What the Amazon Effect Means for Your Small Business
When Josh Silverman took over Etsy (an e-commerce website focused on handmade and vintage items), he faced immense pressure to revive the company financially.
He didn’t disappoint. While shedding jobs and increasing holiday promotions, Etsy swung from a $29.9 million loss (in 2016) to an $81.8 million net income in 2017.
Managing this feat in the face of Amazon’s competition was impressive. Amazon notched $51 billion in net sales in the first quarter of 2018, recently confirming it has exceeded 100 million Prime members globally. In contrast, Etsy has 1.9 active sellers and 33.4 million active buyers.
Amazon is everywhere: delivering groceries, storing music, and putting items at your doorstep in two days or less. Amazon has been so present that it has become a verb: as in, “I Amazoned it.” While Amazon brings smiles to many, it brings tremors to some small businesses. Many are outraged at the demise of mom-and-pop shops, and even large-scale retailers have taken hits.
What It Means For Small Business
The Amazon effect is a catchphrase used to describe how Amazon has influenced our interactions with other businesses.
Because so many people are Amazon subscribers, this platform has raised expectations for shopping experiences. As writer Corey Pemberton notes,
“Because the vast majority of us use Amazon regularly, we’re well aware of a new kind of customer experience. We used to drive to the shopping mall, painstakingly search for items, and wait in long lines with little complaint. But now that we’ve experienced the joy of picking out things in our pajamas and clicking to have them shipped straight to us, the alternative seems substantially less desirable.”
Subsequently, expectations of all businesses have increased.
How Your Business Can AdaptHere are four ways small businesses can adapt in the wake of Amazon’s influence.
1. Work to develop distinct, personalized products.
Part of what makes your business irreplaceable is the individual products only you can produce.
While resellers can undercut some sales, a small business with a unique, quality product can’t easily be replicated.
2. Partner with e-commerce platforms.
A recent Insureon insurance company poll of 2,400 business owners showed 68 percent of businesses surveyed said that online retailers had a positive impact on their business:
"[Online retailers] have forced small businesses to embrace e-commerce as a critical route to reach their consumers and revenue source," said Jeff Somers, president of Insureon.
Businesses that don't sell online will struggle to stay relevant in the modern age, but e-commerce doesn't just mean partnering with Amazon. Typically, a small business's website is the most common place to sell.
3. Feature customer ratings and reviews.
When buying online, people need extra input to tip toward commitment.
When you’re looking to buy, who do you trust more: a long-time neighbor or a sophisticated salesperson? Obviously, humans are biased toward “ordinary people.” One of Amazon’s best features in their abundance of ratings and reviews. Capitalize on this yourself and allow the words of others to convince your prospects.
4. Become a destination.
Amazon is convenient, so make your business an experience, not just an errand. Change your product mix regularly and make it enjoyable for people to physically “discover.” Add entertainment with lessons, parties, samples, or anything to engage families. Tell your story and give people pride in doing business with you.
An Enhanced Customer ExperienceAmazon isn’t killing small business, but it is changing the way we buy and sell.
Payoneer e-commerce manager Iain McNicoll says Amazon has given entrepreneurs a chance to create customer experiences they might have otherwise been overlooked:
"People see Amazon as crushing small business," McNicoll said. "Really, I think it opens up a door for small business, allowing them to now reach new customers that they wouldn't have been able to reach in the past."