June 14, 2018
Amazon is on the tip of the tongue when folks analyze the retail sector or try to craft strategies to save or re-energize retail brands. Sure, Amazon is reshaping the retail sector, causing turmoil for most and devastation to some. But that point is misleading and dangerous to brands looking for a single villain or creating a single strategic ambition — to try to be Amazon.
I was forced to face my own Amazon demon when reviewing episodes of our podcast series, What It Means, in which I consistently reference Amazon as the big, scary operational best practice and the underlying cause of retail turmoil. Man, I got it right yet so wrong at the same time.
Before we go too far in this thinking, let’s acknowledge a powerful truth: Amazon has different financial realities — less margin pressure and an Amazon Web Services (AWS) behemoth churning out revenue in the background. This is not even close to the realities of other retailers.
Putting that reality aside, a better way to look at Amazon’s performance is realizing that Amazon helped create a virtuous cycle with the consumer. Amazon fulfills and then reconditions consumers’ expectations for what is possible; the consumer rewards and informs Amazon on how to take the next big step. This cycle places consumers as participants, creating a treasure trove of data, an animated beta team at scale, and a community that wants to win with Amazon.
The problem is that retailers pay too much attention to Amazon in that virtuous cycle and too little attention to how Amazon and consumers work together. With that in mind, here are some fundamentals of that virtuous cycle that are worth learning about:
- It’s the customer, stupid. President Clinton famously adopted the “it’s the economy, stupid” internal campaign team slogan to avoid unnecessary, self-inflicted distractions. Strategies are elegant creatures that often become too complex and miss the point. Amazon centers its strategy, executive attention, and resources on customer obsession. It is driven by the premise that to know its customers is to serve them, and to serve them is to know them. Retailers know their merchants, the products they sell, and their financials. But many of them are missing the energy at the center of this storm: the customer.
- A smartphone or channel is not a human being. Omnichannel and mobile strategies are all the rage . . . but not the whole point. These strategies correctly point to scale and traffic but again miss the central plot line in the play: the customer. I get the sense that Amazon knows me; I get the sense that other retailers merely accept that I use a smartphone and have an email address.
- A segment or persona is also not a human being. Segments and personas are borne out of simple data points and categories that best reflect what customers can do for you, and they can often be an echo chamber view of what the retailer wants to be true (and useful) about customer groups. They obscure, complicate, or disallow the human being to become the strategic and operational focus. Unquestionably, one of the great leaps forward is to serve human beings at scale — but it’s a leap that can pay massive dividends.
- Loyalty is an emotion. Just look inside your spam folder for the intent of most retailers’ “loyalty” programs: “see this, do that” promotions and coupons. How did I, as a valued customer in a loyalty program, end up on the other side of a marketing automation email with little better than a “Dear Occupant” opening? Amazon bucked the trend of old-school, rebate- and coupon-happy loyalty programs with Prime — offering experiences and services that are different and better than a base experience. The lesson is not to replicate Prime but to divest of merchant-based loyalty programs and recouple loyalty with real human value.
- Product and price transparency screams to avoid mimicry. Product and price transparency heavily complicate strategies to copy Amazon. Amazon has built a massive marketplace, an experience engine (Prime), and recommendation engine, and head-on product competition turns into price wars. What is learnable is to build differentiated, distinctive, memorable experiences that affirm your purpose and get customers to see the entire discovery, buying, fulfillment, and use/ownership experience as a reason for them to come on board.
- Fulfillment can propel or bury a retailer. Amazon is rewriting the rules of fulfillment, but I see that as a cautionary tale for the copycats out there. Amazon’s fulfillment is an outcome of its superior, Amazon-owned logistics engine. The use of third-party fulfillment can place focus on two elements: the brand that showed up in my driveway (not the retailer) and the product itself (not the retailer). If this happens, the retailer devolves to a logistics channel or warehouse.
- A brand is a purpose. Our story concludes where it begins: Why does the retailer exist? The game for some retailers was build-out by zip codes and postal codes — build it and they will come. But we are now in a market with prolific digital options; hyperadoption and hyperabandonment behaviors; and customers, who demand to be treated as individually relevant, deciding on who are the winners and losers. “Build it and they will come” strategies, or any derivative that artificially places the word “customer” in the strategy and attempts to copy Amazon, will fail. Amazon is Amazon, and your brand is your brand. If there is a reason for you to exist in the service of customers, embody it. Be you.
Retail is not failing; it’s changing. The changes are driven by the same fundamentals that created a virtuous cycle between Amazon and the consumer. Focus on the fundamentals, and avoid crafting red herring strategies.