What small businesses can learn from Amazon’s disruption of SA’s marketplace

There are a few things local startups can learn from the world’s biggest retailer and how it plans to disrupt the South African marketplace.

Knowing your position, competitors can be potential partners, customer retention is imperative during periods of disruption and local businesses have significant advantages over global newcomers.

Leaked documents detailing the forthcoming launch of ‘Project Fela’, a new marketplace with its own membership programme owned by Amazon, prompted much industry speculation and debate around the role that competition plays in sector development.

What can we expect?

“Expect disruption,” says Jeremy Lang, executive director at Business Partners Limited. He urges small businesses to avoid complacency and see competitor research not as a once-off exercise, but as an ongoing business imperative.

He says in this key example of the disruptive entry of an international player into the local market, small businesses can learn valuable lessons, especially those who compete directly with large corporates, have aggressive growth strategies or simply want to understand how to manage their competitors more effectively.

“A significant component of thorough market research must involve rigorous competitor research, not only in terms of existing businesses, but in terms of plausible disruptors who may enter the market in years to come.”

He points out that there are two pieces of information that are indispensable to entrepreneurs: what will compel their targeted market segment to buy their product and who else is competing on that same basis.

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Know your position as a small business

Strategic positioning is a clear market differentiator and according to Lang, three key factors determine a small business’ market positioning: price, quality and service.

“Usually, small businesses leverage off of one or two of these factors and use it as the basis of their value proposition.”

Hitting the nail on the head in terms of positioning relies on a thorough understanding of the relevant market, such as what drives their purchasing decisions and spending habits, as well as what their needs and pain points are.

However, Lang says, with the looming possibility of Amazon Shopping Online serving as a serious contender for Takealot’s market share, a fourth factor needs to be considered: innovation.

“Small businesses must not limit their understanding of what innovation means solely to the realm of the product. Over and above product innovation, the potential innovation in customer experience to retain and attract customers can serve as a powerful differentiator if actioned correctly.”

He says in the example of Amazon, we see an international brand foregrounding unmatched convenience with selling points such as free delivery and cloud storage as value-adds to its membership package.

“Herein lies an important business lesson. The ‘customer is king’ means more now than it did even ten years ago. With technology as an enabler, businesses have the means to engage their customer base, learn from them and tailor their sales journey to what their customers on the ground need and want.”

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Competitors as potential partners instead of disruption

Small businesses, particularly those that find themselves going toe-to-toe with large corporates, need a shift in mindset to provide the basis for gaining a competitive edge. Instead of seeing big brands as insurmountable obstacles, they can be considered potential partners and a way to expand a small business network.

“Sometimes the best way to remain competitive is to forge strategic partnerships that take advantage of the complementary nature of each party’s inherent strengths and weaknesses. On a more positive note, small businesses also have an opportunity to collaborate and sell their products via the Amazon Shopping Online platform,” Lang says.

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Customer retention imperative during periods of disruption

“Upon reaching a crossroads in business, small business owners can either focus on selling existing products to existing customers, promoting new products to existing customers, pushing sales on existing products to new customers or punting new products to new customers.”

When the market is turbulent and market share is at risk, the general approach is to focus on the first two options, he says.

“Customer retention and leveraging brand loyalty is an important strategy when preparing for the knock-on effects of new competition in the market.”

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Local businesses have significant advantages over global newcomers

Lang says when it comes to tackling competition from global players, there are no concrete conclusions. “You can never assume that the international player will clinch an industry monopoly simply by virtue of its size and perceived prominence in the marketplace. Local businesses have a few key advantages.”

Referring to the product delivery aspect of the Amazon example, Lang explains that local companies have the advantage of speed, thanks to existing local distribution centres and delivery channels. In an age of instant gratification, the delivery speed will continue to be a key selling point for local businesses and a prerequisite for repeat sales.

“Local businesses should not underestimate the value of grassroots experience and having a comprehensive and hands-on understanding of how the South African consumer thinks and spends. There is a fair amount of psychology that goes into how South Africans make purchasing decisions and local brands can appeal to this unique psyche and use it to foster customer loyalty,” says Lang.

He adds that locally loyalty programmes such as those attached to financial institutions are also a major drawcard for local customers and a way that South African companies can increase their value proposition and encourage repeat sales.

“Industry disruption is an inevitability, whether it happens a month into a business journey or a few decades after a brand has established itself as a market leader. There is a very constructive side to increased competition. It keeps companies on their toes, pushes innovation and creativity and ultimately contributes to wider consumer choice.”