The war for the scarce consumers' attention

Last week the digital marketing guru, Mitch Joel came as guest speaker in our E-commerce class. He was Chairman of the Board of Directors of the Canadian Marketing Association. Mitch has advised many important companies such as Walmart, Starbucks, Procter and Gamble and Unilever.

According to Mitch, now that companies are making extensive use of internet and social media to connect with consumers, many senior executives say they feel they’re “in hell”. Why? The fact is that every single stakeholder (brands, sub-brands, retailers) is asking their customers to connect with them in social media channels, so the competition for attention is fierce.  More importantly, not only companies have the power to reach millions of people through media channels, now anybody can do it.

To illustrate this, the Mitch gave the extraordinary example of Bethany Mota, a YouTube “personality” who has gained the attention of more than 7 million subscribers on YouTube and other few millions in other social media channels by talking about teenager’s banalities. The most interesting part is that all this success could permeate the digital stage and some companies actually used it in their favor. For example, Aeropostale asked Bethany to design a clothes line that was sold out short time after it was released.

This is a great example of the importance of trying to deeply understand the consumer in order to talk to them in a way and with a message that can create a connection, obtain their attention and ultimately, their purchases. 

Key differences between Alibaba and Amazon

While Alibaba is successfully entering the US, Amazon is making efforts to expand in the profitable Chinese ecommerce market.

Both companies are leaders in their home markets, offer a wide variety of products to be bought online and have a big customer base and top level data infrastructure. However there are some big differences between both companies:

-       Type of operation: Alibaba operates an “open marketplace” that connects buyers and sellers. It doesn’t sell anything directly nor have any warehouses. Amazon operates a “managed marketplace”, selling most of their products directly and owning distribution centers. It even manufactures some of the products. In consequence, Alibaba has much higher margins than Amazon (~40% vs. ~1%) but the latter has a better reputation in customer service because it controls most of its processes.

-       Competitive advantage: Alibaba’s competitive advantage in the Chinese market is given by its understanding of the Chinese consumer and its mastery of the “intricacies of Chinese regulations” and how to work with governments. Amazon’s competitive advantage in Western markets is given mainly mastering logistics and supply chain management. Both would have a hard time trying to acquire the needed capabilities in each other’s home markets.

-       Scale: In 2014 Alibaba has 24,000 employees while Amazon has 88,400 (almost 4 times more). In 2013 Alibaba’s revenue was $7.95 billion and Amazon’s was $7.95 billion -almost 10 times more. This is given in big part by their type of operation.    

Sources:

Forbes. http://www.forbes.com/sites/forbesleadershipforum/2014/09/22/alibaba-vs-amazon-who-will-win-the-global-e-commerce-war/

Business Insider. http://www.businessinsider.com/alibaba-vs-amazon-2014-8

Alibaba's worldwide IPO record

Doing some research for my last week’s post about Amazon, it was impossible to miss out the Chinese e-commerce giant that’s making news: Alibaba. Its recent IPO less than a month ago (Sep 19^th) became the biggest in the world. The fact that this record is held by an E-commerce company is another sign of the digital era that we’re living.

Initially raising $21.8 billion, Alibaba took over the record of the biggest U.S. IPO previously held by Visa ($17.9 billion). Shortly after, the company was able to sell more shares due to its over-allotment option, which allowed it to boost the total amount raised to $25 billion and break the worldwide IPO record previously held by Agricultural Bank of China ($24.3 billion).[i]

However, the stock price started declining very soon (remember what happened to Facebook's?). After achieving a closing price of $93.89 at its first day of trading[ii], it closed today at $88.85 per share. According to some experts this is a normal adjustment that can be due to sales from investors “who bought shares in the IPO and are now selling with a profit”.[iii] Below is the stock price performance since the IPO.

The challenge that this Chinese company presents to Amazon is eminent. However, even though this two companies can be seen as direct competitors they have some important differences in their business model. I’ll write about them next week.

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[i] http://www.ft.com/cms/s/0/0f97cc70-4208-11e4-a7b3-00144feabdc0.html#axzz3GMZcKJkK

[ii] http://fortune.com/2014/09/22/alibaba-is-officially-the-biggest-ipo-ever-after-green-shoe-released/

[iii] http://www.bloomberg.com/news/2014-09-28/alibaba-slumps-in-first-week-as-short-sellers-enter-trade.html

The relationship between Amazon and their third-party sellers

I was impressed last week when my friend sent me a link to buy the bridesmaid dress for her wedding and it directed me to Amazon.com. I’ve bought electronics, books and costumes there, but bridesmaid dress!? I wouldn’t have imagined.

This couldn’t be possible without the third-party merchants who sell their products on Amazon. In those relationships the website earn fixed fees, revenue share fees, per-unit activity fees, or some combination thereof. Therefore, the amount of compensation that Amazon receives sometimes is partially dependent on the volume of the other company’s sales. If he offering is not successful it impacts Amazon negatively.

One of the programs offered to sellers is Fulfilment By Amazon (FBA). With it they can store their products in Amazon’s fulfillment centers, and they pick, pack, ship, and provide customer service for these products. Benefiting from one the best logistics systems in the world sounds like a great deal for sellers! That’s why the number of them who’re using the service grew more than 65% in 2012-2013.

Besides being a source of revenue for Amazon, sellers also increase the company’s risks. It may be subject to product liability claims if people or property are harmed by products they and sellers do not have sufficient protection from such claims. Amazon could also be liable for fraudulent or unlawful activities of sellers. In any case, it’s worth the risk.

Source: Amazon.com, Inc., Annual Report 2013.

Brief takeaways of an excellent article from Entrepreneur.com

A couple of weeks ago, Pano (my E-commerce prof), shared with us an article called “5 Ecommerce Mistakes to Avoid: A Newbie’s Guide”. I wish I had read that before a started to sell online some merchandise from my dad’s ex business –with not so much success-. Here are the main takeaways:

-          “Everyone that starts a business has big dreams, ambitions and excitement”.

-          In the same page of Croll’s “Don’t sell what you can make, make what you can sell”, Lin –an author quoted in the article-, says “do your homework beforehand and make sure you’re selling something people will buy”. You can start by looking for products similar to yours that are sold online.

-          Don’t forget to make use of social media. It’ll help you to communicate with your customers and understand what they want.

-          Don’t try to appeal everyone by offering too many different types of products. It’s better to find a niche market, preferable a category not seen anywhere else.

-          Avoid unsold inventory by getting a sense of the demand of your products. Search for them in different marketplaces to see home many are being sold.

-         As any entrepreneur you’ll have a big “To do list”. Since it’s impossible to so everything at the same time, prioritize the tasks that will help you keep customers and have a healthy business