There’s no need to bore you with the stats that prove Amazon is a major player in  e-commerce. It operates on a massive scale, using two essential business philosophies that make it difficult for smaller retailers to challenge it.

1. Amazon has historically focused on growing the company over profits, allowing it to offer prices that would bankrupt many smaller retail operations.

2. Amazon has a vending machine approach to retailing; whatever customers want, they can likely find it on Amazon.

This second philosophy is both Amazon’s strength and its weakness. Today, I’m sharing with you four ways you can use Amazon’s “all things for all people” approach to your own advantage.

Amazon Headquarters in Seattle Amazon HQ in Seattle

Technique #1: Develop Your Own Product

As entrepreneur Chris Dixon is quoted as saying, “If it has a UPC code, Amazon will beat you.” In other words, if you’re selling the same products that Amazon and a hundred other companies are offering, your chances of offering competitive prices are practically nil. It doesn’t matter whether you’re running a brick-and-mortar store or an online shop; the online retail giants like Amazon can rarely be challenged on price for the majority of the items sold.

The solution is to create a unique product line that can’t be shopped on Amazon. By making and marketing unique items that aren’t available anywhere else, online retailers can flourish, even with the popularity of sites like Amazon. Unique products lay the foundation to a unique brand. Think Warby Parker, Bonobos and the Dollar Shave Club, each of which has a distinct brand and niche. You can’t purchase these products on Amazon, so they can avoid competing with Amazon head-on.

Technique #2: Become an Expert Curator

A curator, in the traditional sense of the word, typically conjures up images of galleries filled with artwork or museums displaying dinosaur fossils. Professional curators collect, select, display and preserve objects within their specialty. They typically have at least one degree in their field of expertise, or demonstrate their knowledge by their research and passion. The depth and breadth of their knowledge is impressive.

Amazon cannot be a curator. Customers have thousands of brands to wade through, and sometimes there are simply too many choices. It’s impossible for Amazon to offer specialized, expert guidance due to its massive size, but you can.

People look to gurus and experts to do the hard work for them. Consumers crave an expert that can help narrow down their possible choices. People purchase from Crucial Vacuum because we are experts at what we do – we know vacuums, understand how they work and can advise our customers on what to purchase. You can call us and we’ll give you the real deal explanation of how to change whatever accessory your changing.  Another example of curation is  Trunk Club, the online men’s clothing services that provides a personal stylist at no charge to hand-pick items based on my fashion taste and personality. You can see my photo below, Amazon can’t possibly offer this service or value.

Trunk Club Box Inside my box from Trunk Club!

Technique #3: Use Mystery Boxes and Act as a Subscription Curator

Curators, whether in the traditional sense or the online redefinition, are gatekeepers in an age when traditional gates are crumbling all around us. There is so much “noise” out there - we seek experts and curators out because they can take us somewhere new and exciting. Curators welcome others into their world to see what they see and share the experiences that they are passionate and knowledgeable about.

Check out Tim Ferris. I’ve read his books, respect his opinion and what he chooses to purchase and truly value what he shares to the community. Every quarter, subscribers receive a mystery box of products that he is obsessed with, which can range from special coffees or teas to journals or music. He includes a video that explains how he located the items and how he uses them. That’s value added, and value that can’t be replicated by Amazon.  You can also buy Tim’s subscription from Quarterly.co, and also other curated care packages from people you care about (like Pharell)!

Technique #4: Think Beyond the Transaction

The most successful retailers explore opportunities to create real or perceived value in all aspects of the buying experience.

Take Crutchfield, which carved out a niche as an online supplier of automotive audio equipment. To help customers install their new equipment successfully, Crutchfield created a library of installation instructions for each specific car. The approach was well-conceived and well-received. It spares customers unnecessary frustration and saves them time — and encourages them to be repeat buyers and spread the word to friends and family.

