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June 27, 2014

Why Big Data is the Future of Ecommerce, and Why the Future is Now

Kevin North

Amazon and Alibaba are in the early stages of commercial warfare, and the main casualties will be the small businesses that cannot adapt to this competition. When e-tail giants are pouring billions into fulfillment networks, logistics and technology, there’s no logic in trying to win on their turf. Big data is the future of ecommerce because it’s one of the few playing fields where small merchants can thrive in a world dominated by Amazon and Alibaba.

If you’re an online seller, consider what you’re up against. Back in 2013, a Morgan Stanley analyst estimated that Amazon will have 23.5 percent share of global ecommerce market by 2016, pushing net sales to $166 billion (up from $74.4 billion in 2013). Meanwhile, Alibaba is preparing for a likely record-breaking U.S. IPO, and their sales are estimated to reach $420 billion in 2014. Their spending war is going to drive prices and shipping times down.

I believe that you can still prosper in this environment if you use big data to gain an edge. On a short-term and long-term scale, a data-driven ecommerce strategy can improve merchandising, sourcing and market timing enough to let you compete on price and shipping with the big e-tailers.

Short-Term Logic Behind Using Big Data

Amazon and Alibaba have big data programs of their own, but you can use marketplace intelligence in ways that Amazon and Alibaba cannot. Whereas Amazon has to be decent at selling everything, you can specialize in selling a small selection of goods. Big e-tailers can’t possibly follow market trends for everything they sell on a day-to-day basis, so they cannot optimize on time-sensitive opportunities like you can.

For example, The Lego Movie, released in February 2014, was a huge opportunity for online sellers. But you could only ride the movie momentum if you sold the right kind of LEGO pieces. On eBay, the “Bulk Bricks & Lots” category of LEGO did superbly following the movie, whereas LEGO Duplo and Primo blocks did poorly. The trick was to sell LEGO sets that are valued for playing rather than collecting.

Companies like Amazon and Alibaba have far too much going on to find and analyze trends like that. For a retailer who sells virtually every category of goods, the cost of implementing a merchandising, sourcing and marketing strategy that takes advantage of The Lego Movie would outweigh the marginal profit. For a small merchant however, dominating the LEGO alibaba logomarket at this moment could be extremely worthwhile. You could even match big retailers on price and shipping while bulk LEGO collections are hot.

Thus, on any given day with any given product, it’s very difficult to compete with Amazon and Alibaba. However, when you use big data to sell the right thing at the right time, you can compete.

Long-Term Logic Behind Using Big Data

In addition to short-term opportunities, big data can help you gain advantage by shifting long-term merchandising, sourcing and marketing strategies ahead of the wider market.

For instance, the rise of the Do It Yourself (DIY) movement has increased interest in cooking and cookware. On eBay, the cookware category has experienced consistent year-over-year growth in sales volume. From June 2013 to April 2014, the dollar volume for woks, induction cooking and cast iron grew at an identical pace. However, in terms of unit volume, induction cooking is growing the fastest.

Whereas Amazon is going to carry all three items and then thousands of cooking tools that rarely get bought, as a small merchant, you can be more selective. You could choose to specialize in induction cooking, and then examine selling prices, sell-through rates, listing durations, total sales, top keywords and other data to optimize your selection. As you shop manufacturers, you can also use such data to source induction cooking goods at the lowest possible price. You can also gear a huge percentage of your marketing budget towards that category.

As with short-term strategies, specialization and data analysis can help you match big retailers on price and shipping while letting you build your reputation for a specific, profitable subset of goods.

Thriving Versus Surviving

As consumers grow accustomed to buying everything with a one-click checkout process and one or two-day shipping on Amazon, they begin to look there first. Unless you have secret plans to build delivery drones faster than Amazon, you should prioritize investments that focus on improving profit margins and allow you to sell at lower prices – therefore allowing you to better compete with the big e-tailers on shipping times. This needs to be considered immediately, because the arrival of Alibaba in the U.S. will only cause Amazon to fight harder.

As I’ve demonstrated above, big data IS your future if you’re a small or mid-size ecommerce merchant. Big data allows you to take advantage of short-term and long-term trends with a level of commitment that big retailers cannot match. Unlike big sellers that are under an obligation to sell goods year round and continue selling products that have already begun to decline, you can sell only hot ticket items. Armed with data and gifted with agility, you can run a much leaner, thoughtful and more data-driven operation than some of the larger companies. When you succeed there, you can afford to offer pricing and shipping that competes with the big sellers.

As big e-tail continues to expand its market share, small merchants without a competitive advantage will go under. Those who use big data to carve out opportunity will thrive.

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How Sparse Data Can Drive Information Density

 

About the author: Kevin North is the president and CEO of Terapeak, a provider of market research tools for online sellers. North joined the company in January 2012 to establish Terapeak’s US headquarters in Silicon Valley.

 

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