How Retailers Can Compete With the Amazon Effect

By November 12, 2018 Contract Negotiation, Invoice Auditing, News
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Amazon started as a small, online bookseller, but it evolved to become a major disrupter in the retail space, changing the face of retail and shaking up online commerce. Customers no longer think about shopping in the same way, and their buying paths have shifted as they demand access to more channels, using the devices that they know and love.

Competing with a massive competitor such as Amazon can feel overwhelming, but when you understand the Amazon Effect and how to work with it – instead of against it – your business can make real gains. It all starts with customer experience, which is a key pillar to Amazon’s success.

Companies lose an estimated $300 billion annually due to poor customer experiences. Amazon has made millions of dollars creating personalized experiences and providing everything from suggested product recommendations to the ability to order via voice-activated personal assistants. Retailers can overcome the Amazon Effect and achieve great success, but they need to know where to start. Check out these powerful ways that retailers can compete with the Amazon effect.

Reaching Customers with Greater Impact

Customers are no longer shopping using the same old channels. They are ordering products while waiting in line for coffee, on the commuter train and at their kids’ sports practices. At times, they also still crack open that laptop and place an order. The Amazon Effect has created an environment in which customers expect a seamless omnichannel experience. In short, whether they’re shopping online from a desktop or on their smartphone at the local coffee shop, the customer wants that experience to be integrated and seamless.

Take, for example, cosmetic company Sephora. Consumers can shop, see their favorites list and past purchases, scan items in the store and see other options available online, watch tutorial videos, and find a store near them. The company’s approach to omnichannel has nurtured 11 million members who spend 15 times more money on Sephora than the average user does. Even if the niche your retailer serves is very different from this example, the message is clear: When you allow customers an integrated experience, giving them the option to view and interface with all potential channels, it increases loyalty and drives sales.

The key to creating a strong omnichannel experience is understanding customer behaviors and preferences and then creating an omnichannel experience that reflects those preferences. It’s likely that your company already collects large amounts of customer data. Having that data is the first step, but more importantly, you must gather insights to use that data and create stronger relationships with customers. The omnichannel experience can’t be clunky and disjointed, but instead must embrace digital retailing and the expectations set by customers in the wake of the Amazon Effect.

Zeroing In on Price

Planning a new purchase often begins in the same place for many shoppers: Amazon. In fact, Bloomberg reports that more than 50 percent of online shoppers start a product search with Amazon. Customers aren’t only checking for lowest prices, a category in which Amazon has built a reputation, but are also checking customer reviews, product options and more.

What are other customers saying about the products? Does it have bad reviews? Is the price competitive? Amazon is constantly updating prices several thousand times a day to stay competitive, and if your company doesn’t have some strategy in place to combat this phenomenon, it can be a problem.

Old-school methods around pricing won’t cut it in a post-Amazon Effect environment. Savvy retailers are combatting this challenge by using technology to keep pricing competitive. For example, they might use real-time analytics that allow for rapid price changes, similar to Amazon’s approach. Other retailers are using different approaches, such as allowing customers to name their price or take advantage of dynamic and personalized coupon offers.

When too many first-class seats are available, Hawaiian Airlines allows customers to name their price (with a price floor set) to get the seats. Although retail is different from an airline service, the name-your-price strategy, especially when inventories are high, can be an effective one.

Cart-level pricing is also used, where customers can take advantage of special offers and products at the cart level to drive additional sales. The bottom line around pricing and the Amazon effect is that customers expect retailers to be competitive. When loyalty is weak, they will quickly pick another retailer if pricing is more competitive or the experience is superior. The name of the game is being reactive and making moves fast. Create strategies to make this possible and stay one step ahead of competitors – and your customers’ demands.

Targeting the Demand for Ease

One of the major symptoms of the Amazon effect is expectations around simplicity during the purchase process. A few decades ago, the shopping process was labor-intensive. A customer would have an item in mind, pick a store or two, and start shopping, which was time-consuming, especially if the item was not found. Since online shopping wasn’t available, the customer might compare sale ads, but comparison shopping was difficult. What’s more, free shipping wasn’t common and the customer didn’t balk at paying shipping costs; shipping costs were expected.

Shopping is now a process that includes expectations of near-instant gratification. Amazon has one-click shopping, making it possible to complete transactions in a matter of seconds. Customers can shop multiple stores from a variety of devices – smartphones, tablets and laptops – faster and easier. The result of the Amazon Effect is that ease is now expected across all experiences. Customers expect to run into fewer barriers during the process, and if those barriers do occur, the tolerance is minimal, which can result in lost sales.

