While e-commerce continues to play an increasingly critical role within the retail space, traditional retailers must battle Amazon's looming threat to their success. Lower prices, easy-access, and same-day shipping regularly attract consumers, as most seek money-saving brand experiences that reduce stress. Yet, while retailers recognize and understand the benefits behind Amazon's approach, most lack the resources to implement similar programs of their own.
But what if Amazon's customer strategy doesn't truly hold all the answers? Here, we speak with industry analysts and a 2012 1to1 Media Customer Champion to explore what lessons Amazon has to offer, and how competing retailers can move beyond the brand's influence to drive innovation, improve experience, and boost retention.
In this discussion, we feature insights from:
- Miya Knights, senior research analyst at IDC
- Mark Stevens, vice president of customer experience at Eargo
- Nikki Baird, managing partner at Retail Systems Research
1to1 Media: Why do so many retailers wish to emulate Amazon? What does Amazon have that other retailers haven't yet mastered?
Miya Knights: I do not believe Amazon is a retailer, so it is a mistake for retailers to want to emulate it, and I don't agree that many want to. Amazon is a technology and logistics provider that also happens to sell books. It has struggled to make any profit! If retailers should emulate anything it does, that should be the ease of use of its website, call back customer service, and varied fulfillment options.
Mark Stevens: Amazon has seen incredible growth over the years. A great deal of their success is due to a long-term plan with all of their customers, meaning Amazon looks to provide ease of transaction along with an exceptional customer experience with respect to all of its peripheral services in order to ensure that every single customer seeks to continue its relationship for years rather than one-off random purchases.
Nikki Baird: I don't know that I would agree with the assumption that other retailers want to emulate Amazon. They certainly feel competition from Amazon, but most of the issues that I've heard center around what they perceive as unfair advantage from Amazon. The company's other lines of business are the real moneymakers for Amazon-especially Amazon Web Services and Marketplace-that retailers tend to complain that Amazon is undercutting on price by using the profits from other lines of business to subsidize the Web store business. In fact, I know of some situations where vendors have run into trouble with retailers because they host their solutions on AWS and retailers have said they won't support businesses that run there because it's enabling Amazon to cut prices even more.
1to1: Which elements and strategies must retailers adopt and integrate in order to remain competitive with the likes of Amazon?
MK: Retailers shouldn't be competing with Amazon; they should be competing with their direct market rivals unless, of course, that is actually Amazon. To do this they must understand what their customers are looking for in terms of value, cost, and convenience, and provide it, along with superior, competitive customer service. This also means treating them the same regardless of sales channel, and giving them the option to be remembered and genuinely incentivized for their loyalty.
MS: Minimization of customer effort for both purchase and support is a key differentiator for Amazon. The entire end-to-end experience must be easy and seamless. The second element that Amazon does very well with its customers is to develop a strong trust relationship. It's rare to hear customers say, "I hate Amazon." This is not true, however, for many other companies, and it's important for Amazon's competitors to understand why trust is lost and where they have failed their customers.
NB: Amazon has really caused pain on the competitive front in a couple of areas. One is Prime. It's easy enough for a retailer to put up a "shipping membership" in order to compete with Amazon there, but Prime is so much more than a shipping membership, and its benefits come in ways that are really difficult for other retailers to match. Like free books, for example. I think that's why companies like ShopRunner are interesting, because a lot of retailers can sort of pool their resources-and benefits-to make a Prime-like shipping membership more attractive.
Another area where Amazon has been hurting retailers competitively is on price. There has been a lot of intense observation of Amazon's dynamic pricing strategies. They do a lot of tracking, especially around holidays. For store-based retailers, changing prices 9 to 10 times per day is really difficult to compete against. Last holiday season we saw more concerted effort to keep up with Amazon's dynamic price changes online, especially for items advertised for Black Friday, but you can't bring that kind of price change volume into the store. And with the increased advanced visibility that consumers have into Black Friday deals, it's really hard to spring a surprise deal and maintain the advantage of that deal.
