The Amazon Effect & Consumer Expectations: A Guide

By November 12, 2018 Contract Negotiation, Invoice Auditing, News
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Amazon emerged as a small online bookstore, and transformed into an e-commerce giant with 300 million users and a net income topping $177 billion. Each order placed on Amazon has contributed to what is called the “Amazon Effect,” which describes the shift in customer habits and expectations due to Amazon’s popularity.

The Amazon Effect started when the company began offering free shipping on orders of $25 or more. The popularity of this program was significant, so in 2005, the company upped the ante and created Amazon Prime, a membership program that would allow customers to get unlimited free two-day shipping for an annual fee. But the Amazon Effect doesn’t stop at shipping — it has caused widespread changes and influences to customers’ buying habits.

Post-Amazon Effect customers want more than a good buying experience. They want to go from “need” to “purchased” with a single click and to have items arrive to their doors as fast as possible. Understanding the Amazon Effect and its impact on customer expectations can help retailers of all sizes compete and generate more revenue. But how have expectations changed, and what’s in store for the future?

The Demand for Instant Gratification has Increased

In the past, customers figured that shipping costs were the price you had to pay for shopping online, but today paying for shipping is a huge hurdle for buyers — one that could result in significant loss of sales.

The channels in which people shop are also changing. With the advent of the smartphone in 2007 and the tablet shortly after, customers aren’t just shopping during brick-and-mortar stores’ hours — they are ordering around the clock. This creates expectations for an “on demand” experience in which customers get their needs fulfilled quickly. What’s more, customers expect retailers to understand those needs in greater depth. In fact, 76 percent of consumers report that they expect organizations to understand individual needs, which gives rise to the demand for personalization.

Advancements in technology are another factor that play a pivotal role in today’s retail environment, and studies show that customers are becoming more and more inpatient. In fact, 41 percent of respondents report that technology has made them more impatient than they were only five years ago. Customers want to order products with ease and receive those products quickly and with no charge for shipping, with 62 percent of online shoppers ranking free shipping as the most important perk that a company can offer.

Customers also demand less friction in the buying cycle. A customer may have visited several stores to find the right item in the past, but the Amazon Effect has changed that.

Customers can now view products within seconds, check prices, read reviews, and use “one click” buying features to quickly purchase products and have them shipped to their homes. This creates less friction in the buying process and generates large amounts of revenue for retailers.

The majority of customers (81 percent) expect improved response times from the companies with which they do business. When a customer has a problem with shipping or the product, he or she expects the company to harmonize that experience quickly.

The Price-Obsessed Customer has Emerged

The majority of customers today (79 percent) report shopping online. This doesn’t mean that customers aren’t still visiting brick-and-mortar stores, but most are either shopping online occasionally or, in some cases, more frequently. Regardless, there has been a huge spike in online orders since 2000, when only 22 percent of buyers reported shopping online.

What’s more, mobile shopping is the fastest-growing segment in e-commerce, worth $3.2 trillion in 2017, which is a jump over the $1.5 trillion reported in 2013.

Customers aren’t only shopping at their desktops or laptops at home, but they’re also shopping on the go — during their commutes, standing in line for coffee, and while watching their child’s sports practices. While doing all this shopping, they are empowered to view competitors’ prices within a few simple clicks.

Amazon has empowered customers, changing expectations to the point where not only do they expect free shipping, but they also expect lower prices. With a few simple clicks, they can move through the shopping process faster than ever. And this new consumer, one who is price-sensitive and empowered with the tools to shop competitively faster, frequently starts his or her search for a product with Amazon.

In fact, nearly half of all product searches start with Amazon. Customers think of a product they want, visit the company’s website, check reviews, and make a fast purchase decision. Amazon has actually surpassed the popularity of Google when it comes to product searches.

Amazon is constantly working behind the scenes to deliver competitive pricing, using technology that updates various prices thousands of times a day. Competing with Amazon requires retailers to contend with customers who are constantly comparing prices online and making snap decisions. In addition, it’s not only pricing that is influenced by the Amazon Effect, but it’s also customers’ expectations about the information they receive regarding products and services.

Customers Want More Product Information

The Amazon Effect has influenced customers’ expectations regarding how they shop and how they expect to receive information. Even customers who shop at brick-and-mortar stores are still using Amazon to justify their purchases.

