This article is part of CMO.com’s November series about commerce and consumerism. Click here for more.
Amazon is taking over retail. Yes, that’s a bold statement, but consider: Forty-three percent of online sales in the U.S. go to Amazon, and 80% of online sales growth comes from Amazon sales. It is also estimated that the company currently has 80 million Amazon Prime members—equivalent to 64% of households in the U.S.
Let that sink in.
When you think back to the days before Amazon, retail marketing was a pretty straightforward operation that involved reaching out to as many consumers as possible and encouraging them to come into stores. But Amazon changed all that, according to Eric Heller, CEO of Marketplace Ignition, a POSSIBLE commerce agency.
“Amazon has created a curated assortment of both product and expectations, where you go in and you expect that the retailers that you love and have affinity with are going to have your product whenever and wherever you need it,” Heller told CMO.com.
That, in a nutshell, captures Amazon’s all-encompassing impact on the retail world. Now let’s examine the five main ways it went about doing so.
1. Two-Day Shipping
Courtesy of Amazon, the supply chain might never be the same. Its not-so-secret weapon? Two-day shipping for Prime members, said Nikki Baird, managing partner at Retail Systems Research.
“[Previously], if your closest retailer didn’t have the item you were looking for, you would need to drive out to another store, and another, until you found the item you were looking for,” Baird told CMO.com. “Amazon changed that with two-day shipping.”
From a supply-chain management and distribution standpoint, Amazon is truly paving the way, added Michael Klein, director of industry strategy for the Adobe Marketing Cloud. To wit, the e-commerce giant today owns trucks and even airplanes, which allows it to get people their goods as quickly as possible.
2. Inventory Efficiencies
Amazon offers a larger selection with more price points that sway people toward an online, rather than offline, purchase. “They have broken down the walls of retail location-based selection, while delivering better pricing and an expanded marketplace when it comes to how people shop for goods and services,” said Ross Quintana, a business and marketing consultant.
And because Amazon works with so many third-parties for fulfillment, it doesn’t have to contend with one of the biggest issues for conventional retailers—that of unused inventory sitting on shelves that may or may not sell, according to Jeff Barrett, CEO of Barrett Digital. “It’s an inefficiency issue,” he told CMO.com
That also helps to expedite shipping. “[In the future], by having more efficient, better placed distribution centers, Amazon will be able to drastically reduce the amount of time it’ll take for them to get things to people,” Barrett said.
3. Killer Product Search
A by-product of having such a wealth of product? While the majority of retailers are spending a ton of money on building their paid and organic search presence in hopes of driving online sales, Amazon has almost no search equity—because it doesn’t need it. A whopping 55% of online shoppers say they start their product searches on Amazon.
“Amazon has become the Google of product search,” Baird said. “It is the first place that people go to. And when you think about it, why go anywhere else if Amazon is going to have the best price, get it to me fastest, and if something’s wrong, they’ll refund the money?”
4. Data And Personalization
Quintana pointed out that Amazon has the competitive advantage of better selection and product evaluation through comparison shopping, suggestions, ratings, and sales data.
“Consumers now expect to make educated decisions about purchases, and they want to do it 24 hours a day, wherever they are, in real time,” he told CMO.com.
In addition, Quintana said, Amazon is a pioneer in predictive, personalized offerings and recommendations based on other purchasers, reviews, and personal preferences. “Once Amazon bridges the gap of AI-powered decision making in homes with Alexa, they will once again be ahead of the curve,” he added.
Indeed, Amazon is the gold standard for algorithm-based personalization, Barrett agreed. “Overall, they’ve just been able to make things efficient,” he said.
5. Customer Experience
Retail Systems’ Baird echoed Barrett’s thought about efficiency, pointing to Amazon’s one-click checkout, which is setting the bar for the speed of the checkout experience and for providing in-depth product details. Some of that information comes from sellers, but much also comes from people who purchased their products.
“Of course, there’s the ratings and reviews, but then [there’s] the whole product Q&A and images from people who bought this product and all the specs that you could possibly want,” Baird told CMO.com. “I think that they’ve really set an expectation for just how much you could potentially browse to learn about a product before you purchase it, and I think that’s had an impact [on the entire industry].”
In addition, Amazon has lowered the tolerance for price inequities, Marketplace Ignition’s Heller said. “Amazon has created a rising tide, and the people that didn’t have life jackets or didn’t know how to swim are forced to learn it or drown,” he said.
Amazon leads the way in customer service, as well, Heller said. Customers know that if they receive a product that isn’t what they wanted or expected, Amazon will refund their money. That same approach is now a requirement for traditional retailers.
The Way Forward
According to Adobe’s Klein, competing against Amazon comes down to the customer experience. “How do you deliver value for the customer when they are on your website or in your store? It all goes back to the customer journey and how do I make that journey a little bit more seamless, a little bit more personalized, without going over the border of creepy,” he said. “Take the effort to understand who the audience is, cross-pollinate services, and deliver great experiences.”
Heller believes the physical store can be retail’s key differentiator. “There’s a small bookstore in Seaside, Fla., where ‘The Truman Show’ was filmed, called Sun Dog Books,” Heller said. “The store personnel have actually read the books for sale and organize them by—get ready for this—serendipity. The books that are near the books you’ve read are books that they think you’ll like based on that book.”
Another tip comes from Baird: Focus on solving customer problems. For example, why are customers going into the store? Or why did a user search for a particular item on Google? Context is going to be key.
“Retailers who can get in front of that need become a much more valuable part of a shopper’s life,” Baird said. “For something as low value as, say, a grocery item, where most of the products are fairly inexpensive, the retailer that is going to help me shop to better align to my dietary goals and meal planning is going to win. That would be the kind of service where they’re becoming an integral part of that customer’s life.”
For his part, Barrett suggested retailers focus on becoming more personal both online and in the store—in other words, during the entire shopping experience. Millennials are viewed as not wanting to ever deal with a real person, but, Barrett said, just look at how much they use curation, whether it’s Birchbox or another subscription service.
“I’ve seen Target do this best,” Barrett said. “Target partners with BarkBox and a couple of other curation boxes to bring them to the physical space. The average person doesn’t want to have to spend too much time shopping.”
Barrett also has his eye on audio search, which he said is going to come of age in the next few years. Barrett expects it could change the entire retail landscape and “who controls all the advertising in the space,” he said. “That’s the interesting thing about Amazon. They have so many different pockets. And with the cash they have on hand, they’re immune to a few mistakes. They can ... still come out ahead. Some of these conventional retailers can’t afford to make one at this point.”