For Retailers, Only Strength in Numbers Might Defeat Amazon

Most retailers have been asking themselves one question for several years: How can we compete effectively against Amazon?

It’s a fair one. In 2017 alone, Amazon’s list of well-conceived strategic moves is lengthy: the purchase of Whole Foods, a new partnership with Microsoft on voice recognition, the search for a second headquarters, etc.

What’s propelling Amazon’s seemingly endless upward trajectory? In a word, it’s data; if information is the new oil, then Amazon’s wells are pumping overtime while the rest of retail relies on trickles, dribs and drabs that fuel survival but not success. That’s why only a data cooperative, a group of retailers working together for their collective good (and survival), is a resourceful solution that would enable smaller industry players to take a more serious and meaningful run at Amazon.

Just how good is Amazon? We need only look just at Prime membership to get a sense of this data in action. Let’s consider the numbers: some estimates put Amazon Prime members at 85 million people (for context, that’s more than the entire population of Germany). Prime users spend about twice as much at Amazon. They tend not to comparison shop and one report puts Prime conversion rates at 15x the industry average.

But why? Setting aside obvious benefits of Prime membership, it’s the personalization that matters most. Consumers willingly and continually give Amazon a treasure trove of data-backed insights — and the company’s sophistication in leveraging this data puts it at the top of the heap in anticipating and curating shoppers’ needs and wants. That’s very tough to beat.

In a data co-op model, the strength is literally in the numbers — together, the collective has the scale to generate better insights than any one of its members could possibly derive on their own. According to Forrester, such data co-ops can also open the door to collaborative marketing opportunities, improved relevance and targeting, and ultimately better customer experience.

The concept is not new, but it is good.

In the 1990s, for example, catalogue marketers used cooperative databases to better target customers. Names like Abacus, NextAction, and Z-24 were well known for building lookalike models that helped cataloguers acquire customers far more effectively than previously had been possible. A mall is an excellent offline example – with stores that join the mall for the shared infrastructure and the associated advantages (e.g. increased foot traffic at the holidays).

Last year, Adobe announced its new Device Co-op, a service meant to help marketers get “more detailed website metrics…more personalized content and…more accurate targeting.” In order to compete with Facebook and Google, which are now the two major defaults for marketers to buy advertising, Adobe has said this co-op could link about a billion devices and prove a worthy competitor to these two data monopolists. Likewise, this summer, ad tech company Criteo announced a data cooperative effort meant to break companies’ reliance on the Amazon ecosystem.

Building an effective data co-op for retail is challenging – 55 percent of online shoppers start their product searches on Amazon, says BloomReach – but ultimately worth the battle. More choice will force the industry’s three major players – Amazon, Facebook, and Google – to improve what they offer to marketers. If the competition is better, then the Big Three runs the very real risk of significant losses. Either way, the consumers – in this case, the marketers – win.

The right co-op structure will yield better personalization based on actual customer needs and intent. It will earn customer trust by balancing privacy concerns with personalization; for example, the co-op should outline clear rules that ensure obfuscation of certain kinds of data (e.g. PII) before sharing with the pool. Finally, it will prioritize optimized marketing for long-term value. This is about building long-term relationships that reward both the retailer and the consumer; it’s not merely about immediate conversions. Each member of the cooperative should believe in, and be working toward, that goal.

In the end, if retailers continue their vain attempts to replicate Amazon’s perfect data formula, they most assuredly will fail. But if they form a David — a like-minded collective that’s committed to pooling their data for the greater benefit of all — they can wound and perhaps even win against retail’s ultimate Goliath. 

*Brent Franson is CEO of Euclid, a mobile location analytics platform. Before he joined Euclid, Franson was the Founding Head of Sales and Vice President at Reputation.com Prior to assuming his role at Reputation.com, Franson spent several years building a full-service international search engine technology agency, which ultimately grew to include offices in Philadelphia, Denver, Mountain View, and Bangalore.