Why aggregators like Amazon and Swiggy are your frenemies!
- Written by Sanjay Mehta
- 0 Comments
Drivers wearing Swiggy or Zomato T-shirts, zipping around on bikes are a common sight these days. Similarly, delivery boys of Amazon and Flipkart are ubiquitous at the receptions of offices and residential buildings. It seems that the number of people using these services is rising fast.
The ‘convenience economy’ has well and truly kicked in. People prefer to order online and have things delivered to them rather than go out to shop. This is a trend that will only grow. Consumers will increasingly rely on ‘convenience providers’ for food, lifestyle products and even home services like plumbing.
What does that mean for you if you are a brand? If you were selling in a traditional manner, say, your own outlet or at a multi-brand outlet, how does this impact you?
For one, if you are not selling online, you are missing out on a dramatically growing consumer class. In most cases, you don’t have a choice but to sell online. This leads to two options: selling via your own e-commerce site or through an aggregator like Amazon or Swiggy.
There are pros and cons to building your own e-commerce site:
- It is your branded site, and you can create the experience you want
- You can offer your own deals, coupons, loyalty programmes, etc. There are no aggregator constraints
- All the data related to user behaviour and experience is yours to keep and use
- Building an e-commerce site is expensive. Let’s not forget also the expense of hosting, managing traffic, etc. If you are a small company, say, a standalone restaurant, this expense may not be viable
- Maintenance, technology upgrades, UX improvements, etc, need regular investments
- Most importantly, you need to get traffic to your site. With only your own brand and products to sell, how much can you invest in customer acquisition or in creating intuitive brand recall?
Compare this to the option of marketplaces or aggregators such as Flipkart, Amazon, Swiggy and Zomato. (Of course, you can do both – sell on your own website and via aggregators.)
For the largest of brands, aggregators deliver far higher traffic and sales. If you opt out of the opportunity, you are giving a clear passage to your competition to own those customers.
So why, then, do so many brands see aggregators as frenemies?
The friend part is easy to understand. The aggregator drives traffic and business much more than the brand could have done on its own. In certain categories, the aggregator is pretty much a saviour for a business going downhill.
But, there’s another aspect. Business is getting data-driven and the aggregator is retaining all of it. For example, Swiggy knows that a consumer loves South Indian food (with specific order detail) on Saturday mornings but on Friday evenings he/she experiments with kababs or Italian, and it’s usually pizzas on game days. Swiggy would have such data at scale; it would know also if you’re 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 transaction, shops with a certain frequency, etc. And they have long-term history of such consumers over many transactions and site/app visits.
With the data they have, the most lucrative opportunity for them is private labels. For most interesting categories, aggregators can create their own supply chains in brand names – owned, different from their own – and position those products at the right place and time based on the data they have. This would steer the customer away from the brands on their marketplace towards their own. They’d make a lot more money selling their own products and checkmating yours.
It’s a little like committing slow suicide. You help the aggregator gather data by selling your product on it and the aggregator then uses that data to replace you in the customer’s shopping basket.
Food aggregators run private kitchens to achieve this, while product aggregators create products nearly identical to other branded ones through supply chains that could go all the way back to China.
Selling large volumes on these marketplaces may make you complacent enough to not invest in alternative sales channels. Eventually, you become completely dependent on these marketplaces. Once the private labels are introduced, your market share starts falling and you don’t even know why.
I call it the ‘Frenemy Effect’.
Joint CEO, Mirum India