How to Compete Against the Largest Online Retailer in the World

Copyright © 2016 Oracle and/or its affiliates. All rights reserved. |
How To Compete Against The Largest
Online Retailer In The World
Matthew Alberts & Jill Campbell – Solution Strategy Directors
Oracle Retail
November 2016

Agenda
• Amazon
• Amazon Mexico
• Strategies to Compete Against Amazon
– Convenience
– Merchandising
– Focus on the Customer
– Brand Differentiation
2

Agenda
• Amazon
• Amazon Mexico
– Convenience
– Merchandising
3

Copyright © 2016 Oracle and/or its affiliates. All rights reserved. | 4
Biggest disruption for retailers today

Amazon is intimidating…….
5
Million
items available
for Prime
shopping today
2 Day
Delivery
With Amazon
Prime
Same Day
Delivery
In Manhattan
23 Minutes
Fast Amazon
Prime Delivery
in Manhattan
(Easy Bake
Oven)
Increase
in Amazon Prime Users in 2014
Amazon is opening stores on
college campuses
20 50%

Amazon has global scale
• Operate in: Australia, Brazil, Canada, China, France, Germany, India, Italy,
Japan, Mexico, the Netherlands, Spain, and the United Kingdom
• $63.7bn in 2015 sales
– $35.4bn international
• 26% YoY growth
– 21% international
6

Amazon makes massive Investments
• $13.41 billion USD in 2015
on fulfillment
• An increase of 25% YoY
• $5bn loss on $6.5bn in
shipping revenue
– Expect cost of shipping to
increase mitigated with higher
sales volumes
Oracle Confidential – Internal/Restricted/Highly Restricted 7

Amazon’s stated strengths
• Customer service
• Information Technology
• Efficient supply chain and logistics
• Huge global brand
• One of the first e-commerce retailers
• Diversified product range
8

In a day,
AWS adds as much new
infrastructure
as they had used to run the
entire Amazon business
when it was a $7B business
According to Gartner,
AWS has 5x
more deployed cloud
infrastructure
as their next 14 competitors
have... in aggregate
AWS partner, Netflix,
accounts for up to
⅓ of
Internet
traffic
during peak usage times
Amazon owns over
4.2 million
IP addresses
to be used by AWS. At least 2
million are already in use.
Amazon S3 holds
trillions of objects and
regularly peaks at
1.5 million
requests per
second

Agenda
• Amazon
• Amazon Mexico
– Convenience
– Merchandising
10

Mexico is the door to Latin America
• Overall growth was fueled in part by telecom regulatory reform
• Consumers are beginning to enjoy lower prices and better Internet and
mobile access
• On another front, the entry of pure online leaders in retail such as Amazon
and the response from established mega retailers such as Walmart broaden
shopping opportunities and positively influence the market
• The biggest influence lies with Mexico’s population
– Approx 63 percent of Mexico’s citizens are 15 to 60 years old
– 80 percent live in urban locations
11

2015 Global Retail E-Commerce Index
12
Source: Euromonitor, International Telecommunication Union, Planet Retail, World Bank, World Economic Forum, United Nations Department of Economic and Social Affairs; A.T. Kearney analysis
Growth potential ranges from 28 – 58.6% with Mexico leading
(USA growth potential is 22%)

Shoppers Make 24% Of All Online Purchases From Outside Their Own Country
In Brazil and Mexico more than a third are made internationally
13

Product Assortment & Lower Prices Drive Cross-Border E-Commerce
14

Amazon.com.mx
• Launched in mid-2015
• Debuted with more product categories -- electronics,
housewares, sporting goods and more -- than any other
international rollout
• 1 distribution center in Mexico City
• Offer to source products from US distribution centers subject to
import duties and taxes
16

Reacting to the market
• Offering payment plans
• Terms variable based on
customer and bank programs
• Requires all products to be
sourced from Amazon
Mexico (no 3rd-party or
Amazon US products)
17

Shipping
• Offer free shipping on purchases of 599 pesos ($32 USD)
• Variable shipping for some products
• Prime shipping program not currently available
• Customers also have the option of having their goods delivered to
hundreds of pickup locations across Mexico
18

How popular is amazon.com.mx?

