How to compete against Amazon is a key strategic question at the moment. Rightfully so as more and more brands are forced to contend with its seemingly iron-clad business.
The first step in any strategic problem-solving initiative is to get the fundamentals right. Specifically, make sure you’re asking the right questions from the start. Asking the right questions determines the kinds of insight you will receive and the value of that insight. This cannot be overstated, after all Amazon’s advantage has been built on asking the right questions.
Start your inquiry process by taking a close look at why Amazon has been so successful in selling products of all kinds to people in all classes (not just the middle class). As you dig deeper you find Jeff Bezos’ guiding principles in driving growth of Amazon’s online product marketplace.
Let’s review them.
The first principle is “Customer Obsession.” Amazon’s definition of customer obsession is straight forward, the primary focus is to obsessively understand and satisfy basic “unchanging” customer needs. Amazon identified three that it believes comprise basic needs that are not likely to change over time.
Amazon’s Customer Drivers:
- Provide the lowest comparative prices (money savings) … selling new or used products
- Provide the fastest delivery services (time savings) … Amazon Prime, One-Click Purchase, Two Hour Delivery
- Provide the most extensive product selection (long-tail of products)
By choosing to obsessively focus on delivering better results to their customers in these three areas, their physical footprint and brand sales have enjoyed remarkable success. In addition, Jeff Bezos has taken a 5 –to- 7 year ROI stance, which is longer than most businesses’ 1 –to-3 year payback period. This has allowed Amazon Retail to achieve consistent growth with low prices and margins in its retail products business.
On May 5th, 2017 Warren Buffett said, ‘Amazon’s Jeff Bezos is the most remarkable business person of our age.’ Warren also said, ‘I’ve never seen a guy succeed in two businesses simultaneously.’ The other business Warren Buffett was referring to is Amazon Web Services (AWS). Amazon Web Services is powered by new AI and computing solutions aligned with their three customer drivers, giving Amazon a cost and technology advantage over many retailers.
Amazon Web Services falls in line with Jeff Bezos’ second principle for success; to ‘Invent / Experiment / to Find Better Ways to Satisfy Customer Needs.’ Originally, customers who ordered products on Amazon had three shipping choices. Amazon Prime was created to increase the speed and lower the shipping costs for regular customers. Amazon Prime then offered same day delivery. Recently with the addition of Whole Foods, Amazon is offering a 2-hour delivery option for groceries from local Whole Food stores.
These “faster delivery initiatives” are in support of the customer insight that ‘customers will always want faster and faster delivery.’ Amazon is therefore intensely obsessed with lowering delivery times, just as it is also obsessed with lowering prices and increasing its product assortment.
Commit To Deep Customer Insight
Traditional retailers have to be asking, how do we compete against this? Can we offer better product assortment, faster delivery, lower prices? If we can’t really compete in these areas, can we conduct research that uncovers other drivers of consumer behavior that would create an equally compelling offer or even a brand advantage? That answer is yes.
Online sales have been growing but they still only represent about 10% of all retail sales. It is true that we had a record number of retail stores close in 2017 (nearly 7,000 up 200% from one year ago). So understanding the hierarchy of needs (articulated and tacit) that are driving consumer behavior in retail today is a requirement. A qualitative research project would be needed to explore this territory. What would that look like?
Certainly, Amazon’s customer insights pillars would need to be part of any research survey developed. Store proximity to the target customer’s home, time savings in shopping one way versus another. Physical retail stores also offer ‘experiential’ dimensions that are not offered online. Physical product browsing is a more visceral experience, you can pick things up, get a better sense of size, fit, feel, smell, comfort and colors. Some people may enjoy shopping in-stores more, if the stores offer certain kinds of amenities and experiences (lighting, sound, food, beverages, displays, friendly human help). Keeping in mind, some people are not comfortable yet making purchases online.