Here is an example of a common scenario today: A customer enters a brick-and-mortar retailer to find a new computer. The salesperson makes a recommendation based on the customer’s needs and budget. The salesperson steps away, giving the customer time to consider the offering, and in an instant, the customer grabs his or her own smartphone and jumps online. The destination is Amazon. Once reaching Amazon’s site, the customer checks prices and reads reviews to learn what other customers like and dislike about the product.

The majority of customers (70 percent) report that they look at product reviews before making a purchase. What’s more, product reviews are 12x more trusted than product descriptions from manufacturers.

In an effort to keep up with the Amazon Effect, many retailers have created their own place for customers to leave product reviews online, giving customers an additional resource to check when making buying decisions. Customers want product information. And they aren’t simply looking at product details. They also want information about other buyers’ experiences with these products, including detailed photos, size dimensions, and more.

The Demand for Personalization is Rising

The Amazon Effect has changed expectations around personalization. Pre-Amazon, customers might be delighted if brick-and-mortar salespeople remembered their names, preferences, and details that made them feel known. But Amazon took this personalized shopping experience and expanded it at scale.

The early days of Amazon included the “people who bought this item also bought …” notice while people were online in order to entice someone to consider additional products. This “endless aisle” feature was a powerful tool in helping customers view similar products online, but it also made the experience feel more personalized.

Amazon is leading the efforts in personalization in e-commerce shopping, and although the “people who purchased” widget is still there, it’s taking a deeper dive into serving up personalized options, and these expansions trickle down to all retailers. Customers don’t just appreciate personalization — they demand it.

Studies show that 86 percent of consumers say that personalization plays a major role in their purchasing decisions. Online shoppers are 45 percent more likely to shop on a website that makes personalized recommendations. What’s more, 56 percent of online shoppers report being more likely to return to sites that offer these recommendations.

Amazon uses technology to get to know their customers, leveraging their purchase history, items they’ve looked at and items they’ve rated, and then pools all that data with the profiles of customers with similar interests. Customers don’t just enjoy personalization during the buying process, it’s proven to generate more sales. Amazon found that 35 percent of all their sales are generated by the recommendation engine.

Personalization also builds loyalty with customers as they begin to feel truly known by a retailer. As a result, they crave these personalized experiences with retailers due to the Amazon Effect, and those companies that don’t deliver it won’t enjoy the benefits of building relationships that are lasting and foster loyalty.

The Speed of Innovation Continues to Shape Expectations

The Amazon Effect is built on the speed of innovation. Amazon brought customers free shipping, but they also brought them fast shipping. Receiving a package in two days pre-Amazon would have come with a big price tag. And shipping items that were light, such as a ball of yarn or a tube of lipstick, was unrealistic due to shipping prices. But Amazon has changed all of this, shipping many items at no cost to the consumer. These capabilities are built from the company’s innovation and technology resources.

Once customers adjust to the new innovation, it transforms into something that is expected. Retailers are then left to figure out strategies to keep up. Founder Jeff Bezos said:

“We’ve had three big ideas at Amazon that we’ve stuck with for 18 years, and they’re the reason we’re successful: Put the customer first. Invent. And be patient.”

Wise retailers are keeping an eye on Amazon’s new innovations. Each one has the ability to transform the Amazon Effect yet again. For example, the company recently introduced Amazon Key, which is an in-house and in-car delivery service. It allows customers to receive shipments inside their homes or cars by purchasing a kit that provides key access and comes equipped with a video camera (the video camera allows the customer to watch their item being delivered remotely).

In addition, Amazon has also created “Prime Air,” which is a delivery system that is designed to get items to customers within 30 minutes of their order. The items are delivered via drone and, by 2020, Amazon forecasts the company will have over 450,000 drones in its fleet and be operating this delivery model worldwide.

The Amazon Effect is constantly changing customer expectations and retailers should stay apprised of the current effects but also anticipate those in the future, so they can create strategies for keeping up and staying competitive.

Finding the Way Forward

Amazon has come a long way from an online bookstore competing in a market that was heavily saturated with many different options. The company has expanded into nearly every corner of the world with product variety, offering customers everything from groceries to clothing in a single click. The company’s earnings continue to grow, with revenue doubling from 2015 to 2017.

Amazon’s work in raising the bar on the customer experience has created a gap between what customers expect and what some retailers deliver. The key to success is learning more about the expectations of your customers and working to close that gap. It’s through this data and insight that you can begin competing with the Amazon Effect. Once you accomplish this, you can create experiences that involve less friction and deliver results that delight customers and grow revenue.

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