I have been working closely with e-commerce for more than a dozen years. That’s how long I’ve been dealing with the topic of Amazon, which is about to arrive and level the Polish market like a bulldozer. At first, we believed that it would destroy the online book market, then that it would destroy the electronics and ebook markets (which is very possible) and now perhaps it is going to swallow up Allegro.
TL;DR: I’m sure a lot will change. Amazon is a powerful and long-term player with very deep pockets. No, the sky is not likely to fall on our heads. And even if it does, it won’t be first on the list of reasons.
We Poles prefer our own
No, we don’t. As consumers, we usually make rational decisions and love brands that we believe make our lives better. Rossmann is not Polish at all. Neither is Lidl, which is a discount store. Of course Allegro is close to our hearts, but so is Aliexpress, which is opening its Polish offices and promising 2-week deliveries from its European warehouses. It is worth noting here that the Alibaba Group is already bigger than the global Amazon (which basically gave up in China).
However, returning to the topic of Polishness, every discussion about Amazon’s entry invariably comes down to the issue of eBay. The international giant’s failure on the Polish market was spectacular, but the times were completely different (2005), the market was different and so were the consumers. In addition eBay started up here totally unprepared for local expectations and the confrontation with Allegro. Amazon certainly won’t make that mistake, even in a half-whistled, test-and-learn model (which we may experience).
Mistakes Amazon won’t make
Amazon is definitely not going to ignore the issue and is showing that it is taking the game seriously. First and foremost, it takes sellers seriously. Getting them is key, because more than 60% of sales on Amazon are third-party offerings in the marketplace model. For them Amazon means the power of a global brand, courses and the FBA (Fulfillment by Amazon) service, which is not available on Allegro (although the start of work to launch its equivalent has been announced).
|What is FBA?|
|FBA, or “Fulfillment by Amazon”, is a logistics service which is not offered in Poland by any marketplace. In short, the seller send their (properly prepared) goods to Amazon’s warehouse, where they are stored, packed, wrapped and shipped in accordance with customers’ orders. In this way, Amazon guarantees the highest shipping efficiency and quality, and the seller does not worry about warehouses and packages. For the end customer, it provides the added benefit of being able to combine multiple products sold under the FBA model in a single shipment. In FBA, Amazon does not own the goods, but only provides a service – something like a consignment. You can read more about FBA here.|
Everything will work because the technology platform that drives the store is serious, as is the utility layer. This is the most advanced solution you can have, although it looks simple. It works brilliantly and tens of thousands of professionals (yes, Amazon has a total of almost 900,000 people, excluding seasonal workers) are overseeing its development.
Shipping will be very efficient, fast and error-free, because we already have 10 warehouses in Poland. These are not centers started from scratch – most of them have been running at full capacity for years and also handle domestic shipments. Additionally the fact that we are going to get our favorite parcel machines is already known.
I am sure that the ‘Frictionless shopping experience’ of Poland will not be bypassed. This will definitely not be a case of eBay.
The Amazon effect
This term has been used in many studies on the Internet. The idea is that when Amazon starts to gain a foothold in the market, the playing field changes. Shopping becomes simple and convenient, prices come under pressure from constant online comparisons and require dynamic adjustments. Consumers begin to treat perks as natural and the new standard. So retailers are faced with the alternative – adapt – or disappear. But this applies more to the less advanced markets and to the overall growth of online. So sometimes it is said that this is simply the “e-commerce effect”. If we take a closer look at the situation in our own backyard, it seems that the “Amazon effect” has been with us for some time.
A proposal for the consumer
It is said that the customer is Jeff Bezos’ obsession. That’s why Amazon is supposed to be the most customer centric company on the planet. And, beyond its legendary quality of service, people around the world want roughly the same things – low prices, huge selection and fast delivery. It is worth wondering whether – as part of anticipatory adjustments – this has not become a certain standard in Poland? Those who take a closer look at the changes in Polish e-commerce – especially Allegro – will easily find a parallel.
Amazon aims to change shopping habits – we start looking for a product there, buy it, and then come back for more. There’s a reason it boasts that more consumers search for product information on Amazon than on Google. But hasn’t the same data been shown by Allegro on the Polish market for several years?
It seems that the basic elements of the Amazon legend don’t necessarily foretell the razing of Polish e-commerce to the ground.
The history of conquests
In its motherland – the US – Amazon is a hegemon and is responsible for about half of the online market. In the culturally similar UK, it has been around almost as long (since 1998) and commands just over 30% of e-commerce. In Europe, it further admits to leadership in Germany, France, Italy and Spain. But – if we look at the percentages – 14% of the Italian market or 18% in France, these numbers are not as impressive. How does this compare to Allegro, entrenched at nearly 40% of domestic e-commerce?