What search terms do amazon.com.mx’s visitors use?

Where do amazon.com.mx’s visitors come from?

Agenda
• Amazon
• Amazon Mexico
– Convenience
– Merchandising
22

Focus on the Customer
Build an online and offline
community
Build customer profile
Boast the best customer service
experience
Merchandising
Narrow your niche
Merchandise specifically to your
customer base
Sell something different
Differentiated Pricing & Private-
label Merchandise
Convenience
Fulfillment
Build confidence in the store visit
In-store pickup
Mobile
Strategies to Compete Against Amazon
Brand Differentiation
Define what makes you unique
Focus on your local-ness
In-Store Mobile

In the battle for retail market share,
convenience wins
Find New Channels of Convenience or Fall Behind
24

Fulfillment
• Consumers want predictable shipping
– Target began partnership with Curbside, a mobile app that delivers ordered items to a customer’s
vehicle. Available in metro areas (San Francisco, New York, New Jersey).
– Bed Bath & Beyond and Sears offer specialized shipping and curbside pickup services.
– Bed Bath & Beyond’s “Pack & Hold” service allows customers to buy items at one store and pick them
up at another location.
– John Lewis enabling click and collect points in Waitrose
• In-store pickup is the most effective way for brick-and-mortar retailers to compete with
online retail.
• Customers want to drive to the store and have you put it in their trunk. It’s better than
shopping online and waiting for home delivery. Yet younger people (millennials) prefer
to shop online.
25

You don’t have to offer free shipping or
some other extraordinary same-day service,
but you can create a shipping service
that exceeds expectations and provides satisfaction.
Under Promise, Over Deliver
• Zappos
– They didn’t make a big deal about their killer shipping policy, but when it happened,
customers were floored and hooked.
– Zappos scored by delivering the customer’s packages before they anticipated them!
(Source: Tony Hsieh, CEO)
26

Drive visit to store with Confidence
• 71% of consumers
who cited the ability
to view inventory
information for in-
store products as
important or very
important.
27

In-Store Pickup Commonly Used For Online Customer Orders
• 70% of US online consumers buy online, pick up in-store to some degree
• 5% of US online consumers use it every time they make a purchase with an
in-store pickup enabled retailer
• Popular Omnichannel Services
1. In-store pickup
2. Ship-to-store (from an online distribution center)
3. Store-to-store delivery
29

In-Store Pickup Customer Experience
• In-Store Pickup Programs Often Lack
Operational Efficiencies & Customer
Focus
– Executed in haste
– Retailers must identify and resolve issues that
will allow them to offer and optimize the in-
store pickup process.
• In-Store Pickup Requires Retailers To
Have Highly Streamlined Operations
– Partner with key internal stakeholders to
maximize revenue and minimize inefficiencies
from in-store pickup programs.
– Refine and develop the infrastructure to
overcome the many challenges of servicing this
touchpoint.
30

Customers Can Be Influenced To Add Additional Items
Retailer priorities…
• 44% - special deals or discounts in-store
• 24% - an emailed coupon with my order
confirmation that can only be used
towards an additional purchase in-store
• 23% - Something that catches my eye at
checkout
• 19% - If I can earn loyalty points or other
benefits
31
Source: Forrester

Create a Subscription Service
• Subscribe & Save (recurring shipments)
• Amazon Prime (annual fee)
• The subscription service is one of the smartest ways to sell a product.
• You don’t just get a one-and-done transactional experience with your
customer.
• You get a relationship, and revenue every month or year.