One way to compete against the Amazon Effect is to create experiences that eliminate friction in the buying process, as the Amazon one-click purchase process has done. For example, a mobile-first experience, responsive design and a variety of payment options, including digital options such as Apple Pay, leverage the critical factor of speed.

Magnifying the Transformation of Shipping

Amazon has transformed expectations around shipping, and the majority of retailers have felt the effects. Nearly 90 percent of respondents in a recent survey “somewhat agree” or “strongly agree” that Amazon has changed consumers’ expectations for order delivery.

It all began when Amazon started offering free shipping on orders that cost more than $25. Many retailers, such as Target and Walmart, have since created similar shipping offers. But what took shipping expectations up a notch was the introduction of Prime shipping, which offers unlimited two-day shipping free to customers with membership. In fact, Amazon “Prime Day” in 2017 produced sales of more than $1 billion, showing that not only do customers enjoy fast shipping, but it drives them to spend more.

In fact, more than 90 percent of respondents say that shoppers are “significantly less likely” or “somewhat less likely” to purchase without free shipping. Furthermore, 45 percent of customers – nearly half of all shoppers – admit to abandoning their carts due to shipping costs that are tacked on at the end of the transaction.

As a result, many retailers are being forced to offer free shipping to customers in order to compete in the marketplace, and that trickles down directly to their bottom line. Retailers are using a variety of strategies to handle the pressure of changing shipping expectations. One such strategy is “backing in” shipping costs to the product price. And while this offers a straightforward solution, it doesn’t always help retailers compete under pricing pressure. Higher pricing makes it difficult to stand out in a fiercely competitive environment.

Another alternative that retailers use is opting for shipping options that are less expensive. Major carriers, such as UPS and FedEx, developed shipping options that target the “last mile” of shipping, which is the most expensive part of the route. The U.S. Postal Service was already visiting most addresses in the United States, and partnering with the USPS to complete the last leg of delivery achieves savings that are passed on to the retailer.

There is a tradeoff, however, and that’s speed. These options are typically slower than what a more traditional service affords, but if expectations are set upfront and the customer accepts the tradeoff, it’s a worthwhile savings option.

Competing Through Products and Personalization

Technology has advanced, and retailers have gotten better at personalization – to the point where customers demand it. For example, Amazon does this through personalized recommendations based on previous purchases and on what others with similar interests buy. What’s more, customers who receive personalization from retailers spend more. In fact, 75 percent of consumers are more likely to purchase from a retailer that recognizes them by name, recommends options based on past purchases, or knows their purchase history. Additionally 59 percent of customers say that personalization influences their shopping decisions.

This demand for personalization is only expected to amplify in the future. Over the next five years, it’s said that $800 billion will shift in the retail, financial services, and health care markets from those that can’t deliver good experiences to the 15 percent that get personalization right.

As a result, retailers that want to compete with the Amazon Effect must provide experiences that are personalized and make customers feel special. Customers want to receive relevant offers and information at the precise moment of relevance. In fact, more than 78 percent of consumers will engage with offers only if those offers have been personalized to their previous engagement with the retailer.

Data is critical in this equation, as retailers need to have a variety of products that more closely match a customer’s needs at that relevant moment in time. Doing this correctly can create brand loyalty that gives you an advantage over the competition.

Creating Greater Synergy with the Amazon Effect

While it’s impossible to reverse the Amazon Effect and the consequences it’s had on the retail space, it is possible to use this trend to your advantage. Working against the current of this effect is more difficult than working with it. If you examine what it has uncovered, you’ll learn important details about how to best reach your customers and drive greater results.

For example, Amazon taught retailers not only that free shipping is a major hot button for customers, but also that when you combine free shipping with fast delivery (i.e., Prime shipping), it drives massive amounts of revenue.

A key piece of the puzzle in managing the Amazon Effect in the future is having the right technology in place that empowers quick decisions. Speed is the secret ingredient to meeting your customers’ demands at the exact moment of relevance, yet many retailers aren’t capitalizing on this yet. Furthermore, although 89 percent of respondents reported that Amazon has changed customers’ expectations for order delivery, more than half of those respondents have not adjusted their technology spending on order fulfillment and delivery. Only 40 percent of retailers have either somewhat or significantly increased investment in this area, which means that many have an opportunity for improvement.

Create a seamless omnichannel experience, maximize shipping efficiency, minimize related costs and look for ways to create more personalized experiences, and your company will be equipped to compete with the Amazon Effect and thrive in the future.

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