Of course, entering new markets was not a walk in the park, especially in the already mentioned China or India. In addition, the somewhat underestimated political and cultural issues did not help.
Generally, it seems that the earlier the better. The greater the advantage and the stronger the offer for the local customer. The last two offensives – the Dutch one in March and the Swedish one in October – are too recent to draw conclusions, but it seems that everyone has done their homework.
At the moment, Polish e-commerce is about 9% of the retail market, half that of the UK. The Covid-19 pandemic has greatly accelerated the momentum, but the limits of growth are still a long way off. Amazon’s entry may be another gas pedal, but that doesn’t mean that sales have to be taken away from the competition. Yes, the distribution of forces may change, but it is not excluded that in absolute terms everyone will grow.
Comparing what our local giant has (this comparison seems natural):
- A wide and democratized product offer – check
- Free and fast delivery – the equivalent of Prime – check
- Buyer protection, guaranteed delivery – check
- App, quick payments, one-click shopping – check
- Search engine as the dominant alternative to Google when searching for products – check.
Where will the titans clash?
Amazon has a third of its own offers that it sells as a store. Allegro is a marketplace with only a trace of its own offers. A lot can happen in this area, because price works wonders, and Amazon’s resources of finance and patience are considerable. This means it can effectively wage a long price battle, forcing competitors to adjust. This is what happened in the Netherlands. In this case, however, the main loser does not have to be Allegro, but, for example, domestic electronics stores. We will soon see how flexible Polish entities are and how low can the margins go to remain acceptable. Google’s advertising may also be tighter, as product searches, which have been partially taken over by Allegro, will now also flow to Amazon.
Amazon Prime is clearly more expensive than Allegro Smart, but we do not yet know the price of Prime. If it turns out that the service is much cheaper than, for example, in Germany, and is bundled with Prime Video, it could be an extremely attractive offer. In this situation, will consumers pay for two subscriptions or choose one?
Amazon Basics, or private label products. Satisfactory quality and very attractive prices – with a wide offer. The Polish consumer has nothing against private labels, which can be seen very clearly for example in discount chains and their non-food offer. This could be a good reason for shopping, as there will certainly be a need among consumers to try out that famous Amazon.
Amazon also has something that Allegro has so far not coped with, i.e. convenient shopping for multiple products within a single order. And this is both from their own offer and from external sellers using FBA logistics services. So, it is much easier to complete a shopping cart with small items and receive free shipping.
And then there are the categories entirely created by Americans – Echo speakers with Alexa and Kindle ebook readers. We don’t know if Alexa will speak Polish but Polish-language literature will be available in the Kindle Store. What we do know is that if it happens, this segment will simply be swept away.
Offensive or positional warfare?
The number and nature of recruitments on Amazon.jobs indicates that the team to serve the Polish market is far from complete. Last year’s launch on two European markets showed that it is possible to play the game in the long perspective by starting with a product that is not quite complete (incomplete automatic translations into Swedish became the object of jokes). However, that doesn’t stop you from offering, selling and shipping. Mistakes can be corrected and not necessarily rushed. Amazon has always put long-term growth ahead of short-term profit. I would bet on that being the strategy.
It is worth mentioning that Amazon is the fourth advertising powerhouse and the third programmatic platform in the world. The Netherlands, meanwhile, have yet to get a large part of their advertising solutions. Poland doesn’t even have a mentor in this area. So we have a long marathon ahead of us.
And what now, or the last word
I think it is time for relief, because how long can we wait? Everything will finally become clear and all the predictions will be tested in practice.
I don’t expect any revolution, but changes – undoubtedly. In all likelihood, I would assume that many entities will be forced to adjust their prices, so margins will fall. Investments in modern technologies will accelerate (even more), giving an advantage. e-Commerce will be a popular buzzword, so digital transformation will be further reinforced in the covid world. The entire market will grow, although there will be players that will not endure (retail chains, for example, growing out of offline, may have a problem). Consumers will certainly gain, as they will significantly raise the level of their expectations from shopping. But this is ultimately a good thing for the market.
Interesting times indeed.
Let’s talk about Amazon
Publicis Group works with many entities to support brands in building relationships with consumers. Amazon opens up opportunities to reach them with both extensive marketing communications and the product itself. We are happy to share our knowledge and experience.
Feel free to contact us directly: email@example.com