Use Mobile as a Wedge
• Mobile shopping is expected to account for more than half of e-commerce sales by 2018, according to
Forrester.
• Retailers have seized the opening in mobile shopping by cozying up to already popular apps to get their
products on smartphones.
– Uber opened its platform to businesses like Starbucks and United Airlines
– PayPal cut deals with companies like Home Depot and Foot Locker
– Facebook is testing a “buy” button that allows retailers to sell their products from within the social network
– More partnerships like these are inevitable
33

• Shoppers frequently use their
smartphones to aid their in-store
shopping
• Sephora’s To Go app includes a “Store
Mode”
• Store Mode turns on additional beacon-
powered features that support and
enhance the in-store shopping
experience
– Scanning products for rating and reviews
– Quick access to purchase history and Loves list
– Access to loyalty status information
Sephora – Contextual Commerce

Copyright © 2016 Oracle and/or its affiliates. All rights reserved. | Oracle Confidential – Internal/Restricted/Highly Restricted 35
Target with Cartwheel

Amazon.com.mx

Mobile Device Trends
37
Source: Forrester, Bizrate Insights

Mobile Traffic to the Top 500 U.S. E-retailers
38
Source: Branding Brands

Percent of Internet Users Per Age Group Using Mobile Apps In-Store
U.S. Internet Users Who Use Mobile Apps In-Store
Source: Branding Brands

Merchandising
40

IN E-COMMERCE, PRODUCT SELECTION MATTERS
• Virtual baskets don’t necessarily mirror physical ones. In fact, the relationship between the two is often
an inverse one.
• “Consumers are embracing the idea of buying certain packaged goods online, but some categories are
simply better suited for e-commerce than others,” said Dodd. “While certain fast-moving consumer goods
categories will serve as ‘on-ramp starter’ e-commerce categories, as we’ve seen in Asia-Pacific, adoption
rates will vary market by market. Understanding what consumers are buying both on and offline allows
you to prioritize digital initiatives and take action with the categories that drive in-store trip count and
basket size.”
• E-commerce is well suited to specialty retailing because it allows companies to offer greater product
selection in a category than would typically be available in brick-and-mortar stores. Online retailers can
do well by fulfilling unique customer needs, such as the desire for better-for-you foods. Nielsen research
shows that today’s shoppers are seeking fresh, natural and minimally processed foods with beneficial
ingredients that help fight disease and promote good health.
41
Source: Neilsen

Narrow Your Niche and Dominate It
• Content Marketing
– Amazon.com doesn’t do content marketing.
– They don’t even do email marketing that
well.
– They buy PPC, they do conversion
optimization, they do SEO, they release
products, they claim more verticals plus
more.
42
How do you dominate it?

Merchandise Specifically to Your Customer Base
• Take a close look at Amazon’s website
– Stark white background and floating images of
products
– Design is akin to the aisles of a club store
– Pages are void of personality for a specific
reason
– Stripped down the online shopping experience
to its simplest form because of the large
number of products they sell
– Amazon is a search engine that enables you to
find products quickly.
– Amazon is not designed for browsing or online
“window shopping.”
43
You can compete against Amazon by creating a fantastic browsing experience

Sell Something Different
• Look at what Amazon sells in Mexico.
• You’ll primarily see lots of “hard line” products like electronics, home and
garden merchandise, toys, and media.
• With these types of products, price is the primary differentiator, and
nobody is more effective at selling them than Amazon.
• It makes sense to sell products in categories where Amazon isn’t as
dominant.
44

Differentiated Pricing & Private-label Merchandise
• Delivering everyday low prices
• Taking differentiated pricing strategies by products/categories
• Advancing a private-label strategy
• Offer deals on popular items to create a perception of low price, and boost
margin on private-label and less sought-after merchandise.
45
The most compelling discounting strategies in today’s market are
differentiated pricing and private-label merchandise.

Differentiated Pricing
• Differentiated pricing divides products by popularity, volume and margin.
– Frequently searched-for items can be positioned as loss leaders and will drive most of the overall consumer price
perception.
– In a typical online retail setting, this amounts to 10-20% of the products sold.
• Walmart famously priced its staple grocery products that lived on the perimeter of its
stores (think: milk, eggs, bread) very aggressively
• Amazon.com brought this strategy to online book selling
• Amazon prices popular items aggressively in the consumer electronics industry versus
its competition
– Best Buy and Walmart’s SKUs were priced 10-12 percent higher than Amazon’s.
• In other, less popular categories, Amazon priced higher than its major competitors,
looking to take margin where possible.
46

