“They play by different rules”: Why Amazon’s Australian launch is a five-year plan that doesn’t include price slashing
Thursday, November 30, 2017/
The launch of Amazon in Australia has turned out to be a much slower burn than anyone anticipated.
Media outlets and excited customers expected to see a switch flicked last week that would signal the irrevocable transformation of Australian retail. That didn’t happen. Instead, as festive shopping amps up across Australia, word is that product listings are sitting in the back end of Amazon’s Australian website, ready for action but not yet available for purchase.
Despite the anti-climax of months of coverage, retail expert and consultant John Batistich says we shouldn’t underestimate Amazon’s one-of-a-kind power to set consumer expectations, nor should we think this slower-than-expected launch isn’t all part of the plan.
“Amazon has been driving much of the innovation that is driving expectations,” he tells SmartCompany.
“What we know is that they’re the most disruptive company on the planet … They invented free delivery, and free returns. They invented one-click purchasing. They invented the Prime sales program and they invented the idea of giving you all this added-value content: free storage, free ebooks, free movies.”
For those looking in from the outside, it might seem the fanfare over the past week about the launch was overdone — but having followed the retail giant’s strategy in detail, Batistich suggests there is one truth about Amazon that has been pushed to the back in the tidal wave of coverage: Amazon is in a league of its own.
“Never have we seen a company so large grow so fast, have access to a very low cost of capital, create no profitability ultimately and maybe destroy jobs, while paying lower taxes than everyone they are trying to disrupt,” he says.
“They play by different rules.”
Why it won’t be a race to the bottom on price
As local retail heavyweights like Gerry Harvey pledge to match Amazon on price, concerns have been raised that the retailer’s arrival will further erode margins across the sector.
But Batistich believes predictions about price slashing are overblown, given Amazon doesn’t tend to undercut other retailers, but match them.
“That [price drops] is untrue, it’s all hype,” he says.
“What will happen is that they will ensure they are never beaten, but that they are at the lowest point.”
Instead of a focus on price cuts, Batistich predicts Amazon will spend the first five years of operation slowly building up one of its core competencies: “figuring out how to compress the time between ‘order’ and ‘receive'”.
In five years’ time, he believes the company will have established itself as “as a price point that nobody beats, but not lower than others”.
Good news for SMEs, but Amazon is playing a long game
As Australian retailers watch the company’s rollout, there are simple things they can do to ensure they are competitive in the years to come.
These include “getting lean”, “personalise”, and “offer a full range of payment choices”, as these three elements are core strengths of the Amazon model, Batistich says.
It’s also clear that many online retailers will be jumping about Amazon Marketplace in coming years, but Batistich believes anyone who thinks the entry of Amazon will change the game immediately for incumbents is sorely mistaken.
“I believe that the Australian launch of Amazon has received way too much noise, hype, and as you can see from their soft launch, it doesn’t meet those over-inflated expectations,” he says.
However, Amazon is simply following its game plan, he says.
“By next year, they’ll do apparel and consumer electronics,” he predicts.
“They will have established Prime maybe in year three or year four [of operations]. In five years, they would have improved delivery times to same or next day delivery. I think they will slowly, but surely, improve the delivery experience.”
There will be plenty of opportunities for smaller businesses in the “long tail” of the retail market to take advantage of Amazon’s Marketplace platform. Aside from Marketplace, however, Amazon’s first few years in Australia will be about getting to know the local market, rather than full-on expansion, Batistich predicts.
“They will not do fresh food in the first five years, but they will have built a lot of intel [over that time] on customer buying habits,” he says.