The Amazon Formula for Delivering What Consumers Want

The Amazon Formula for Delivering What Consumers Want

By John Bajorek

Amazon isn’t an easy competitor to predict. After all, much can be gained by analyzing how Amazon pulled such a victory off. Therefore, we want to review the three things Amazon not only did right, but the three things consumers now want most.

We asked 4,000 consumers what brand attributes they consider to be most important when deciding to be a customer of a brand or company today. The respondents were presented with sets of four attributes at a time and asked to identify which of them was the “Most Important” and which was the “Least Important”. We then ranked the relative importance of the individual attributes on a 1-to-100 basis to discover how customers weigh various factors when choosing a brand. A score of 20 in this study is twice as important as a score of 10, and so on.

Notice how the top three factors are exactly in Amazon’s bullseye, and how low customer service and intimacy are. For those retailers who are putting next day delivery on the top of their list, check out where “speed” ranks today. Warren Buffet is fond of saying, “Value is what you get, price is what you pay.” So, don’t mistake that the term ‘value’ below as an indicator of price alone.

Value: There are few brands that somehow convince consumers to pay money upfront. Amazon upended that notion with Amazon Prime. It’s now $119 a year, yet still considered a steal from many customers. That upfront payment helps create the illusion of value for customers, especially as the brand keeps adding more benefits. Although price isn’t the same thing as value, Amazon’s reputation as a price-cutter is legendary and fiercely protected.

Consider the Whole Foods acquisition. Almost immediately, Amazon went to work slashing prices and shedding the premium chain’s “whole paycheck” image—and hasn’t stopped since. Whole Foods’ prices fell 2.5% year over year last quarter, according to a recent analysis by Morgan Stanley1. Post-acquisition, Amazon also eliminated the chain’s 365 stores, developed as a response to the Whole Check reputation. Amazon wanted a more unified brand presence, so instead of leaving doubt in the minds of consumers, they simply eliminated any implication that there were “less expensive” Whole Foods stores out there.2

Next, Amazon confirmed plans to launch a new grocery store chain format (likely separate from Whole Foods) and built it outright for in-store shopping and pickup/delivery.3 As a result, it is once again delivering on value first.

Choice: Amazon’s dominance with Marketplace was scoffed at when first introduced. Why would a fast-growing ecommerce juggernaut let its hard-won customer base buy products from competitors? But the Amazon play was fiercely strategic from the beginning. It would get more brands on its platform than anyone else, while undercutting other branded sites in the process. This has made Amazon impossible for brands to ignore, cementing its reputation as the ecommerce site with the most choice in the minds of consumers. By establishing a third-party marketplace, Amazon created an unrivaled offering with product choice paramount, avoiding the trouble of sourcing from third-party sellers directly. As a result, no brand can compete without being on the Amazon platform. This gives Amazon unbridled power.

As Amazon got bigger, it worked to solidify its value proposition by lowering costs—building out an extensive infrastructure, notably one subsidized by tax incentives. This allowed Amazon to keep lowering prices (nod to the aforementioned value attribute) while drawing more customers to its Marketplace, deepening its competitive advantage and creating a virtuous circle of growth. This, of course, isn’t a fool-proof strategy, even if it has worked so far. Consider that the EU is now investigating Amazon’s dual role as both a retailer and a marketplace4 for anti-competitive practices.

Convenience: Same-day delivery. One-click buying. One-hour grocery delivery. Subscribe & Save buttons. Unlimited shipping, for a price, with Prime. It’s hard to overstate just how much Amazon has redefined the meaning of convenience in the minds of shoppers. It is the convenience vanguard, creating the most notable innovations in modern consumption to make shopping easier, even as it has redefined what shopping is. It’s now testing a payment system that would scan your hand,5 eliminating the need to carry cash or a credit card. Through the use of vision and depth geometry, the hands of shoppers with Amazon Prime accounts would be scanned and then purchases would be linked to credit card information already on file.6

Amazon is now building out a network of “cashierless” stores with its Amazon Go convenience store concept, cementing its convenience reputation. Amazon has also managed to combine convenience with customer loyalty. With each new rollout, it strengthens its influence over the daily life of shoppers and gives the company more data, more insights, and more ways to lock in a customer for life.

This trifecta of strategies, at first glance, feels somewhat counterintuitive. After all, they have been a staple in retail theory, store design and consumption trends for the last half century. Experiences matter and the best way to deliver against that expectation is to go above and beyond when it comes to customer service. But what if that longstanding method doesn’t hold anymore? What surprised us the most in this latest survey is how low respondents ranked the “store” experience, considering that the only place to achieve “customer intimacy” is within the walls of a store, where associates and customers interact in the physical realm. Yet that attribute is seemingly unimportant anymore in the minds of consumers, coming in at a measly 4%.

The ranking of attributes by consumers today presents a paradox: Where do experiences happen today? The answer flips the script of traditional retail. More and more, the interactions people have with a product and brand happen in non-traditional ways, whether it be apart from a store entirely or in new experiential retail settings. And the brand attributes of value, choice and convenience can play out just as well online as they can in a traditional brick-and-mortar space. Physical retail isn’t out of the game yet, but they need to take heed of these consumer preferences in order to remain relevant in a time where Amazon is creating the retail formula of the future.

John Bajorek
John Bajorek
EVP, Strategic Growth & Innovation
WD Partners

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