Cracks in Amazon's Strategy

Source: Wall Street Journal; Media & Marketing; Oct. 17, 2012

Cracks are starting to show in Amazon's "win through low prices and free-riding on brick&mortar services" strategy. That model was always vulnerable to product providers waking up and refusing to let that game be played in their distribution channel portfolios. Those long-overdue vendor channel management moves are starting to happen and the potential impact on Amazon will be significant.

You see, it's not really good for consumers or brands, let alone high-service channels, to allow free-riding in the distribution system. In a world where Amazon only gets the consumer's order because another channel was willing to promote, educate, or demonstrate the product, the channel incurring those costs stops performing the activities in the marketplace. But it turns out consumers still want to be educated and to see and touch many products. They still want a trusted source, not a vendor's paid online recommendation or search engine optimization. When the option to have it all - get great service in one channel and buy at a discount from Amazon - goes away, many consumers will drop Amazon like a hot potato. And they already are!

Let's look at Amazon's flagship product category: books. Here's what the WSJ had to say about the impact on sales of books that are excluded from brick and mortar stores by awakened book purveyors Barnes & Noble and others:

[a] likely factor in the book's poor sales is its severely limited availability. It wasn't stocked in the 689 stores of Barnes & Noble Inc., Wal-Mart Stores, or Target. Some independent booksellers don't stock the title either. Nor is the digital book for sale in e-book stores operated by Sony Corp, Apple Inc. or Google.  In the case of the nation's largest bookstore chain, the absence is the result of a deliberate boycott. Barnes & Noble said in January it wouldn't stock titles published by Amazon in its stores…

We'll see more of this and the impact on Amazon sales will be significant. Sure, there will always be consumers who only seek discounts and will pursue them even without the touch and feel of a high-service brick and mortar store. But will that segment sustain Amazon's growth ambitions? Rocky waters ahead!