Practical Ecommerce

5 Ways Smaller Ecommerce Retailers Can Beat Large Ones

Smaller retailers that compete solely on price against large ones, like Amazon, almost always lose. But there are other ways that small retailers can beat Amazon and other large competitors.

Here are five strategies.

1. Fanatical Focus on Customer Service

Most businesses focus on serving shoppers. But for smaller retailers to be successful, they frequently must be obsessive about it and willing to go the extra mile. This could mean an extensive self-service help section, and easily accessible customer service — chat, phone, and email. Also, smaller retailers can offer value-added services to help shoppers find the items they are looking for and, also, share insights on the product the shoppers have selected. All this must be designed to scale so that shoppers do not feel ignored as the retailer grows.

Zappos, the foot and apparel retailer, is a good example of fanatical customer service. Even though Zappos is now large and successful, it still continues to have a customer-focused strategy. It is no wonder that Amazon purchased the company.

Zappos is famous for its high level of customer service.

Zappos is famous for its high level of customer service.

2. Nimbleness

A smaller retailer can be more nimble to adjust the shopping experience based on the feedback from its shoppers. A smaller retailer can quickly change the product assortment on its site and optimize it based on customer inputs, A/B testing, and historical tracking of what works and what does not. Smaller retailers can use this nimbleness as a competitive advantage, especially in the earlier stages of the business. They should keep this in mind before signing a long-term contract with a supplier, even though it might look financially attractive.

An example of a retailer that used nimbleness to its advantage is Bonobos, the clothing site. A couple of years after getting started, Bonobos’ customers requested to try out the clothes before buying them. Bonobos listened and opened a small store in its New York headquarters to allow customers to try on the clothes before buying them online. A larger online retailer would likely have debated and spent more time to assess whether to expand into the physical channel. But Bonobos acted on this feedback quickly. This first store was so successful that Bonobos ended up opening similar stores in Boston, San Francisco, Chicago, and other cities. Bonobos has further expanded by selling its clothes in Nordstrom stores.

Bonobos opened physical locations after listening to feedback from its customers.

Bonobos opened physical locations after listening to feedback from its customers.

3. Better Quality

Traditional retailers have relied on similar or better quality white-label goods to generate more revenue. Costco is a good example. Its Kirkland brand competes with almost everything sold in the stores. Smaller online retailers can use a similar strategy to offer products that are better quality than what is available from larger retailers. “Better quality” can mean several different things: better material, less harmful to the environment, more innovative. The better quality should also come with competitive pricing or unique features and functionality to justify the increased price.

Frank & Oak is a small retailer that has used design and technology to produce high quality garments in the crowded men’s fashion space. Frank & Oak has been successful because it is committed to producing a quality product by procuring the best possible fabric and a close attention to detail. It has quickly grown from a small team to almost a hundred people —demonstrating that quality and attention to detail can make a difference even in a competitive market.

Frank & Oak sells only high-quality clothing items.

Frank & Oak sells only high-quality clothing items.

4. Increased Loyalty

Smaller retailers should know their customers and work on building relationships for greater lifetime value from each one. They should also utilize their customers for word-of-mouth marketing and offer incentives accordingly. Personalized service and a compelling loyalty program with different tiers of incentives can help. The loyalty program can use innovative features, such as accepting points from other programs — airline miles, hotel points — to encourage participants to move to the highest tier. Other innovative strategies could include offering incentives based on the seasons or to shoppers in a specific geographical area. These techniques are often difficult to implement by a large retailer.

Luxury goods retailer Gilt Groupe, no longer a small retailer, has a very effective loyalty program called Gilt Insider. The program has options for members to redeem their points, such as percent discounts, early access to a sale (a big hit), and using points to buy products. This exceptional loyalty program is one of the reasons why Gilt has become such a huge success in a short period of time.

Gilt Groupe's loyalty program a contributed greatly to its success.

Gilt Groupe’s loyalty program a contributed greatly to its success.

5. Relationship with Vendors

The vendors that supply the goods, the packaging, and the shipping for retailers are also running a business. These vendors often get squeezed by large retailers to offer low-margin prices. Thus, vendors are often pleased to work with a smaller retailer that can respect the vendor’s business and can provide healthy margins.

As an example, say a vendor supplying organic cotton fabric sells it at the rate of $8.80 per yard with a margin of $1.40 per yard. A large retailer may demand $7.50 per yard, and get it. The big retailer is selling 10,000 yards a month, netting the vendor $0.10 per yard with a total gross margin of $1,000. Working with a smaller retailer, the vendor can offer a discounted price of $8.50 per yard and can still make $1,000 by selling only 910 yards of the fabric. This gives the smaller retailers a huge competitive edge, as vendors are motivated to work with smaller merchants versus the larger retailers. This strategy will not work, however, if the small retailer is selling commodity products, as it won’t be able to compete on price.

Gagan Mehra

Gagan Mehra

Bio   •   RSS Feed


email-news-env

Sign up for our email newsletter

Get the Practical Ecommerce RSS feed

Comments ( 4 )

  1. Carlos Rivera November 6, 2014 Reply

    I strongly agree with all the points mentioned above. Sure, Amazon and eBay dominate the online marketplace, but there are certain things that those behemoths cannot do by the mere fact that they are so large. This article exposes those weaknesses. Tremendous stuff. Thank you!

  2. Ecommerce Income November 11, 2014 Reply

    Great article with very valid points. I have only one thing to add: Niche, niche, niche!

    If you can find a niche, especially one with a certain target group, it is much more easy to become seen as the specialist in this area.

    What products to sell then? You can have a look here for some inspiration! http://www.ecommerceincome.com/starting-online-store/product-range/

  3. Lauren November 26, 2014 Reply

    Great article! Great boost as I am about to launch my new e-commerce site and have thought a lot about what can make me different. I am introducing in new site geographic focused incentives (didn’t know that was what it was called till just now!) but just wanted to focus on my local loyal customers rather than take ‘on the world’.

  4. Marc Bannan April 27, 2015 Reply

    Interesting stuff! There are many ways for smaller vendors to turn their diminutive size into a strength rather than a weakness. They will never be able to beat the giants on price, so it is all comes down to making the customer experience as unique and memorable as possible. A unique way of doing this that many vendors aren’t considering is utilizing an open innovation platform for marketing purposes, such as the ones provided by Qmarkets (www.qmarkets.net/solutions/by-use-case/marketing-and-strategy/). These portals are usually the domain of larger organisations, but they can be very effective at developing customer relationships with smaller businesses!