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A Closer Look at Amazon’s Retail Strategy

A Closer Look at Amazon’s Retail Strategy

There’s a major shift happening in the retail landscape. While it didn’t start with Amazon, the massive retailer has been a harbinger of the future time and again, with their latest vision truly bringing smartphones into the buying experience with Amazon Go. A random sampling of 1,000 men and women across the country analyzed in late 2017 revealed that 32.5% preferred to shop online, compared to 29.7% in store and 37.8% preferring a combination of both. Those numbers will most likely have grown since then, as delivery services for all types of consumer goods continue to expand.

There is some good news for brick-and-mortar grocery stores: more than 70% of shoppers prefer to visit a physical store location to complete their shopping. However, as technology continues to advance and become user-friendly, it’s more likely that convenience will outweigh the need for shoppers to visit a retail location. Amazon’s at the cutting edge of this tech, rolling out AmazonFresh, Prime Now and Alexa-powered assistant devices — all of which are set to disrupt the traditional retail experience and expand Amazon’s omnichannel dominance.

A Brief History: Amazon’s Tech Explosion

Here’s a look at how Amazon has disrupted retail shopping by creating a frictionless experience:

  • 1-Click shopping, introduced back in 1997, eliminated the need for shoppers to re-enter payment information with every purchase.
  • Amazon Prime reinvented the notion of free shipping for members.
  • Amazon Marketplace and Amazon Retail provided a central ground for retailers and vendors alike.
  • The breadth of assortment and millions of SKUs created an “endless aisle” with almost limitless possibilities for shoppers.
  • Unconventional return policies allow shoppers to receive a refund before even returning the item.
  • A same-day delivery option puts products in customers’ hands in a matter of hours.
  • Dynamic pricing that changes in the face of demand allowed Amazon to carve out a price leadership position.
  • User-generated content, such as ratings, reviews, and recommendations helped eliminate customer questions and uncertainty.
  • Amazon brought personalization to the forefront, with custom emails, recommendations, upsells, and more.
  • Even in their physical locations such as Amazon Books, digital features are part of the display.
  • Recent acquisition of Whole Foods brought a new shift in focus to the benefit of having physical retail locations.

While these methods have allowed Amazon to become the mega-retailer that it is today, it’s important to keep everything in perspective. As of 2017, online commerce only made up 13% of total retail sales in the U.S., meaning brick-and-mortar stores still carry a hefty 87% of the annual sales. They keep this margin by offering things that are impossible to find online: in-person customer service, value-adds for families, and a full shopping experience that could include fun and games, music, and a sense of community.

Consistent Focus Over Time

One of the main reasons that Amazon is successful in gaining and keeping market share is due to their consistent focus on the enhanced shopper experience, lower prices, and a wide availability of options. Each of these realms allows Amazon to outperform other e-commerce retailers and brick-and-mortar stores in a unique way.

  • Lower prices provide Amazon a competitive advantage. Much of shopper research is now done online, and Amazon’s low prices, in combination with their aggressive advertising, make them a premier destination for bargain hunters everywhere.
  • Providing an enhanced shopping experience is woven throughout Amazon’s strategies. It starts with maintaining a quick list of items that you’ve recently searched, to providing emails for complementary items that you’ve recently purchased, and even in their remarketing strategies. You’ll often find companion items to those you’ve recently purchased showing up on other websites as you navigate your day. Even the way Amazon handles returns is geared towards reducing the friction and creating an overall pleasant shopping experience.

The extensive choice of options available on Amazon.com is impossible to deny. According to a report by ScrapeHero, Amazon had 562,382,292 products on the site as of January 10, 2018. The sheer volume is staggering, with 166 million items in the shoes, clothing, and jewelry vertical alone. While other major retailers such as Target and Walmart are growing their online sales at a rate of 23% per year, it’s difficult to believe that they could ever offer that many unique SKUs.

Adopting Amazon’s Strategies

While nearly all retailers would love to try out some of Amazon’s more far-out techniques such as the yet-to-be-deployed drone delivery, there are some ideas that retailers of all sizes can leverage to build competitive advantage. Perhaps the most important option is personalization, where shoppers know that their retailer fully understands their needs, regardless of their physical location. Making shopping easy for individuals is one of the ways that Amazon excels and is able to grow their market share significantly, but there isn’t really a secret sauce. It involves simply smart logic and a relentless focus on shopper needs — which often means being willing to sacrifice margin to grow market share.

A key industry shift is away from online sales to an omnichannel model, where shoppers are able to search and shop in any way that’s convenient to them at the moment. This strategy requires a deep level of partnership between retailers and vendors in order to facilitate the depth of information needed to execute and deliver data when, where, and how it’s needed.

While Amazon is an undeniable industry leader when it comes to retail strategies, that doesn’t mean that all other retailers will automatically lose the long-term war. Instead, it provides those who are watching the industry (and Amazon) closely with information that can be leveraged to fine tune your own competitive advantage.