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Intelligence Briefs

Nike's Amazon snub: Never smile at a crocodile...

Industry Contributor

Jamie Connolly, Group Business Director
Wavemaker

2 December 2019 3min read

Last week Nike confirmed it would be ending its ‘pilot’ with Amazon, having decided that the best way to future proof its business was to continue to invest and develop its own direct-to-consumer offering. Consumers will still be able to purchase Nike products on Amazon, but they’ll be coming from ‘grey’ sources.

The Wall Street Journal reported that Nike was “disappointed the deal with Amazon didn’t eliminate counterfeits and give the brand more control over grey-market goods”.

Key points:

  • Amazon has been holding up the Nike deal in market as a sign of the future of retail, and an inducement for other big brands to follow suit.
  • Nike was unable to get Amazon to bar or remove independent resellers of Nike products that either didn’t have a relationship with Nike or were selling fakes.
  • Without Amazon, Nike believes it can better elevate its consumers’ experiences via more direct, personal relationships.
  • Amazon is likely to have already acquired other ‘grey market’ Nike products to fill the inventory gap left by the Nike exit.

My Takeout

Nike’s stance is a fascinating development with the potential to cause wide-ranging repercussions. It’s also an interesting development when juxtaposed with the recent history of Google and Facebook marching in and utterly disrupting news publishers over the past two decades.

In his book The Four, Scott Galloway talks about the error he feels The New York Times made when it too eagerly opened its content doors to Google (and others) to distribute its content, failing to realise the longer-term repercussions.

If we dive back into our memory to the types of conversations we were having at the time of Google’s coming of age, they were focused on how users could find our brands or content. Publishers were falling over themselves to have Google rank their pages! We didn’t think of the potential repercussions beyond our immediate goal of discover.

Fast forward a couple years and Facebook is on the scene. Again, we were having similar conversations. “Social is how consumers are finding our publisher titles,” we decreed. “We need to make sure our content is fit for social,” and “We need to allow it to be found, seen and shared socially!” Publishers too easily and quickly rushed into giving away high-quality content for free in the desire to chase the key metrics of the day – views, shares and likes!

Today, we seem to be having very comparable conversations about ecommerce. In a similar pattern, brands are laser-focused on capturing this new and shiny opportunity in the form of Amazon. It’s a big fat simple solution. With a massive reach, a solid marketplace already set up, Amazon can support your fulfilment and even helps you advertise to increase your (and its own) customer base.

But at what cost?

Much like with Google and Facebook, the real cost isn’t on the rate card. It is hidden, only to be discovered over time. Perhaps Nike has come to this same conclusion.

As recent history indicates, the cost could be the creation of a marketplace entirely owned and controlled by one platform. More simply, a monopoly.

Is it in a brand’s interest to piggyback on an ecommerce powerhouse and its phenomenal growth? Brands may argue they don’t have the time or resources to independently tackle ecommerce, and a platform like Amazon allows them to more easily dip their toe in. They may also suggest that it’s currently the most cost-efficient way to capitalise on this growing revenue stream. However, these arguments don’t fully consider the five- to 15-year cost of using an existing platform.

Two of the more overt longer-term costs brands should consider are:

  1. The potential commoditisation of their category: In the ecommerce space, it’s very easy for entire categories to get boiled down to a simple commodity – a pack of batteries versus a pack of Duracell long life batteries. Brands need to find a way to combat this. (Ironically, one could argue that data, personalisation and customer service are fundamental to achieving this.)
  2. The unintentional courting of a bigger competitor: Amazon isn’t just a platform, it has the potential to also manufacture its own products across multiple categories.

Given the choice, would brands prefer to find themselves in five, 10 or 15 years from now with:

  • One platform that controls the majority of online sales;
  • One platform that controls your ecommerce relationship with your customers;
  • One platform with the potential (and form) of becoming the manufacturer of identical products and selling them to customers over yours?

Of course, we can opt for something entirely different. Something that allows brands more control, and empowers them to understand and ultimately own the customer relationship.

Brands need to be making their decisions with both the short-term and long-term filters. It wouldn’t hurt if they kept in mind the lyrics from that favourite Disney classic, Peter Pan:

Never smile at a crocodile
No, you can’'t get friendly with a crocodile
Don't be taken in by his welcome grin
He’s imagining how well you’d fit within his skin

Let’s go. What do you think?

Industry Contributor

Jamie Connolly, Group Business Director
Wavemaker

Jamie Connolly is currently the Group Business Director at Wavemaker Australia. He has 15+ years of industry experience in both Australia and the UK, gaining perspectives across a range of disciplines, companies and industries.

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