Sep 23, 2023 12:00AM
Amazon's dominance is tested by Shein and Temu. Emphasizing affordability over speed. Thanks, Martin.
#Amazon's worst nightmare unfolds: Can the rise of Shein, Temu & Co threaten its position as a market leader? 🚩
It's no secret that shoppers are looking for value like never before. The average disposable household income is in decline.
Elevated inflation rates add to the cost-of-living crisis and drive shoppers to look for value elsewhere.
This has led to the soaring popularity of shopping platforms Temu and Shein. Both specialise in circumventing import duties, levies and taxes by shipping products directly from manufacturers in China.
Which allows them to sell products at cutthroat prices in high volumes.
🛑 The online retailer appears to be in a state of paralysis, not knowing how to respond to this new competition.
So far, Amazon has avoided price-matching any of its Chinese rivals.
Which is understandable, because its retail teams are currently focused on recovering margins after years of heavy investments during the pandemic.
So what should Amazon do?
I see three opportunities for Amazon to escape a race to the bottom:
1 - Double down on Prime
Amazon's loyalty programme, Prime, has become an overloaded offer for end shoppers. There are too many benefits that most consumers don't care about. I'd even argue that over 50% only really care about free next-day delivery.
Amazon should offer a Prime option specifically for free next-day delivery. It already forms Amazon's key competitive advantage over its rivals from overseas.
After all, Shein & Temu cannot compete with Prime's existing fulfilment speed. So Amazon should double down on it.
2 - Nurture relationships with selling partners
It's an open secret that Amazon goes after scale through automation. But its processes are far from perfect.
So if Amazon wants to keep its 1P and 3P selling partners on its platform, it must invest in their selling experience. Faster response times and better brand support are required.
After all, the more Amazon can support brands to sell effectively on its marketplace, the more brands will invest in Amazon as a retailer.
3 - Offering real brand protection
In light of increasing regulatory and counterfeiting issues, Amazon can set itself apart by strictly regulating the products sold on its marketplace.
The introduction of programmes like Transparency was a good start. But the effectiveness of these programmes has so far fallen short of most brand's expectations.
Faced with competition from Shein, Temu & Co, Amazon now has the opportunity to differentiate itself by becoming the one-stop shop for brands selling online and wanting to protect their core brand equity.
What do you think? Will the rise of new competition lead to change that will benefit brands?
Let me know in the comments!