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How to survive the “Battle of the bots”

Online mega-retailers have integrated technology into their business models that attack and block competitors. CHRIS PETERSEN says every retailer should understand these tactics and how they affect bottom lines.

It’s hard to escape the news about digital transformation and how it impacts on traditional retail.

In the US, there are daily reports of store closures and half-empty shopping malls grasping for tenants.

Amazon remains the undisputed market leader among e-commerce retailers hell-bent on using price to seize market share from traditional retailers; however, what is less apparent to consumers are the technologies that online retailers like Amazon employ that make it impossible for other retailers to complete.

The emergence of artificial intelligence (AI) technologies has turned what was once a battle of price into a battle of the bots, and small retailers are trying to compete in this technology war with the digital equivalent of a pocketknife. It all begs the question, “Is Amazon invincible?”

Greater than the sum

Amazon is an incredible innovator. The shopping giant has the best e-commerce platform the world has ever seen and it has built this by focusing on infrastructure and the long-term. This culture of innovation is increasing revenue at such a pace that the company recently crossed into trillion-dollar territory and is now the world’s second-largest company, behind only Apple.

"Amazon’s mastery of the complex, behind-the-scenes technologies that power modern e-commerce is vitally important to its success"

To put it in perspective, Amazon is now twice the value of Walmart, but what is it that gives Amazon such an incredible advantage? Amazon’s whole is greater than the sum of its parts.

Consumers know the brand for its values of convenience, same-day delivery and gold-standard service but they don’t see what’s going on behind the scenes.

Mostly, Amazon’s individual components are well-known and widely discussed, particularly the use of robotics in the company’s distribution centres. As a result, individual components like distribution can be replicated by competitors, but copying Amazon’s entire ecosystem, including all physical and digital strategies, is a task so large that that it creates a huge barrier of entry for retailers without Amazon’s spending power and logistical depth.

Here are three examples that collectively represent formidable barriers for traditional retailers, especially those with a bricks-and-mortar heritage.

Bringing in the bots

As the name implies, bots involves the use of technology to perform automated functions at incredible speed and accuracy. This is robotics but it’s not always physical or mechanical.

A web-crawler is a type of bot that scans the prices of individual items online. Web-crawlers can process thousands of SKUs to help a retailer like Amazon ensure its pricing remains best-in-show. Online pricing is extremely competitive and the difference of 50 cents over a million units can make or break e-commerce profitability.

According to an article in Fortune titled, “How Bots Are Fighting E-Commerce Wars,” Walmart was using bots to check Amazon prices several million times a day until Amazon found a way to block the technology, shutting Walmart out for months.

Like something out of a sci-fi movie, this is a battle fought between retail Goliaths in cyberspace and the importance cannot be overstated for traditional retailers.

Amazon’s mastery of the complex, behind-the-scenes technologies that power modern e-commerce is vitally important to its success.

Retailers are facing the rise of bots
Retailers are facing the rise of bots

Dexterity with bots allows Amazon to not only see what rivals are doing but also keep those rivals in the dark when Amazon undercuts them on price or quietly goes on to charge more.

Pricing bots are just one example of the integrated ecosystem of technology and systems that Amazon and Walmart have in their omnichannel arsenal. Smaller retailers simply do not have the resources to recreate this strategic infrastructure.

What if?

If a retailer does not know the acronym IFTTT then they are falling behind in digital retailing. IFTTT stands for “If this then that” and it is AI applied at the simplest level to automate choices and actions. IFTTTs can create algorithms that enable consumers to make a purchase based on a predefined set of criteria like price point, quantity left on hand or even weather conditions.

Amazon deploys a host of IFTTTs online and engages customers through dashboard buttons. Of course, Amazon is not the only retailer deploying IFTTTs in retail and supply-chain automation.

“Tesco is using IFTTT for a number of automated tasks,” Consumer Equity Partners CEO Tom Furphy told retail news site Morning News Beat in 2013.

“Their applets can automatically order products if they meet a certain price, they can add burgers to a shopping basket based on the weather or they can set a reminder to add certain items to a basket at a certain time. They are also using IFTTT to allow customers to use Google Home to add items to their basket.”

Traditional retailers might scoff and say that their consumers don’t need or want IFTTTs but consumers expect all retailers to match the convenience and services levels provided by Amazon or a Tesco in today’s omnichannel world. IFTTTs create convenience and places even more pressure on competitive pricing driven by real time pricing criteria, which is controlled by empowered customers.

E-tailer fulfilment

Amazon’s current genius is using its own Marketplace to recruit retailers and brands to sell products on Amazon’s ecosystem. As part of Amazon’s ‘turn key’ solution, the Marketplace products are “Fulfilled by Amazon” (FBA).

Amazon’s own fulfilment costs for its membership program Prime run into the billions. By incorporating its Marketplace sellers into FBA, Amazon gains logistical volume, efficiencies and resources to continue to build state of the art systems.

Amazon is taking FBA to new levels by picking up products at manufacturing locations and delivering them directly to the consumer’s home. This process cuts out the role of distributors and most of the traditional supply chain.

World domination or bust
"Dexterity with bots allows amazon to not only to see what rivals are doing but also keep those rivals in the dark when amazon undercuts them on price"

There are many more components of Amazon’s ecosystem but the ones mentioned here already create a huge strategic advantage that leaves even Walmart struggling to compete. There are only a handful of retailers with deep-enough pockets to be able to invest billions in this kind of infrastructure, again giving Amazon a huge competitive advantage.

There is little profit to be made in e-commerce today without efficiencies and massive scale. Amazon didn’t turn a profit for years and the cost of replicating the many components of its ecosystem is virtually insurmountable for retailers.

In addressing the question of whether Amazon can become the world’s most dominant retailer, many are betting on when rather than if.

What now?

Forget trying to be Amazon. The first thing smaller traditional retailers need to do is shed the historical baggage of selling products at a price. The future lies in creating engagement and relationships with customers.

To do that, retailers must leverage the one thing Amazon does not have yet: stores and talented front-line sales staff. Traditional retailers already have both of these; they just need strategies to leverage them for maximum profit.

The mantra of Amazon CEO Jeff Bezos is, “Tomorrow is day one,” but he states that he is working on the year 2024 right now.

Driverless cars and delivery will be a reality by then so think about what this will mean for consumers. Will they still go to stores?

Chances are most retailers haven’t even thought about what driverless means to store design and parking, for example, but one can bet with certainty that Amazon is already planning a holistic ecosystem to leverage it.

It is the job of retailers to think ahead, keep informed and do what they can to keep up.

Chris Petersen

Contributor • Integrated Marketing Solutions (IMS)

Chris Petersen is founder and CEO of retail consultancy Integrated Marketing Solutions (IMS). Learn more:

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Monday, 01 June, 2020 07:52am
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