Retailers are also feeling the competitive pressure on shipping speed. Amazon seems to be pushing towards a strategy where it can deliver same-day to many metropolitan areas, and that would come pretty close to eliminating the immediacy advantage of stores. Retailers are very concerned about not only delivery times, but also time from order acceptance to when the product leaves the building. Consumers increasingly expect same- or next-day ship, and same- or next-day delivery. Amazon's results, however, have revealed that its shipping costs are escalating, so even they can't do this level of shipping for free, and a lot of financial analysts have figured out that Amazon pretty much loses money on every Prime membership. So the question is, as a retailer, how much do you really want to compete on that same basis? Maybe retailers just have to outlast Amazon, until investors get tired of losing money and the company has to change its model.
1to1: What are some critical steps retailers must take as they work to improve customer strategy and boost engagement?
MK: Retailers must integrate their view of customers, orders, and inventory across every one of their customer-facing sales and communication channels in order to meet the most basic customer expectations. Only then can they start to differentiate themselves from their rivals with a proposition that includes superior customer service, maximum convenience-such as 'click and collect' fulfillment options-competitive pricing,and genuinely rewarding loyalty schemes.
MS: Retailers need to understand everything about their customers-the ones who buy once, the ones who buy lots, the ones who buy nothing, and the ones who are strong advocates for them. A great customer experience is industry agnostic, so understanding where all of your customers have great experiences, and what defines that for them, is the key to delivering something remarkable.
NB: Personalization is key, for sure. But there are a lot of ways to personalize, and retailers need to do it in a way that doesn't "creep out" their customers. Retailers have a pretty good idea of what they need to do there. It's just a question of executing on the strategy. I think the harder question is, what do you do on the supply chain side? Do you invest a ton of money into same-day shipping or same-day delivery? Consumers clearly expect it, but even Amazon can't do it profitably. So retailers are stuck between a rock and a hard place: disappointing consumers, or throwing a lot of money at something that hasn't proven to pay off.
1to1: How will Amazon continue to influence the retail space? What types of innovation can we expect to see from both Amazon and its competitors over the next few years?
MK: Why the obsession with Amazon?! It is able to influence the retail landscape because it runs a leading marketplace and technology infrastructure service at a time when digital technologies are transforming the way consumers shop. Amazon can afford to experiment with 'Bring it to me' drone deliveries and instant ordering 'Dart' buttons. But most retailers will look to extend convenience and personalization through mobile technologies, such aslocation-based offers, as well as'Internet of Things' like connected products and services for instant ordering or replenishment.
MS: Amazon maintains its seat at the executive table for the Customer (with a capital "C"), and to its organization, it's perhaps the most important seat at that table. What I see trending in the online retail space is turning that relationship between website and retailer from vendor to customer into a consultative partnership where companies truly understand how to bring value to their customers' product and service experience. Commoditization in the retail space has had its day and competitive pricing has become table stakes. The future of retail will depend upon understanding what we can do as a company to proactively and reactively provide customers with accurate opportunities to enrich their lives because we understand them as people and we understand their stories.
NB: Amazon's greatest current influence is over speed of delivery, and that won't go away. Retailers-especially store-based retailers-have to figure out an answer to same-day delivery, even if their answer is"no." But the reality is, it will likely involve roping stores back into the supply chain (i.e. shipfrom-store, in-store pickup, etc.). As far as new innovations from Amazon,I can't help but feel like the"innovation" space is getting awfully crowded. Amazon has had some really big bombs lately-Fire Phone, anyone?-and while it certainly isn't shy about giving it a go publicly, sometimesI think it gets far more credit for its "wins" and not enough harassment about its losses in the public eye. But given the flak the company took over its shipping costs at its last financials reporting,I think we'll see that investor patience is running out this year. One area thatI am very interested in watching is if/when it makes a move into stores. Financial analysts seem to believe that stores are the next area of big growth for Amazon, butI imagine the company will not open stores like anyone else. It will do it its own way, and with very different objectives than traditional retailing.