Amazon has been the source of even more hand-wringing than usual lately, from its proposed acquisition of Whole Foods, to dire warnings about the nation’s looming “retail apocalypse,” to President Trump’s criticism that the online giant doesn’t pay its “internet taxes.”
But these headlines often miss the point, at least from the perspective of small business owners. For entrepreneurs, the challenge posed by Amazon’s rapid growth isn’t about the consolidation of upscale supermarkets, ready-to-cook recipe kits, or home delivery of everything. Even the threat to brick-and-mortar retail has been overstated, at least for now.
No, the real challenge to small business is much simpler but also potentially devastating: customer data.
Small businesses are built on a foundation of customer relationships. As an entrepreneur, your success depends on the attentive service you can offer longtime clients and the personal connections you’ve developed in your community. You know your customers and their needs better than anyone.
Well, almost anyone. The fact is, Amazon knows more about your customers than you ever will.
Amazon knows what customers consider buying before, during, and after they buy it. The e-commerce giant can easily suggest buying the same things again, a tactic that happens to result in an eight-fold increase in purchase conversion.
Until recently, the threat posed by Amazon’s broad and deep knowledge of consumer preferences was primarily confined to e-commerce–or former brick-and-mortar sales that had moved online. But now the tide is coming back in. Amazon is taking its online dominance offline, by buying Whole Foods, opening Amazon bookstores, and opening pickup locations for online orders.
Even Prime Now is as much a real-world strategy as an e-commerce play. The two-hour delivery service depends on nearby warehouses that are stocked with the exact products customers are going to buy–which Amazon can do, because Amazon knows exactly which products nearby customers are likely to buy.
Amazon has the data it needs to succeed in brick-and-mortar retail just as it has dominated online retail. It knows what customers want to buy, where they want to buy, and when they want to buy–and, thanks to a distribution infrastructure built around (yes) data, the company can fulfill these needs more efficiently than anyone else.
Just as it has online, Amazon will be able to personalize the real-world shopping experience based on every customer’s purchase history, browsing history, reviews, likes and dislikes. And, of course, if they don’t have an item in stock at a brick-and-mortar store, they can always ship it to you within 48 hours–for free if you’re a Prime member.
This is the existential threat to small business owners: How could a local shop ever hope to collect and act on enough consumer data to compete?
Well, if you can’t beat them, there is a good way to join them. Small business owners are increasingly using Amazon as a sales channel. According to one survey, as many as 73 percent of small business owners are considering selling on Amazon in 2017.
And that’s because the ecommerce giant has efficient mechanisms in place for web traffic, secure online payments, shipping and returns – qualities that provide small business owners with convenience and incomparable reach.
If selling on Amazon is the right move for your business, you’re in luck since it’s not too difficult to become a third-party seller. Amazon offers various programs, platforms and classifications for its merchants, which means it’s crucial to determine which option is best for your company.
For instance, Amazon’s Advantage self-service consignment program is specifically designed for sellers (but not resellers) of books, music or DVDs. Or if you become a high-volume or “pro” merchant seller, you have the option to choose “Fulfillment by Amazon (FBA),” whereby Amazon is responsible for shipping, customer service and returns.
Understanding and effectively using the platform’s tools and options is ultimately what will set small businesses a part from the thousands of other merchants that sell products on Amazon every day.
And while this is a powerful way for more customers to find your products, it isn’t just a fulfillment or distribution relationship (which is how many small businesses have used eBay). Selling on Amazon also gives small business owners what they need more than anything to compete: access to Amazon’s data. In fact, more than 40 percent of Amazon’s unit sales come from third parties in Amazon’s Marketplace section, allowing any size business to take advantage of Amazon’s distribution, scale, and data.
Amazon isn’t alone in this approach, of course. Google, Apple, Netflix and other tech giants are learning more about your customers every day, and they are using that data to more efficiently meet their needs with personalized services. Without access to that data, your business simply will not be able to keep up. Fortunately, through affiliate opportunities like Amazon’s, these tech companies are willing to share at least some of their data to help your small business sell more.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.