How To Compete Against The Largest Online Retailer In The World Matthew Alberts & Jill Campbell – Solution Strategy Directors Oracle Retail

September 2016

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Agenda • Amazon • Amazon Mexico • Strategies to Compete Against Amazon – Convenience – Merchandising – Focus on the Customer – Brand Differentiation

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Agenda • Amazon • Amazon Mexico • Strategies to Compete Against Amazon – Convenience – Merchandising – Focus on the Customer – Brand Differentiation

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Biggest disruption for retailers today

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Amazon is intimidating……. 2 Day Delivery With Amazon Prime

Same Day Delivery In Manhattan

23 Minutes Fast Amazon Prime Delivery in Manhattan (Easy Bake Oven)

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Million items available for Prime shopping today

50% Increase

in Amazon Prime Users in 2014

Amazon is opening stores on college campuses

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Amazon has global scale • Operate in: Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, Mexico, the Netherlands, Spain, and the United Kingdom • $63.7bn in 2015 sales – $35.4bn international

• 26% YoY growth – 21% international

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Amazon makes massive Investments • $13.41 billion USD in 2015 on fulfillment • An increase of 25% YoY • $5bn loss on $6.5bn in shipping revenue – Expect cost of shipping to increase mitigated with higher sales volumes

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Amazon’s stated strengths • Customer service • Information Technology • Efficient supply chain and logistics • Huge global brand

• One of the first e-commerce retailers • Diversified product range

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Amazon is disruptive on software vendors as well

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In a day, AWS adds as much new infrastructure as they had used to run the entire Amazon business when it was a $7B business

According to Gartner,

AWS has 5x more deployed cloud infrastructure as their next 14 competitors have... in aggregate

Amazon owns over

4.2 million IP addresses to be used by AWS. At least 2 million are already in use.

Amazon S3 holds trillions of objects and regularly peaks at

1.5 million requests per second

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AWS partner, Netflix, accounts for up to

⅓ of Internet traffic during peak usage times

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Agenda • Amazon • Amazon Mexico • Strategies to Compete Against Amazon – Convenience – Merchandising – Focus on the Customer – Brand Differentiation

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Mexico is the door to Latin America • Overall growth was fueled in part by telecom regulatory reform • Consumers are beginning to enjoy lower prices and better Internet and mobile access

• On another front, the entry of pure online leaders in retail such as Amazon and the response from established mega retailers such as Walmart broaden shopping opportunities and positively influence the market • The biggest influence lies with Mexico’s population – Approx 63 percent of Mexico’s citizens are 15 to 60 years old – 80 percent live in urban locations

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2015 Global Retail E-Commerce Index

Growth potential ranges from 28 – 58.6% with Mexico leading (USA growth potential is 22%) Source: Euromonitor, International Telecommunication Union, Planet Retail, World Bank, World Economic Forum, United Nations Department of Economic and Social Affairs; A.T. Kearney analysis

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Shoppers Make 24% Of All Online Purchases From Outside Their Own Country In Brazil and Mexico more than a third are made internationally

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Product Assortment & Lower Prices Drive Cross-Border E-Commerce

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Amazon.com.mx • Launched in mid-2015 • Debuted with more product categories -- electronics, housewares, sporting goods and more -- than any other international rollout • 1 distribution center in Mexico City • Offer to source products from US distribution centers subject to import duties and taxes

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Reacting to the market • Offering payment plans • Terms variable based on customer and bank programs

• Requires all products to be sourced from Amazon Mexico (no 3rd-party or Amazon US products)

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Shipping • Offer free shipping on purchases of 599 pesos ($32 USD) • Variable shipping for some products • Prime shipping program not currently available • Customers also have the option of having their goods delivered to hundreds of pickup locations across Mexico

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How popular is amazon.com.mx?

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What search terms do amazon.com.mx’s visitors use?

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Where do amazon.com.mx’s visitors come from?

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Agenda • Amazon • Amazon Mexico • Strategies to Compete Against Amazon – Convenience – Merchandising – Focus on the Customer – Brand Differentiation

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Strategies to Compete Against Amazon

Convenience

Merchandising

Fulfillment

Narrow your niche

Build confidence in the store visit

Merchandise specifically to your customer base

In-store pickup Mobile

Sell something different Differentiated Pricing & Privatelabel Merchandise

Focus on the Customer Build an online and offline community Build customer profile Boast the best customer service experience

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Brand Differentiation Define what makes you unique Focus on your local-ness In-Store Mobile

In the battle for retail market share, convenience wins Find New Channels of Convenience or Fall Behind

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Fulfillment • Consumers want predictable shipping – Target began partnership with Curbside, a mobile app that delivers ordered items to a customer’s vehicle. Available in metro areas (San Francisco, New York, New Jersey). – Bed Bath & Beyond and Sears offer specialized shipping and curbside pickup services. – Bed Bath & Beyond’s “Pack & Hold” service allows customers to buy items at one store and pick them up at another location. – John Lewis enabling click and collect points in Waitrose

• In-store pickup is the most effective way for brick-and-mortar retailers to compete with online retail. • Customers want to drive to the store and have you put it in their trunk. It’s better than shopping online and waiting for home delivery. Yet younger people (millennials) prefer to shop online. Copyright © 2016 Oracle and/or its affiliates. All rights reserved. |

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Under Promise, Over Deliver • Zappos – They didn’t make a big deal about their killer shipping policy, but when it happened, customers were floored and hooked. – Zappos scored by delivering the customer’s packages before they anticipated them! (Source: Tony Hsieh, CEO)

You don’t have to offer free shipping or some other extraordinary same-day service, but you can create a shipping service that exceeds expectations and provides satisfaction.