I know from my years at Starbucks that 50% of the success of any retail strategy is the physical store location. Where are your stores located? With so many retail stores now closing, is better real estate opening up? Ease of access, parking, foot traffic, and convenience to daily commute patterns all matter greatly to consumers.
If it takes 20 minutes one way to get to your store, 20 minutes to get back and thirty minutes to shop that’s a big chunk of somebody’s day. If an option like Amazon’s same day or 2-hour delivery develops and I can order online in ten minutes and have it delivered to my door, what’s that worth in time savings? Saving somebody an hour of their time could be worth more than what is purchased! Amazon knows this better than most retailers because of its intense customer obsession and its willingness to experiment with different ‘time saving’ services. So, it gains these insights ahead of everybody else and then doubles down in its ‘time savings’ investments before its competitors even know what hit them.
Have The Right Focus
Many brands are obsessed about different things right now and not necessarily with what matters most. Some are primarily product obsessed. That is, they intensely focus on what it takes to design, develop and market their products. Some businesses are focused on their business model. For example, if you are a big box retailer, how you fill a standard store format with an optimal merchandising mix becomes the primary focus. The obsession on the business model in this sense can blind you to how the value proposition in all of retail is changing. Some brands are technology obsessed, that is they focus on offering upgrades and more features to technology products, but without a deep understanding of consumer drivers. With its competitors distracted, Amazon is focused on innovations that matter to the people it serves. Again, when you get the questions right, you gain more powerful, market-moving insights.
When your business model hits a strategic inflection point you need a sharply focused understanding of how customer values and needs are changing in your category, particularly in regards to new entrants. Brand positioning research can be the ideal research tool for uncovering how the competitive landscape has changed in this sense. People that patronize Amazon, associate a few things with it that shape their behavior and patronage. You need to know what Amazon’s key brand attributes really are all about. This is a way to gain better understanding of the changing needs of your consumer.
Study the traditional retail versus Amazon situation more intensely, merely asking consumers questions (without any other context) is not enough. You need to understand how a new competitor has achieved a competitive advantage. You need to understand their governing principles and any driving consumer insights they hold dear. You then need to do the same form of research on your own brand. What is it that that your customers think you do really well? Why does your brand generate repeat customers? What brand attributes are you known for? What are the benefits sought most in your category of retail and are there any key benefits that your brand falls behind the leaders on?
The right answers should lead to the design of a retail category segmentation study. Segmentation studies can locate customer segments driven by different perceptions, values, needs and benefits. It is possible that Amazon is growing because it has uncovered hidden drivers leading to new consumer segments. It is also possible that with its success in delivering better on its three key drivers, that it can work backwards to better integrate these values into traditional retail categories.
Create New Value That Is Aligned With Customer Values
Amazon is an important company for all retailers to study more intensely right now because they are experimenting and inventing new sources of value. This value is being integrated with old brick-and-mortar retail models. If you don’t discover new sources of value that you can own and how to align your offering with key consumer values, then your store concept will be obsolete by comparison and your business model and brand will be at a disadvantage.
Consumer research can be helpful only if it’s framed properly on the front end. To frame-up any multi-dimensional problem requires that you walk around it completely and look at it from all dimensions and directions (business model, competitive, products, pricing, service speed, brand, etc.) The best research approach to take usually emerges from the initial study of what’s going on in your business and in the competitive dynamics of the category. If your business culture is strong on innovation and thought leadership, then strategic inflection points like this one can be overcome with the right approach to strategic research. But, if your culture is driven primarily by incremental improvements to an existing business model, then multi-dimensional and highly focused competitors like Amazon will be very difficult to overcome.
Amazon is not invincible, it has its weaknesses. These weaknesses will eventually be exploited by progressive retailers that make the same commitment to gaining and using deep customer insight.
These and other insights into brand truth, purpose and deep customer insight is covered in greater detail in my new book, Soulful Branding – Unlock the Hidden Energy In Your Company and Brand.
The Blake Project Can Help: Please email us for more about how we help retail brands create bigger futures.
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