Amazon Prime Day Creates Negative Impact on Smaller Competing Retailers

July 15, 2016

12:30 pm

The results are in: Amazon’s Prime Day was a tremendous success. In what Amazon Prime Vice President Greg Greeley is calling the “biggest day in the history of Amazon,” the company is reporting 60 percent growth in sales this year (50 percent in the U.S.) versus the inaugural promotion last year. Amazon’s stock price reflected the success, hitting an all time high of $753.58 per share.

New research made available by Charleston, S.C.-based ecommerce agency Blue Acorn found that while Amazon Prime Day was successful for the ecommerce giant and participating retailers, smaller, competing retailers felt the pinch across almost all traditional key performance indicators (KPIs).

In a report aggregating data from 22 ecommerce brands across a variety of industries, the information showed a marked reduction in the revenue, traffic, and conversion rates of those brands. Further, the analysis showed that last year’s Amazon Prime Day had little effect on the same brands, which correlates with negative consumer feedback and complaints regarding the ecommerce giant’s lack of inventory, selection, and discounts in 2015.

Although this year’s Prime Day was a huge success for Amazon and the retailers that sell through the site, the company also set a precedent for how smaller brands need to prepare for such promotional holidays in the future.

“Companies need to keep an eye on large-scale events that are happening in the market, even if they don’t overlap in inventory, and be prepared to take advantage of potential opportunities,” said Blue Acorn Data Scientist Samantha Previte. “While the success of this year’s Prime Day had profoundly negative effects on Amazon’s competitors, last year’s Prime day positively affected all KPIs, more or less, depending on how a company chose to capitalize on the ensuing negative PR surrounding the event.”

Prime Day’s Effect on Amazon’s Competitors’ Revenue

One of the most important key performance indicators (KPIs) for a company is the amount of revenue it drives. In many cases, revenue metrics dictate how the company manages inventory, employees, output—essentially everything related to the business. Although last year Prime Day had a positive effect on other ecommerce sites, this year there was a clear showing of lost revenue and a decrease in transactions on smaller ecommerce sites.

“Trying to change the narrative and fight a macro event like Amazon Prime Day is like trying to fight the weather,” said Previte. “With regard to revenue, while you think you might be safe from the event’s effects—for example you don’t sell in the same vertical, or you have a solid customer base—you’re not. Amazon’s tentacles stretch far and wide, and macro-level events like this, if successful, will have a significant impact on all ecommerce metrics.”

When comparing Amazon Prime Day versus the average key performance indicators for the month leading up to it, Blue Acorn identified the following areas of change:

2015 2016
Revenue Per Day 26.76% -3.19%
Transactions Per Day 3.50% -12.51%

Prime Day’s Effect on Amazon Competitors’ Traffic

In many cases, brands will go head-to-head when it comes to traditional holidays, but as the information shows, when a company controls the holiday, it reaps the rewards of revenue and traffic. Across the 22 companies, researchers saw a decrease of 8.20 percent in pageviews on Amazon Prime Day when compared to the average pageviews per day for the month before it.

“You have to think about this as an exercise in both game theory and machine learning,” said Previte. “Take what you’ve learned from these analyses and craft strategies dependent on them. That sounds passive, but especially for brands with smaller budgets, the marginal impact of ad spend is going to be very high. That’s why it’s critical to not take an outcome-agnostic approach.”

2015 2016
Sessions Per Day 11.75% -8.21%
Pageviews Per Day 4.07% -8.20%

Prime Day’s Effect on Amazon Competitors’ Other KPIs

Conversion rates, or the the amount of visitors who take an action to become a customer, also saw a decline, but interestingly, the decline was not as steep as it was on Prime Day in 2015. However, revenue per visitor was down drastically, showing a decrease of 14.77 percent.

The average order value, a KPI which is often detached from others in that it typically sees the opposite effect, saw a positive increase. Often, this is due to a lack of promotions during the specific window of time, which would, in turn, increase the value of an order.

2015 2016
Conversion Rate -7.37% -4.69%
Average Order Value 22.47% 10.65%
Revenue Per Visitor -4.79% -14.77%

Key Takeaways

For Amazon, the day was a huge success, and ecommerce brands do sell both on their own site and Amazon simultaneously. The first reaction organizations should have from these kinds of results is to not actually react, but to prepare.

“Analyzing events like Amazon Prime Day can help inform future strategies surrounding emails, marketing, and promotions, and it’s important to not let short-sighted goals interfere with your overall business objectives,” said Previte.

Blue Acorn does not suggest upping ad spend, considered a reaction unless strategized in advance, and it’s not just because there is no way for a smaller brand to compete with Amazon’s ad budget. More that it’s a waiting game to see how the public and media will react, and enacting plans that were put in place in preparation for the holiday or promotion.

“The only way you can get a win out of this is by developing a contingency plan beforehand and implementing it based on Prime Day’s reception,” said Previte.

Disclosure: Author currently works for Blue Acorn.

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Elliot is an award winning journalist deeply ingrained in the startup world. He also runs a non-profit, Digital District, which focuses on improving professional digital literacy in DC. You can contact him by email at elliot(@)elliotvolkman.com or follow him on Twitter @thejournalizer.

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