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Drive visit to store with Confidence • 71% of consumers who cited the ability to view inventory information for instore products as important or very important.

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In-Store Pickup Commonly Used For Online Customer Orders • 70% of US online consumers buy online, pick up in-store to some degree • 5% of US online consumers use it every time they make a purchase with an in-store pickup enabled retailer

• Popular Omnichannel Services 1. In-store pickup 2. Ship-to-store (from an online distribution center) 3. Store-to-store delivery

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In-Store Pickup Customer Experience • In-Store Pickup Programs Often Lack Operational Efficiencies & Customer Focus – Executed in haste – Retailers must identify and resolve issues that will allow them to offer and optimize the instore pickup process.

• In-Store Pickup Requires Retailers To Have Highly Streamlined Operations – Partner with key internal stakeholders to maximize revenue and minimize inefficiencies from in-store pickup programs. – Refine and develop the infrastructure to overcome the many challenges of servicing this touchpoint.

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Customers Can Be Influenced To Add Additional Items Retailer priorities… • 44% - special deals or discounts in-store • 24% - an emailed coupon with my order confirmation that can only be used towards an additional purchase in-store • 23% - Something that catches my eye at checkout • 19% - If I can earn loyalty points or other benefits

Source: Forrester

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Create a Subscription Service • Subscribe & Save (recurring shipments) • Amazon Prime (annual fee) • The subscription service is one of the smartest ways to sell a product. • You don’t just get a one-and-done transactional experience with your customer.

• You get a relationship, and revenue every month or year.

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Use Mobile as a Wedge • Mobile shopping is expected to account for more than half of e-commerce sales by 2018, according to Forrester. • Retailers have seized the opening in mobile shopping by cozying up to already popular apps to get their products on smartphones. – Uber opened its platform to businesses like Starbucks and United Airlines – PayPal cut deals with companies like Home Depot and Foot Locker – Facebook is testing a “buy” button that allows retailers to sell their products from within the social network – More partnerships like these are inevitable

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Sephora – Contextual Commerce • Shoppers frequently use their smartphones to aid their in-store shopping • Sephora’s To Go app includes a “Store Mode” • Store Mode turns on additional beaconpowered features that support and enhance the in-store shopping experience – Scanning products for rating and reviews – Quick access to purchase history and Loves list – Access to loyalty status information

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Target with Cartwheel

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Amazon.com.mx

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Mobile Device Trends

Source: Forrester, Bizrate Insights

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Mobile Traffic to the Top 500 U.S. E-retailers

Source: Branding Brands

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U.S. Internet Users Who Use Mobile Apps In-Store Percent of Internet Users Per Age Group Using Mobile Apps In-Store

Source: Branding Brands

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Merchandising

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IN E-COMMERCE, PRODUCT SELECTION MATTERS • Virtual baskets don’t necessarily mirror physical ones. In fact, the relationship between the two is often an inverse one. • “Consumers are embracing the idea of buying certain packaged goods online, but some categories are simply better suited for e-commerce than others,” said Dodd. “While certain fast-moving consumer goods categories will serve as ‘on-ramp starter’ e-commerce categories, as we’ve seen in Asia-Pacific, adoption rates will vary market by market. Understanding what consumers are buying both on and offline allows you to prioritize digital initiatives and take action with the categories that drive in-store trip count and basket size.” • E-commerce is well suited to specialty retailing because it allows companies to offer greater product selection in a category than would typically be available in brick-and-mortar stores. Online retailers can do well by fulfilling unique customer needs, such as the desire for better-for-you foods. Nielsen research shows that today’s shoppers are seeking fresh, natural and minimally processed foods with beneficial ingredients that help fight disease and promote good health.

Source: Neilsen Copyright © 2016 Oracle and/or its affiliates. All rights reserved. |

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Narrow Your Niche and Dominate It How do you dominate it?

• Content Marketing – Amazon.com doesn’t do content marketing. – They don’t even do email marketing that well. – They buy PPC, they do conversion optimization, they do SEO, they release products, they claim more verticals plus more.

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Merchandise Specifically to Your Customer Base You can compete against Amazon by creating a fantastic browsing experience • Take a close look at Amazon’s website – Stark white background and floating images of products – Design is akin to the aisles of a club store – Pages are void of personality for a specific reason – Stripped down the online shopping experience to its simplest form because of the large number of products they sell – Amazon is a search engine that enables you to find products quickly. – Amazon is not designed for browsing or online “window shopping.”

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Sell Something Different • Look at what Amazon sells in Mexico. • You’ll primarily see lots of “hard line” products like electronics, home and garden merchandise, toys, and media.

