The frenemy effect of market aggregators like Amazon and Swiggy!
As a product brand, you have helped lure a customer to the aggregator marketplace initially, but in time, due to the data mining that the aggregator does, they are able to quietly replace your brand with their own, in the customer’s shopping cart! And hurt your share of the business, in the process!
One of the most common scenes on the roads these days is the zipping around of two-wheelers with the drivers wearing a T-shirt of Swiggy or Zomato. It appears that more and more people are getting food delivered to their homes or workplaces, and using these services, for the same.
Likewise, a very common scene at reception areas of offices or housing societies, are the delivery boys carrying packages being delivered by Amazon and Flipkart. Again, the “convenience economy” has kicked in, and people are starting to order out online and getting things delivered to them, rather than go out shopping at the stores.
These are trends of our times, and from the looks of it, these are only growing trends. Consumers are going to increasingly rely on these convenience providers, for their requirements of food, products, or other such services.
So how does that change things if you are a brand? If you were selling traditionally, be it from your outlet or a multi-brand outlet, how do these changing trends impact you?
Well, for one, clearly, if you are not selling online, you are missing out on this dramatically growing breed of consumers, who are ordering online. So, in most cases, you don’t have a choice, but to also be selling online.
Which then leads to two options, viz. selling on your own branded e-commerce site, OR selling via an aggregator (marketplace) like Amazon or Swiggy.
The pros and cons of creating your own e-commerce site and selling on the same:First the pros:
- It is your branded site, and you can create the experience that you want, for your consumer.
- You can do your own deals, offers, coupons, loyalty programmes, etc., not constrained by what an aggregator might allow or not allow.
- You get access to all the data related to user’s behaviour and experience on your site.
But there are cons too:
- You have to invest to build out that e-commerce site, the hosting expense, manage the traffic on your website, etc.
- If you are a relatively small company/brand, say you are a single restaurant, this expense of building and managing a live e-com site, may not be viable.
- Even if you do build out this website, there is regular maintenance, technology upgrades, UX improvements, etc. that you need to keep investing in.
- And most importantly, there is the question of getting traffic to your site. With just your own brand and products to sell, to what extent can you really invest in customer acquisition costs, and in fact, to create an intuitive brand recall for your category, so that you don’t need to keep investing heavy amounts in acquiring new prospects.
As against this, you have the option to work with marketplaces/aggregators such as Flipkart and Amazon or Swiggy and Zomato. Of course, you can do both, viz. sell on your own website AND sell via aggregators as well.
For the largest of brands, it is quite clear that the aggregators generally deliver far higher traffic and sales. By and large. So as a brand, as a manufacturer, you would not want to give away that opportunity of working with the aggregator, to sell your products. If you opt not to, you are giving a clearer passage for your competition to own those customers, who come via the respective aggregators. You wouldn’t want to give away that ground, to your competition, on a platter.
That makes a strong case then, for most product (or service, in case of F&B) companies, to be also listed and selling on aggregator platforms.
So why then, would they see these aggregators as Frenemies or as much of a Friend as also an Enemy?
The Friend part, of course, is easy to understand.
The aggregator drives traffic, drives business much more than the product/brand could have done on their own steam. In certain categories, the aggregator pretty much serves to be a savior for a business going downhill.
So, there’s no question on the aspect of being a Friend of the brand.
But there’s another angle, by which you would also think of the aggregator as an Enemy!
We live in a world of data! And the aggregator is the one retaining all of it.
So, for example, Swiggy knows that a consumer loves to order South Indian food (with a specific order detail as well) every Saturday morning, but on Friday evenings, the consumer tends to experiment across Kababs or Italian, and on game days, it is usually pizzas for him. And such data they would have at scale. They would also know if you are a bargain shopper (always using deals and coupons) or driven by impulse, and other behavioural patterns.
Similarly, Amazon understands that the person buying a pair of jeans, also purchases a type of shirt, maybe a particular perfume, has a typical ticket size of the transaction, shops with a certain frequency, is how much of a bargain hunter, etc. etc. And they have long term history of such consumers, over many transactions, many visits to the site (or app), etc.
Given this data, the most lucrative game for these aggregators is in the form of private labels!
For most of the interesting categories, the aggregators can create their own supply chains, in their own brand names (may not be Amazon or Swiggy as a brand, but XYZ brand which is their own brand, say), and then position those products at the right place at the right time, basis the consumer data that they have, to steer the customer away from a marketplace brand, towards their own branded product! They naturally make a lot more money selling their brand, but they are also checkmating your brand, by getting the customer to buy their private label branded products.
As a product brand, you have helped lure a customer to the aggregator marketplace initially, but in time, due to the data mining that the aggregator does (of which, the consumer shopping of YOUR product, has played a crucial part), they are able to quietly replace your brand with their own, in the customer’s shopping cart! And hurt your share of the business, in the process!
Food aggregators run private kitchens to achieve this, whereas product aggregators find ways to create products nearly identical to other branded ones, through supply chains, which may go all the way back to China!
Selling large numbers of your product on these marketplaces, you may become complacent to not investing in alternate channels of sales. That way, your dependence on these marketplaces becomes huge! And then once private labels are introduced and your market share slowly starts going down, you don’t even realise what is causing that loss, and before you know, you are left with a big drop in numbers, and unprepared with any alternate channels of sale that can compensate!
That’s the frenemy effect for you!Sanjay Mehta is the Jt. CEO of Mirum.