, super-fast delivery isn’t always a top priority for every customer and some would rather wait longer for their order if the time or place it was delivered to was more convenient for them, proving how far the trend of personalisation within retail is spreading.

Drones

There is nothing more frustrating than missing a delivery that then has to be rescheduled, especially if the items have been ordered to arrive in time for a specific occasion. In today’s fast-paced world, everybody lives busy and unpredictable lives and retailers must account for this with the fulfilment options they offer.

A key way to mitigate missed deliveries is by allowing consumers to alter their delivery details, right up until an order is due for delivery. Only 4% of retailers currently offer this level of personalisation, and so giving consumers this option is an excellent way to stay ahead of the curve.

Retailers can also take extra steps to put themselves ahead in terms of flexibility of delivery. For example, offering a wider range of delivery slots could entice those people who work unusual hours, and are therefore only available to accept deliveries at night. Catering to these lifestyle needs instead of focusing on business convenience will go a long way towards improving the customer experience.

Coffee

However, it’s all very well offering fast, convenient delivery, but without efficient warehouse and supply chain operations, retailers will struggle. Real-time visibility throughout the supply chain is necessary to make sure that online stock levels are accurate and up-to-date, and that all orders can be fulfilled quickly and correctly. As well as being critical for order fulfilment, back-office efficiency is also key for dealing with the plethora of returns that will inevitably occur after the impulse buying that retail peak periods encourage. In fact, it was predicted that the impact of returns on retailers after Black Friday in 2018 was £362 million in the UK alone.

The key to effectively managing returns and making the process easy to manage is ensuring that all relevant information is centralised so the retailer can see an accurate, unified view of stock control. This might entail working to remove silos within the business, for example those between different sales channels, so that stock returned via one channel can be immediately available for dispatch from another. This will require real-time visibility throughout the entire company and all of its operations, no matter how segregated.

Those retailers that choose not to compete by discounting over peak periods won’t necessarily be left behind. In fact, discounting can be a tricky business, and one that needs to be done correctly in order to fully benefit. Valuing revenue over profit through discounting can land a company in dangerous territory. You only need to look at ASOS’ profit warning last December to see the damage that a lack of visibility over the true ‘cost to serve’ can cause – ASOS’ shares fell 37.5% and the company put it down to the number of promotions it offered in a bid to compete with the rest of the market.

Sale

Retailers need to understand the true impact of what they’re doing. For example, in order to increase purchases throughout a promotional period, an Ecommerce retailer may offer free delivery, removing the minimum order-value threshold. On the surface the numbers may look positive – showing an increase in orders placed, however, order values will also typically fall through the floor. With no minimum requirement for free delivery, consumers aren’t obliged to consider shipping costs when purchasing. This will result in multiple, spread-out impulse orders that don’t cover the cost of fulfilment.

To mitigate this risk, businesses must fully understand their true ‘cost to serve’, a figure incorporating all costs including delivery, operations and marketing, as well as those from third parties. If a product is discounted or free delivery is offered, the costs attributed with supplying it to a consumer don’t change and so retailers need to ensure that the discounted prices don’t fall below the line of profitability. It could also be argued that retailers should focus their attention on maintaining steady and continuous trade with the majority of their products at full price, thereby cultivating the perceived value of their brand.

Lifestyle

So, it is up to each company to decide how they want to tackle promotional periods and how they choose to compete (or not) with Ecommerce giants such as Amazon, along with more direct competitors. Retailers can choose to differentiate themselves in numerous ways, be that through the use of stand-out customer service or even by choosing not to discount at all. Ecommerce retailers must weigh up the value of participating in a promotional period with what it will take to compete successfully.

Once again, here at Maginus we’re interested in how e-tailers feel about promotional peak periods and have released a survey to uncover the retail industry’s true outlook on Amazon Prime Day and what is really required to successfully compete. You can complete the survey here.

Gavin Masters, Industry Principal, Maginus

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