Do Not Be Late to the Game
Originally published as part of, “The Day Before Digital Transformation” by Phil Perkins and Cheryl Smith
As we have shown, the window of opportunity is closing, and traditional companies will increasingly be squeezed out of the market.
Many Consumer Packaged Goods (CPG) companies think of Amazon-like they think of traditional retailers. Amazon is not a traditional retailer. Now that Amazon has aggregated enough consumer demand, it has become a wolf in sheep’s clothing for traditional CPG companies. It allows CPG companies to list their products on their website. As specific product categories within Amazon become mature, Amazon collects data on the CPG companies’ marketing approaches and consumer spending behaviors. If the market looks attractive enough, Amazon will introduce a product for its private label brand, AmazonBasics.
The battery industry is an interesting case study of this phenomenon. Like all CPG companies, the battery industry has increasingly limited strategic choices. In the past, big brands could invest in building brand recognition and recall with consumers, so that a consumer will show a preference for their brand while standing in a retailer aisle. Now that we have online reviews, a purchaser on Amazon.com will see reviews of AmazonBasics batteries that are as positive as the reviews for both Duracell and Energizer at a significantly lower cost. Consumers are increasingly ignoring what they have been told in advertising and are increasingly believing reviews from other consumers. This gives generics like AmazonBasics a huge opportunity to invalidate Duracell and Energizer’s investments in their brand and commoditize the battery industry.
In 2017, Amazon controlled 94% of online battery sales and already owned 31% of all online battery sales with their private label battery, AmazonBasics. While online sales are only 4% of the market today, it has been trending toward exponential growth with a 75% increase from 2015 to 2016 even prior to the stay-at-home requirements during the pandemic. Amazon private label battery online sales from September 2015 to August 2016 were $113 million. That was more than double the 13.1% share that private label batteries had in offline stores for a 52-week period ending October 2016.[i]
What this means for companies like Energizer and Duracell is that non-traditional competitors are eating away at their market share in digital channels that are growing at an exponential pace. The mobile commerce juggernaut is after all comers and cares not for entrenched competitors. Their size, scale, and capabilities are scary for any business. Retailers and CPG companies now face a tough choice. They are getting squeezed by a fight between their traditional competitors and disruptors. If they try to fight a battle on every front, the probability of losing goes up significantly.
Not only have retailers and CPG companies not invested in the capabilities necessary to compete with Amazon, but in many cases, it is too late to even try. As Amazon takes their market share and margins started to shrink, they have fewer and fewer resources to invest in innovation. It would take them years of investment to catch up with Amazon even if they had the margins they used to enjoy.
Companies that are not proactive in their transformation get stuck playing catch up, leaving executives with few choices, and they are not great:
- Head in the Sand. Ignore disruptors and continue to compete with traditional competitors to maintain share of a shrinking market, which usually results in marketing investments that decrease in productivity each year requiring a greater percentage of revenue to just maintain the status quo;
- Split the Army. Try to compete on two fronts with disruptors and traditional competitors dividing focus and resources, which usually results in a less than stellar performance against all competitors; or
- Hail Mary. Reallocate resources away from the core business in an attempt to create a new business that competes directly with the disruptor.
Most companies choose options #1 or #2…and slowly die. Digital transformation must be a proactive effort to get ahead of this squeeze. Disruptive digital strategies definitely are possible for the current companies by incorporating emerging technologies into their products and services strategy (Digital Strategy 3 as described in Chapter 3), but it requires time, effort, and creative leader thinking now.
Figure 16 Years to achieve Unicorn status
[i] “Amazon’s Private Labels Already Dominate Battery and Speaker Sales Online,” Jack Neff, www.adage.com, November 03, 2016.
[ii] “Why the Time to $1B in Valuation for Startups is Decreasing,” Tomasz Tunguz, Venture Capitalist at Redpoint, www.tomtunguz.com, December 16, 2014.