Written by Luis Krug, CEO of Gamb
The rules for establishing a brand are completely different than they were a few decades ago. It has become increasingly difficult for emerging brands to get noticed, and even more difficult for existing brands to stay relevant. The internet and e-commerce, in general, have created an entirely new paradigm for brands, offering both positive and negative features to the industry.
On one hand, e-commerce has created a way for brands to reach more consumers, but on the other hand, it has increased competition, which has led to fraudulence, exploitation and counterfeiting. There are also not many options for brands and retailers to sell in the e-commerce space. Brands are stuck with the decision to either use a large e-commerce platform and go along with its rules and regulations, or to go at it independently, but miss out on the wide reach of users. The obvious choice isn’t always the best one, and the most popular route of selling isn’t always the most profitable.
There are risks to operating on large-scale e-commerce platforms. All it takes is a simple Google search and you will read about horror stories of retailers getting kicked off of a platform for no reason, and losing all of their customers; or of e-commerce platforms stripping retailers of all of their profits. Most of the issues with e-commerce can be boiled down to the centralization of the industry. When a retailer decides to go through an e-commerce platform such as Amazon or Alibaba, they are agreeing to obey the laws of the platform provider. Platform providers charge costly fees for operating on their site, leaving very little profit for the merchants. Furthermore, when your brand is grouped together with various other brands on a given platform, it loses its authenticity.
One of the perpetual issues of the monopolized e-commerce industry is that buyers assume that just because the platform provider is reputable, the brands will be reputable as well. This is not always the case. Amazon might be a reputable company, but not all of the brands operating on the platform are. Buyers are accustomed to automatically trusting these big names, but it’s very common that they end up with inauthentic products.
Let’s say you wanted to buy a Rolex online, and went to a popular third-party website to purchase it. Who is regulating the authenticity of the product? Another retailer could be selling a high-quality silver watch that looks exactly the same as a Rolex, when in reality it is a no-name brand. Not only does this rip off the buyers, but the Rolex brand will also suffer the consequences of this. What’s worse is that the platform isn’t necessarily responsible for keeping counterfeit material off of their site. Only once they are made aware of the issue, and investigate it thoroughly, will the product be taken down.
This happened quite recently with the high-end winter coat brand, Canada Goose, when they found that their coats were being sold on Amazon for $89.99, almost one-tenth of the price of an original Canada Goose down-filled parka. It turned out that a Chinese company called Orolay was selling their coats made with 90% duck-down filling, exactly the same as what is in a Canada Goose jacket. The Orolay coats aren’t necessarily lower in quality, but they aren’t an authentic product, which they claimed to be. From that point on, people were much less likely to spend $800.00 on a Canada Goose, even if they were loyal to the brand.
Some might look at this and say Canada Goose was overcharging their customers, and whether or not this is true is not the point. This is an extreme case, but either way, people assumed that it was an original because it was being sold on Amazon. A similar situation happened with the German shoe manufacturer, Birkenstock when they found fake sandals were being sold for $20.00 less than what they retail for. Birkenstock CEO Oliver Reichert made a valid point, saying that although Amazon did not directly decide to sell fakes on its platform, someone else did, and Amazon is profiting from it, which makes Amazon an accomplice.
Another similar issue that falls under the topic of fraud is fake ratings. Fake ratings can happen anywhere online, but on these centralized platforms it happens at an extreme level. There are legal ways to buy reviews on these platforms, making it difficult for users to really know the true quality of the product. There are also ways to delete bad reviews, which is equally as bad. In any case, you can’t always trust the things you read online, and you should be especially wary on large centralized platforms that are controlled by a single party.
When all is said and done, brands want to be unique and authentic. When operating on a centralized platform, if you don’t follow by their rules, you are out. Marketing, pricing, customer service, and all other factors that go into building an online store are controlled by platform operators. There is little to no contact or relationship between the consumer and seller, which inhibits brand loyalty. It’s hard to maintain lifelong customers when you have no relationship with them. Operating on these platforms are helpful for driving traffic instantly. Without any direct marketing, a product can reach thousands of people, but will it create a long-lasting authentic brand image? Emerging brands that use Amazon receive the instant gratification and ease of having a large part of the work done for them and may even receive their first sales at a faster pace, but this isn’t enough to keep a brand alive.
The traditional idea of having a physical store where the merchants are in control of the atmosphere and overall representation of the brand is completely lost because of the centralization of e-commerce. In a physical store, merchants are able to choose decor, music, employees that align with the brands’ value, and so on. With that being said, it’s not the act of a physical store that helps establish an authentic brand, it’s the brand itself. A digital storefront can define a brand the same way that a physical store would traditionally, but centralized e-commerce giants don’t allow for this.
The rise of e-commerce has created some obstacles for merchants and brand owners. Most growing businesses immediately hop on the “intermediary” bandwagon without weighing the pros and cons. Brands need to define themselves and set themselves apart from competition, which is hard to do on these large e-commerce platforms. There is a lot of talk about a “retail apocalypse” or “the death of retail”, due to all of the bankruptcies, closings and the overall shift in the industry, but this is not the reality. The reality is not so much about the death of physical retail, but the death of “boring retail”. Brands that are “swimming in a sea of sameness”, with one-size-fits-all marketing are the ones who will get left behind.
Authenticity has been stript away from brands, and what they need is to gain that authenticity back. It’s not necessarily about gaining profit right away, it’s about being unique and being able to speak to the consumer. Instead of brands placing all of their eggs in one basket, and deciding to take the obvious and simple route of selling, it’s important for them to really think about what they want for their brand in the long-run. E-commerce and all of the changes it comes with will be a positive thing for the retail industry, as long as we don’t stray too far away from the inherent qualities of traditional retail stores, such as trustworthiness, reliability, uniqueness, and authenticity.
About the Author
Luis Krug, CEO of GAMB, is one of Europe’s e-commerce pioneers, having started his first company at age 25. Founder of Redcoon, the e-commerce project that invoiced over 500.000.000 € annual turnover, Mr. Krug knows how to start and scale e-commerce related projects. He has also participated in Rebelio, BuyVip, and Pixmania. Furthermore, since 2003 he has been running the technological Incubator INCUBOUT out of Barcelona, having invested in more than 15 digital startups. His current portfolio includes projects such as Kinoheld.de, Edit.org, and Comandia.com