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What Impact Will Amazon Have In Australia?

Tomorrow as we exclusively tipped 3 months ago, is ‘A’ Day in Australia with Amazon set to start testing their new Australian site later today, followed by a November 24th launch with a massive Black Friday marketing campaign to lure consumers away from store shopping to online.

ChannelNews understands that several retail groups have set up ‘War Rooms’ to monitor the Amazon affect and then respond.

Some say that the retailing environment in Australia, created by retailers and greedy shopping centre landlords has created a retail model that leaves them with no alternative but to charge premium prices for goods.
Australians believe they are paying too much for goods online. A total of 68% of shoppers surveyed by L.E.K recently revealed.

Amazon is set to take advantage of this perception and try to ween them to online shopping.

They believe goods are too high compared with those in other markets.

LEK claims that ‘considering the physical remoteness and high costs to serve in Australia, these views appear to have some merit in many categories’.

Australians really want Amazon to launch locally they claim. Overall, 78% of e-commerce shoppers surveyed expect to increase their online spend with Amazon when it launches.

This applies whether they are current Amazon shoppers or not, high or low-income earners, metro or non-metro dwellers, old or young.

Big store retailers such as Bunnings, K Mart, Target and Big W who range a high percentage of house brands are set to be challenged by Amazon with several suppliers to these retailers telling ChannelNews that they intend to market the same house brand products in Amazon’s Marketplace minus the retailer’s rebates and under a different name.

Amazon’s range of private-label products is now sufficiently large to provide a competitive advantage at launch. It has more than 4,000 SKUs across 37 brands already listed on their site, they include, price-led products such as HDMI cables, Bluetooth speakers to smartphone cables chargers and battery packs.

Initially Amazon will match lowest prices in categories, rather than compete via deeper discounts. Amazon’s general pricing approach is to use heavy data analytics to identify and match prices within a category, rather than undercutting prices (though it does offer deep promotional discounts on key items).

Its marketplace model creates an environment of price transparency between alternative sellers, and encourages them to compete with one another on price.

These settings quickly establish Amazon’s platform as the low-priced provider, and rapidly remove margin from categories where it competes.

Private label is also likely to form a key part of Amazon’s launch offer. Amazon’s private label range is of sufficient scale to offer a compelling proposition at launch.
How will consumer shopping behaviour change?

Amazon believe consumers’ brand loyalty can be disrupted when purchasing channels change. For example, a customer at Costco may break a lifetime of loyalty to a certain toothpaste to access a bulk deal claims LEK.

By providing attractive private-label options, Amazon will encourage users to switch.

Amazon’s success with private label is largely driven by customers’ trust in the Amazon brand. On top of this, product information pages and customer reviews can reinforce the decision to switch from an established incumbent brand.

Industry experts claim Amazon will draw confidence from the successful roll out of Aldi stores and in the Amazon Prime content market the successful launch of Netflix’s $10-$14 a month streaming subscription service.

So, what will the Amazon launch profile look like?

Amazon’s phase 1 launch will be a bog standard roll out of a web site with goods, it will not be fully functional and during the next few weeks you will see hundreds of new SKU’s added to the site along with new services next year, such as Insurance and even an Amazon credit card.

Amazon neve rushes its launches, preferring to take the time required to execute flawlessly. The recent (delayed, but thriving) launch in Singapore is a case in point claims L.E.K.

Amazon’s approach in recent international growth markets suggests Amazon will deploy a phased entry model that is particular to Australia.

In recent launches, Amazon has tailored its approach considerably to local conditions and become faster at rolling out its complete offer.

Amazon is currently establishing a limited number of east coast fulfilment centres to drive the first wave of its growth. It’s anticipated that Amazon will have between three to five sites within the next 18 months.

Prime is a key part of Amazon’s growth model, and is likely to be offered in metro Sydney and Melbourne within months of launch.

Amazon Prime is a subscription service that allows members to access unlimited free shipping (within one or two days), and a range of media content for about US$99 a year Prime drives customer stickiness, and many of Amazon’s private label ranges require Prime membership to access.
Amazon also offers a range of Prime variants (like Prime-Now, a two-hour metro delivery service) in selected cities.

Initially Amazon will match lowest prices in categories, rather than compete via deeper discounts. Amazon’s general pricing approach is to use heavy data analytics to identify and match prices within a category, rather than undercutting prices (though it does offer deep promotional discounts on key items).

Its marketplace model creates an environment of price transparency between alternative sellers, and encourages them to compete with one another on price.

These settings quickly establish Amazon’s platform as the low-priced provider, and rapidly remove margin from categories where it competes.

Private label is also likely to form a key part of Amazon’s launch offer. Amazon’s private label range is of sufficient scale to offer a compelling proposition at launch.

Demographically, Australia is an attractive target for Amazon.

At a household level, Australian consumers are “high-grade” prospects for Amazon’s offer: They are relatively rich, under-served, and time-poor. Australia is one of the most populous wealthy countries in which Amazon does not have a physical presence.

LEK research claims that in the years ahead, Amazon will have a profound and lasting impact on Australian retail. However, the rollout will be more considered and steady than many expect.

Retailers with high-cost, undifferentiated experiences will quickly leak share. However, there is a range of strategies available to limit the downsides. Therefore, the competitive impact on individual players may be slower to materialize than some expect.

Product suppliers, small retailers and brand owners have opportunities to profit from Amazon’s platform.

Amazon will without doubt raise competitive standards and consumer expectations in Australian retail, but it will also drive growth and provide a range of new opportunities across the market. The persona some commentators project onto Amazon as winner-takes-all disruptor of Australian retail is surely misplaced.

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