• With these types of products, price is the primary differentiator, and nobody is more effective at selling them than Amazon. • It makes sense to sell products in categories where Amazon isn’t as dominant.

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Differentiated Pricing & Private-label Merchandise • Delivering everyday low prices • Taking differentiated pricing strategies by products/categories • Advancing a private-label strategy • Offer deals on popular items to create a perception of low price, and boost margin on private-label and less sought-after merchandise.

The most compelling discounting strategies in today’s market are differentiated pricing and private-label merchandise.

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Differentiated Pricing • Differentiated pricing divides products by popularity, volume and margin. – Frequently searched-for items can be positioned as loss leaders and will drive most of the overall consumer price perception. – In a typical online retail setting, this amounts to 10-20% of the products sold.

• Walmart famously priced its staple grocery products that lived on the perimeter of its stores (think: milk, eggs, bread) very aggressively • Amazon.com brought this strategy to online book selling

• Amazon prices popular items aggressively in the consumer electronics industry versus its competition – Best Buy and Walmart’s SKUs were priced 10-12 percent higher than Amazon’s.

• In other, less popular categories, Amazon priced higher than its major competitors, looking to take margin where possible. Copyright © 2016 Oracle and/or its affiliates. All rights reserved. |

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Private-label Strategy • E-retailers are using their private-label merchandise to improve profit margins while beating Amazon on price • At JCPenney.com, for example, 84 percent of women’s activewear was private-label merchandise, while Kohls.com featured 57 percent private-label stock and Macys.com offered 27 percent. On that same day, Amazon.com had no private-label products in women’s activewear. • Home Depot and Lowe’s introduced their own set of tools and changed their in-store merchandising to support that strategy. For Home Depot, a smaller set of products, but more price competitive with Amazon. Lowe’s private label products dominate up to 1/3 of their tool department. • The gap shows a clear opportunity for competitors to establish their own private-label brands in that category and extract profits. Copyright © 2016 Oracle and/or its affiliates. All rights reserved. |

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Focus on the customer

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Build an Online and Offline Community

• Hand-in-hand with great merchandising is community building. Amazon is very aware that their customers are there for one very specific reason – great prices. Thus, community building is not a necessary strategy for them. – To develop a community online, unique content is essential. Have a blog that people actually want to read, videos, and active social media channels. Make it aligned with your brand, geared to your audience, and interesting to achieve the best results. – Offline communities can be developed through events that cater to the specific interests of your customers. For example, Lululemon offers complimentary, in-store yoga classes each week. These events are not only a way to get customers into the store on a regular basis but they also build a community of influencers who tell their own networks about the classes.

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More Omni Average Customer Touchpoints = 3.5 (Source: Forrester)

Vouchers

Contact Center

Social

POS Mobile

Web

Loyalty

Print

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John Lewis Connects Shopper Profiles Across Channels • John Lewis uses it mobile app and beacons to identify when a Click & Collect customer is near a store • The customer is asked if he/she would like to pick up his/her pending order • If the customer replies yes, a store associate is alerted to pick the order so it is waiting at the pickup desk when the customer arrives

UNDERSTANDING INSIGHT

CHANNEL

CONTENT

REWARD

LOCATION

DEVICE PREFERENCE

Source: Forrester, JohnLewis.com

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Customer Retention is better than Customer Acquisition If your customer know you care, then you can hang on to 68% of your customers.

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Boast The Best Customer Service Experience • Provide something that Amazon can’t. • Amazon cannot provide personalized, one-on-one service to human beings like you can.

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Brand Differentiation

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Define What Makes You Unique • Before you begin slashing your prices to undercut Amazon, start with an assessment of what makes your business unique. – Do you cater to a specific market segment? – Do you sell one-of-a-kind products? – Are you known for going the extra mile for a customer to locate a hard-to-find product?

• Amazon can’t compete with your business based upon your differentiators. They are focused on price and the speed in which they can get products into your hands. • Bringing your uniqueness to the forefront for customers to see is the start of making your business relevant in the age of Amazon.

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Focus on Your Local-ness • As Amazon continues to gain market share, it can seem overwhelming to compete • DON’T compete… DIFFERENTIATE

• Offer something other than just the lowest prices

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Adapt: Differentiate With Your Store Favorite Ways to Shop

44%

34%

8%

8%

Buying goods in-store and taking them home

Buying goods online and having them delivered home

Buying goods online and collecting them in-store

Buying goods in-store and having them delivered home

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WINNING IN THE NEW RETAIL ENVIRONMENT • Digital is here to stay, but the majority of consumers will continue to shop for the bulk of their purchases in store—even If the channels they’re using are changing. Shoppers will use whatever format best suits their needs for convenience, choice and value. Therefore, it is critical that retailers and manufacturers leverage physical and digital assets to optimize the in-store experience. – – – – – –

Remember what drives shoppers Add value through digital Consider channels holistically Know your shoppers Recognize that change is industry-wide Measure and adjust

Source: PwC Copyright © 2016 Oracle and/or its affiliates. All rights reserved. |

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