To beat Amazon, brick and mortar retailers need to raise prices

Brick and mortar retailers need to figure out a way to compete with Amazon and other e-commerce giants that doesn’t eat into margins. Deals and coupons simply aren’t enought. And as former Apple retail chief Ron Johnson has said, retail isn’t broken, stores are. So how are retail stores going to survive? While mobile may be the technology e-commerce companies are using to jab physical stores, it is also the technology that may save these stores. Personalization and data are the two key factors that could save retail stores; and the vehicle by which these technologies can be utilized is via the mobile phone.

Retailers are convinced that to beat Amazon, they need to match or beat them on prices. This is wrong. There is much more to Amazon than just low prices: it’s about the overall experience.

Amazon has more reviews than any other, fast and friendly customer service, quick shipping, no hassle returns, and something you can’t measure in dollars: a brand I trust. Other retailers aren’t able to match this.

But it gets even worse for them: it’s impossible for them to compete on price. Amazon doesn’t have the overhead of physical stores. And Amazon’s core competency is operations: they take a data driven approach to shave pennies off everything they sell.

Through operational efficiencies and sheer volume, Amazon can sell items for less than anyone else.

To compete with this, I believe other retailers need to take a completely different approach. They should raise prices and differentiate their offering. They need to change the game so consumers can’t compare apples to apples against Amazon.

Retailers need to add value over the Amazon experience, in ways that a purely online store can’t: instant gratification, easy returns, knowledgable in store staff. Make in store shopping awesome again.

One great success story of charging more and winning is crutchfield.com. Almost everything they sell can be purchased on Amazon for 10-30% less. But Crutchfield offers service that people are willing to pay for.

Sears was once a brand people trusted. Now they have one of the worst shopping experiences in the world. They are shutting down stores because of a slow holiday period.

I’m ok living in a world where I buy everything I need from Amazon. But if other retailers want to stand a chance, they need to change the game.

5 comments

  1. Prices of Apple products are the same online and in retail stores. There might be a small difference but I guess the customers are willing to ignore the difference because the retail experience is great. But with other products, especially in electronics, there could be a huge price difference between online and retail store prices. I think this is where the customer walks into a store experiences the product, buys online and gets it delivered to their doorsteps.Customers saved close to 10% when buying from Amazon because the they do not have to pay state tax. It will be interesting to see if there is an impact after more states ask Amazon to start collecting state tax.

  2. Good post. I think it’s important to note that in most states Amazon doesn’t charge sales tax, where retailers must. If this advantage to Amazon were removed, I would imagine Amazon’s sales would decline, perhaps significantly. Local governments have really taken a hit because of that lost tax income, which affects the things we should care about most: schools, social services, infrastructure. Having said that, I do agree that retailers need to up their game and focus on creating great experiences in their stores. Amazon can’t follow that act. Sears is the poster child for what happens if you ignore the shopping experience.

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