The internet is a great place to do business – if you're Amazon, that is.
In 2015, Jeff Bezos' site snagged about 60 per cent of the ever-growing number of online sales, according to a Forrester report. In fact, according to the report, “Amazon makes up a larger percentage of e-commerce in the US than any other player, and its retail growth has outpaced overall online retail".
In the UK, things aren't quite that grim for “mom and pop” online retailers – yet. According to Euromonitor, Amazon is the clear leader in internet retailing, accounting for 25 per cent value share in 2015 (Black Friday 2015 – like Amazon, an American import, was Amazon UK's biggest ever sales day). Many of the non-Amazon online sales, according to Euromonitor, are picked up by big companies with an online presence – eBay, Boots, ASOS, etc.
That's unlikely to change. Amazon and its brethren retailing giants have numerous advantages – especially in pricing and shipping. Because the volume of their sales is so high, they can strike far better deals with manufacturers and shippers than the average e-commerce site can.
Which means that if you can't compete with sites like Amazon on pricing, you are going to have to come up with another idea to attract customers. One idea that holds great promise for e-commerce sites is interest-free payments – enabling buyers to pay for purchases with a set pre-determined amount per month, as opposed to having them charge a purchase on their credit card and deciding how much to pay per month.
Surveys show that interest-free payments are a big hit with customers – to the extent that they are willing to spend more than they would otherwise. Customers like instalments because it gives them an important tool to accurately budget their expenses, while giving them more control over their money. Already popular in numerous countries, this payment model makes consumers feel more in control of their purchases – and studies show that when they feel in control, consumers are likely to spend more.
There are actually many other strategies that do not involve pricing for e-commerce sites seeking to differentiate themselves from the giants. Very useful for UK companies, which naturally seek markets abroad, is to use a service like BorderFree that enables online stores to instantly expand their operations globally. The site allows for automatic, on the fly currency conversion, and enables automatic reconciliation of payments via local and international credit cards.
If such sites can't compete with big online retailers in the “red ocean” of pricing (so named for the bloody battles being fought in the crowded retail space), they need to navigate to a “blue ocean,” developing a fresh and innovative idea that the “big boys” haven't thought of, or are unlikely to adopt – something that will appeal to customers' wallets, but won't require sites to engage in cutthroat (and suicidal) competition with large e-commerce sites.
For most online retailers, the challenges to getting their share of Internet sales are formidable. Going head to head with top e-commerce sites on price almost guarantees that smaller sites will lose. The blue ocean strategies (and others) mentioned here are probably not going to be implemented by those big sites – which means that these ought to be go-to strategies for online retailers who want to avoid the bleeding.
Gil Don is the CEO of Splitit