Private-label Strategy
• E-retailers are using their private-label merchandise to improve profit margins while
beating Amazon on price
• At JCPenney.com, for example, 84 percent of women’s activewear was private-label
merchandise, while Kohls.com featured 57 percent private-label stock and Macys.com
offered 27 percent. On that same day, Amazon.com had no private-label products in
women’s activewear.
• Home Depot and Lowe’s introduced their own set of tools and changed their in-store
merchandising to support that strategy. For Home Depot, a smaller set of products, but
more price competitive with Amazon. Lowe’s private label products dominate up to 1/3
of their tool department.
• The gap shows a clear opportunity for competitors to establish their own private-label
brands in that category and extract profits.
47

Plans to have up to 100 pop-up
stores in US shopping malls
Focused on selling Amazon
branded products like Echo and
Fire Tablets
Amazon is doubling down on retail stores

Focus on the customer
49

Build an Online and Offline Community
• Hand-in-hand with great merchandising is community building. Amazon is very aware that their customers are there
for one very specific reason – great prices. Thus, community building is not a necessary strategy for them.
– To develop a community online, unique content is essential. Have a blog that people actually want to read, videos, and active
social media channels. Make it aligned with your brand, geared to your audience, and interesting to achieve the best results.
– Offline communities can be developed through events that cater to the specific interests of your customers. For example,
Lululemon offers complimentary, in-store yoga classes each week. These events are not only a way to get customers into the
store on a regular basis but they also build a community of influencers who tell their own networks about the classes.
50

Average Customer Touchpoints = 3.5 (Source: Forrester)
More Omni
Social POS
Print
Loyalty
Vouchers
Mobile
Web
Contact
Center

John Lewis Connects Shopper Profiles Across Channels
• John Lewis uses it mobile app and
beacons to identify when a Click &
Collect customer is near a store
• The customer is asked if he/she
would like to pick up his/her
pending order
• If the customer replies yes, a store
associate is alerted to pick the
order so it is waiting at the pickup
desk when the customer arrives
52
Source: Forrester, JohnLewis.com
UNDERSTANDING
CHANNEL
REWARD
DEVICE
PREFERENCE
LOCATION
CONTENT
INSIGHT

If your customer know you care, then you can hang on to 68% of your customers.
Customer Retention is better than Customer Acquisition

Boast The Best Customer Service Experience
• Provide something that Amazon can’t.
• Amazon cannot provide personalized, one-on-one service to human beings
like you can.
54

Brand Differentiation
55

Define What Makes You Unique
• Before you begin slashing your prices to undercut Amazon, start with an
assessment of what makes your business unique.
– Do you cater to a specific market segment?
– Do you sell one-of-a-kind products?
– Are you known for going the extra mile for a customer to locate a hard-to-find
product?
• Amazon can’t compete with your business based upon your differentiators.
They are focused on price and the speed in which they can get products
into your hands.
• Bringing your uniqueness to the forefront for customers to see is the start
of making your business relevant in the age of Amazon.
56

Focus on Your Local-ness
• As Amazon continues to gain market share, it can seem overwhelming to
compete
• DON’T compete… DIFFERENTIATE
• Offer something other than just the lowest prices
57

Favorite Ways to Shop
Adapt: Differentiate With Your Store
44%
Buying goods in-store
and taking them home
34%
Buying goods online and
having them delivered home
8%
Buying goods online and
collecting them in-store
8%
Buying goods in-store and
having them delivered home

WINNING IN THE NEW RETAIL ENVIRONMENT
• Digital is here to stay, but the majority of consumers will continue to shop for the bulk
of their purchases in store—even If the channels they’re using are changing. Shoppers
will use whatever format best suits their needs for convenience, choice and value.
Therefore, it is critical that retailers and manufacturers leverage physical and digital
assets to optimize the in-store experience.
– Remember what drives shoppers
– Add value through digital
– Consider channels holistically
– Know your shoppers
– Recognize that change is industry-wide
– Measure and adjust
59
Source: PwC

How to Compete Against the Largest Online Retailer in the World

How to Compete Against the Largest Online Retailer in the World

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