“Let’s make history!” said Woolworths chairman, Gordon Cairns, this week as he declared the supermarket chain’s’ plans to resist American online retailer Amazon. The war cry is being heard through the retail sector, the first in line to be affected by Amazon’s arrival.
However, the advertising sector is also bracing to take a hit in a ripple effect caused by reduced bottom lines in traditional retailing, which in the past has resulted in a reduced ad spend.
Ricky Chanana, managing director of Unruly ANZ, says the impact of Amazon will be broader than anyone expects.
“The launch of Amazon will disrupt a lot of industries due to the extensive nature of their offering. Amazon’s mantra has always been ‘sell everything to everyone’. This means anyone who is in, or plans to be in the business of offering goods to consumers will be impacted by this e-commerce giant,” he said.
“To be specific, outside of the obvious candidates who are predominantly in the e-commerce business, Amazon’s arrival will have a significant impact on home improvement stores, grocery stores, cloud based companies, even banking organisations.
“With Amazon Pay, Amazon has introduced an easy and secure way for consumers to make online payments and merchants to accept them. This frictionless, secure, one-step payment system will seriously disrupt the digital payments space,” Mr Chanana said.
Communications group Dentsu Aegis Network released a report in June which said that Australia was in the midst of the “Amazon effect” that will extend well into 2018. The effect is predicted to see overall advertising spend grow 4.8 per cent, with increased activity across several sectors the retail, entertainment and food sectors.
However, there are some that see this a wishful thinking because of power and reach of Amazon.
According to Nielsen’s Digital Ratings (Monthly) of the retail sector, Amazon was the second most visited mass merchandiser in October 2017. Garnering a unique audience of 4.6 million, the e-commerce store was beaten only by Woolworths with 6.7 unique online visitors. The American retailer beat Coles by almost 1 million visitors.
Amazon is yet to fully launch in Australia. While the company confirmed it would be expanding operations to Australia in April, until this point the online store has only offered Kindle and audiobooks books.
A soft launch over November’s Black Friday and Cyber Monday weekend was expected to make way for a full scale launch, but there is no word yet as to when this is expected. However, Amazon’s launch cannot be far off, with confirmation on Wednesday that the retailer had secured 2.11 hectares of land in Sydney’s south-west.
To use Amazon’s service, each customer must create an account. While it provides users with an ease of experience, it also provides Amazon with extensive customer data to which advertisers and marketers do not have access.
Amazon will know which brands consumers prefer as well as the frequency and quantity in which they need them. Mr Chanana said the level of data is “liquid gold” for marketers.
“Due to the nature and extent of their offering, Amazon’s customer data is more accurate, and exhaustive than most of their competitors (with a few notable exceptions like Google and Facebook).
“Amazon have a view of their customers’ entire media consumption journeys – from content habits via Amazon Prime Video, shopping history and purchase frequency through to exact postal addresses and crucially, credit and financial history.
“If they are able to tap into Amazon’s first party data they would be able to target consumers with levels of personalisation that are game changing for CMOs as they move away from probabilistic targeting to highly personalised and relevant ad experiences,” he said.
However, it also means that specific targeting or products chosen by Amazon’s algorithms and the ease of repeat purchasing of the same products will mean advertisers will need to work harder to entice users to try their products.
Essence Media MD Steve Allen said, however, there could be a negative impact on the market as retailers start to see hits to their bottom lines.
“There is no question that there is going to be a squeeze on profit margins and there is going to be a squeeze on market shares. That can only lead to a reduction in marketing budgets and above the line expenditure.
“When that [reduced profit margins] happens what is one of the first expense lines that is cut? Advertising. You could say, ‘well that’s crazy! Wouldn’t you try and repel the invader?’ Well, you can only afford to do that if you believe there is an ultimate outcome and I can’t see Amazon ever withdrawing from this market, so there is no ultimate outcome,” Mr Allen said.
In an ad sector that is already dealing with reduced spending by advertisers, print and digital news media have begun to brace for the impact of the disruption in the market.
Mr Allen criticised the free promotion Amazon has received through the press, especially since the e-retailer will have such a large impact on publishing.
“It will make things tougher again, you wouldn’t think things would get tougher,” said Mr Allen
“The pressure that is already on traditional media, particularly newspapers, Amazon will only add to it”.
While this may seem like a dreary picture for the industry, Mr Chanana says that print will still be an important medium for advertisers to reach and mobilise consumers.
“Print media will remain a hugely important medium for advertisers, regardless of Amazon being an online only platform. In fact, I wouldn’t be surprised to see Amazon serving to complement advertisers print media strategies – with co-branded ads for example.
“Print media is a valuable part of any media mix and advertisers are aware of that. Many connected consumers are still big fans of print media – with things like weekly catalogues providing the catalyst for an online shopping experience. The emergence and adoption of innovative tech like NFC and mobile links will further enable this,” he said.