With a vision ‘to be the earth’s most customer-centric company; to build a place where people can come to find and discover anything they want to buy online’, the problem in many categories is that Amazon’s vision is becoming reality, fast.
The purpose of this paper is to highlight some of the reasons why suppliers perhaps need to reassess their approach to Amazon in terms of overall impact on their trade strategies, and to encourage discussion on the implications for NAMs and KAMs everywhere.
Essentially, having started trading in 1994, Amazon has grown fast, and in relatively low profile to its current global scale of US$48bn, growing over the four years of the global financial crisis at a CAGR of 26%, producing a net margin of 2.2% and an ROCE of 9.06% in fiscal 2011. In other words, serious customer-centric retailing, from a standing start, rather like Walmart – only faster – with an EDLP platform that seems to retain its excitement for consumers, everywhere.
Given the impact Amazon has already had on many categories’ traditional routes to market, coupled with an online consumer purchasing process that threatens the often clumsier online alternative mechanisms of its rivals, makes Amazon one to watch. Moreover, Amazon has driven this development via a database of such degrees of integration it puts even government agencies ‘equivalents’ to shame. This makes it vital that its business model be explored by any NAM wishing to develop real world trade strategies that have some hope of fulfilment in these unprecedented times.
In other words, think about Amazon having 50% of most categories within the next five years, and assess the impact on the remainder of your business.
In terms of new product introductions, think of the scope and impact of an efficient pre-used market developing independently of your company in response to the global financial crisis – both prolonging current use and also meeting a high proportion of ‘new’ need that might have been available to your new products in traditional times.
When it comes to market coverage, Amazon is managing to combine three customer sets: Consumers – who want to buy products on Amazon, Sellers – who want to sell products on Amazon, and Developers – who want to use Amazon developing services. It is also successfully combining key elements of effective and long term customer optimisation via e-Trust, attraction, retention and relevance with site personalisation, without intrusion. In other words, Amazon does simple things done very, very well in taking lifetime ownership of the consumer.
Amazon is raising not only the online commerce bar, with all of its potential efficiencies, but is also going to the heart of state-of-the-art retailing, providing much more than store level assortment. It is, in effect, tailoring the offering to individual consumer level, better than any other provider.
In terms of global retailer response to Amazon, it is intriguing that Walmart is currently conducting joint experiments with P&G via kerbside vans/bus-shelter virtual shops to drive traffic to their online delivery service in order to counter Amazon’s advantage of next day delivery in Manhattan (see KamBlog).
Amazon’s latest annual report for fiscal 2011 makes for spell-binding reading, not least because of the fact that the company appears to carry little baggage in terms of what an annual report should look like, and contains many details not always found in traditional company output.
There are obviously downsides to new growth of this nature, in a virtual world that is evolving faster than government and regulatory regimes struggling to adapt traditional ways of controlling and monetising online business. However, with Amazon’s customer-centric focus so deeply embedded in its business model, it is unlikely that the company will stray far from its basic objective of meeting customer need, continuously…besides generating sufficient funds to apply state-of-the-art guidance in managing local rules and regulations.
In other words, Amazon is going to be around for a while yet, certainly long enough to be worth incorporating into your trade strategies…
If still in any doubt, try Amazon’s 1-click purchase combined with next day delivery and compare it with a visit to your nearest Tesco, real or virtual… Worth a try…?