Another approach is the “try five, keep one” program offered by Warby Parker. Customers can order five pairs of glasses and have them delivered to their homes. They can try on the actual glasses, complete with lenses, rather than just the frames. They pay only for the pair they decide to keep, or they can return all five pairs and pay nothing. The program offers customers the convenience of purchasing their glasses online while reducing their fears of buying eyewear “sight unseen.”


Conclusion

Just because Amazon is a massive player, doesn’t mean you can’t play the same game and beat them in a different and unique way. Start by seeing what’s missing in shopping experiences and markets, see what value you can give to your customers that they are not already getting. Use the techniques above to your advantage. I’ve seen this work. The success of Crucial Vacuum is due to leveraging weaknesses around us and turning them into our own strengths. By playing smart, you too can take a big slice out of the e-commerce market. I have faith in you!

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I believe there is a massive opportunity in online commerce going direct to the consumer in niche verticals, outsourcing the manufacturing process. Some of my favorites include Warby Parker, Bonobos, Dollar Shave Club, Everlane, and so many more are currently capitalizing on this trend of cutting out the middlemen and are achieving tremendous success. However, none of these e-commerce companies are the actual manufacturers and they certainly aren’t vertically integrated (a business that owns the whole supply chain, from manufacturing  to sales). They are just designing, branding and distributing their products. Back in the day, vertical integration was the holy grail, but nowadays to be a successful e-commerce company,  it’s just unnecessary.

Which is why I was surprised when I heard Shaving startup company Harry’s managed to raise $122.5 million and spend $100 million to purchase Feintechnik, a German company that has been manufacturing razor blades since 1920. It’s often that an American company with less than a year in business can raise over $100 million in capital to purchase an established European company. At first glance, the move to manufacturing makes sense. Many large companies have chosen vertical integration to protect themselves against disruptions in the supply chain, and to avoid crippling price increases. By purchasing Feintechnik, Harry’s hopes to control the entire process from manufacturing to distribution. When you look at it a little closer, however, it appears that Harry’s (and investors) have made a $100 million mistake.

Harry’s has only been in business for 10 months. During that time, the company has been reinvesting so heavily that it has yet to show a profit. With no track record proving that its concept of upscale shaving products at competitive prices will pay off in long-term success, burdening the company with this kind of debt seems like an unnecessary risk. I’ve been running Crucial Vacuum for just over 5 years and couldn’t fathom running a manufacturing plant in China or another part of the world. It’s not a core competency of mine. Manufacturing is a totally different world for both me and Harry’s co-founder Jeffrey Raider. Although Raider also co-founded Warby Parker, the eyewear provider never purchased a manufacturing plant to produce its glasses and they are killing it. Raider’s expertise is in building a brand, marketing and e-commerce, so it will be interesting to see how well Harry’s can make the transition to manufacturing.

A good rule of thumb is to choose vertical integration only when  it’s necessary to protect your company’s value. Only after carefully analyzing the risks involved should a company opt for vertical integration; even then, a surprising number of companies fail to manage the move successfully.  It leaves the door wide open for competitors to exploit the opportunity through innovative practices, creates more risk, requires more capital, and dilutes the brand-centric focus. An outsourced manufacturing model suddenly feels like a competitive advantage.

the executive shaver “The Executive” from Dollar Shave Club.

What prompted this blog post, was that I was trying to find the perfect shaver for my thick hair, sensitive skin and razor burn. I stumbled upon Harrys in the research process and then their competitor, Dollar Shave Club. Dollar Shave Club launched more than a year before Harry’s was founded. The company offers lower-end blades for between $1- $2 per month and “The Executive”  (5-blade shaver) for $9 per month (that’s the plan I’m on), and I subscribed so that I never have to go out and buy blades again. Dollar Shave Club is not vertically integrated; it purchases its blades from a  South Korean supplier named Dorco. They’ve nailed it with their business model, but should the market deteriorate (competing against Gillette and Schick), it will be able to pivot quickly. The same can’t be said for Harry’s.

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