Big guys helping little guys
- 16 March 2018
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With its dominant global presence, Amazon has been credited with helping small British businesses to increase overseas sales. But can the terms and conditions of such partnerships really benefit small businesses in their export goals – and what might be the drawbacks?
Amazon recently revealed that UK small-to-medium businesses selling through its Marketplace racked up record export sales totalling £2.3bn in 2017. It’s no wonder, then, that many small businesses are turning to the online retailing giant to grow their interests abroad.
According to Doug Gurr, UK country manager, Amazon: “We are seeing a record number of British SMEs selling their products across Europe, North America, Japan, China and India, opening themselves to millions of additional potential customers through the power of the internet.” Amazon is also investing in its programme for SMEs, he says, “to help small businesses grow their revenue, increase their productivity and boost exports”.
So, is hooking up with a global player such as Amazon a no-brainer route for SMEs seeking to grow exports? What are the drawbacks that small businesses should be mindful of when considering such partnerships?
Opportunities: access to world markets
Set against the backdrop of Brexit uncertainty and the depreciation of the pound since the June 2016 EU referendum, this route to export markets appears an increasingly attractive option. Six in 10 UK companies selling on Amazon Marketplace, for example, now export their products and services. The UK government appears to be endorsing this route, too, with Secretary of State for International Trade Liam Fox MP saying: “The growth in SME exports on sites such as Amazon shows what can be achieved, and I welcome the company’s commitments to help more small companies go digital, so they can grow their businesses and create jobs up and down the country.”
Nonetheless, across the wider UK economy, the number of SMEs trading internationally in 2017 halved compared with the previous year, according to the latest Global Trade Barometer from WorldFirst, with 75 per cent of SMEs expecting their international trade to fall or remain stagnant in 2018. Signing up with a big global player, therefore, makes sense for many businesses seeking a relatively low-risk export sales strategy.
David Marrinan-Hayes is chief operating officer of Ve Global, a marketing technology business that develops data-driven solutions to help businesses personalise customer journeys. He says: “Support with language localisation of product pages and the existence of dedicated customer support teams are just two of the features tempting small businesses to engage in these partnerships.” In addition, Amazon’s fulfilment service offers a substantial benefit that businesses looking to meet customer needs abroad can take advantage of. “By engaging with ‘Fulfilment by Amazon’, businesses are not only ensuring they appear as ‘hot sellers’ – meaning their products are likely to be more visible – but they are also enabled with global Prime delivery options. This service currently boasts 85 million subscribers who, it is estimated, spend roughly twice as much as non-Prime users yearly.”
Drawbacks: barriers to brand equity
It’s not necessarily a one-way gain for SMEs, however, warns Marrinan-Hayes. “Naturally, this service comes at a cost, so smaller businesses looking to take advantage need to ensure their bottom line can support such an investment – which is run on a ‘pay-per-use model’ – in the long-term.”
While these partnerships clearly have advantages for growing businesses, there are additional drawbacks besides Amazon’s sales fees. “When entering into an agreement with Amazon – unlike marketplaces such as Etsy and eBay – businesses are given little in terms of brand exposure and so lose out on the opportunity to develop brand loyalty with their customers,” says Marrinan-Hayes. “They may be reaching new markets under the Amazon umbrella but, in doing so, businesses are failing to build brand equity in these international markets. At the same time, their domain is likely to lose authority as customers are visiting the marketplace, rather than organically searching for the brand and making sales directly.”
What do consumers remember?
Al Keck is founder and managing director of digital marketing agency Infinity Nation, which advises on strategy for a number of online retailers. He also identifies brand loyalty as a key issue: “If people buy through Amazon, it is Amazon that is remembered. There is no brand loyalty for your company and you build no rapport with your customer.”
Nonetheless, he views partnering with players such as Amazon as a good opportunity for SMEs to explore, test and understand multiple overseas markets. But he is wary of adopting this as a long-term export strategy for sales. “Your cost of acquisition for that sale may be 17-20%,” Keck says. “If you sold that to a customer directly, you could own their data, put them in a retention strategy, and email them at appropriate times for repeat purchases or new product promotions. So, in the longer term, it's often not cost-effective. You’re effectively giving Amazon a wealth of data and intelligence – and then it can potentially go and sell the brands or products you’re selling directly itself.”
Indeed, the terms of Amazon’s seller agreement mean that, while the global marketplace gives SMEs new opportunities for sales success, this could quickly create new competition for them – from Amazon itself. “When entering into a seller agreement with Amazon, businesses agree to grant Amazon ‘royalty-free, non-exclusive, worldwide, right and license to use, reproduce, modify, re-format, create derivative works of… any and all of your materials”, explains Marrinan-Hayes. “This – on top of pre-existing competition from brands whose products are displayed as ‘Sponsored products related to this item’ on the marketplace – should be carefully considered by businesses looking to establish their brand and products.”
Take a long-term view
Ultimately, for UK SMEs looking to expand through overseas export sales, the drawbacks may be outweighed – at least in the short term – by the significant uplift in sales it can deliver.
“Businesses that can’t offer the same convenience, immediacy and customer experience that Amazon provide should absolutely consider partnering with its marketplace,” Marrinan-Hayes advises. “They need to take advantage of the benefits of online marketplaces or risk losing out completely.”
However, he says, businesses looking to export abroad should also be simultaneously developing a medium- to long-term strategy to stand alone, developing fulfilment and digital strategies that will support their goals. “They need to be taking advantage of market intelligence gathered during their marketplace selling to make sure their future strategy is data-driven.”Back to all
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