Executive Briefings

Four Ways Amazon Disrupting Customer Expectations

Amazon is the great disruptor, in part because innovation is built into their culture. It’s in their DNA to try new things knowing some of them will fail, and they are experimenting and learning all the time. This cycle of innovation has enabled them to disrupt retail by raising customer expectations – anticipating what customers want and responding with new products and services before anyone else. Amazon is resetting customer expectations around convenience, speed, price and selection. -Robert Dold, Retail Industry Leader, Fortna

Four Ways Amazon Disrupting Customer Expectations

Almost twice as many online shopping searches start on Amazon (55 percent) than on Google (28 percent). Amazon Prime makes shopping convenient and easy with voice ordering, free shipping and free returns. Amazon is expanding their network and logistics capabilities to enable faster fulfillment (same-day, same-hour). And Marketplace enables price comparison and broad selection, with different sellers competing to deliver the lowest price.

Convenience: Prime creates stickiness with customers and reduces friction with fast, free shipping for members. Amazon is even moving the sale away from the store, computer and phone and integrating it seamlessly into consumers’ lives through voice ordering with its Alexa/Echo products. Today, Amazon has 90 million Prime members in the U.S. – approximately 65 percent of U.S. households. In the last year, 1 in 5 U.S. shoppers made a purchase using voice.

Speed: Speed has always been a differentiator for Amazon. Their rapidly expanding distribution network and logistics capabilities allow them to deliver on the promise of Prime. With the acquisition of Whole Foods and the addition of physical stores, the company is building an omnichannel presence that could further increase speed. They are reinventing the shopping experience with Amazon Go stores designed for speed and convenience. Customers skip the checkout and are charged for their items when exiting the store. And they leverage other retailers’ brick-and-mortar investments with lockers that allow convenient 24-hour order pick-up and returns.

Price and Selection: Half of the products sold on Amazon are through Marketplace sellers. Marketplace enables broad selection, and competition for the “buy box” drives low prices for customers. These third-party sales generate revenue for Amazon whether or not it ever touches the product. Marketplace also gives Amazon insight into top-selling items on the site, and the pricing dynamics of those products. Amazon’s private labels often outperform brand name category leaders, due to low prices and free shipping, which are favored in the “buy box” algorithm. And because Wall Street doesn’t demand it of them (yet), Amazon doesn’t have to worry about profitability. So they can use their scale, operational efficiency and lower margins to offer greater savings to the customer than many other retailers.

All of this is a recipe for fueling continued growth. Amazon is larger than it appears. In 2016, when you factored in third-party (Marketplace) sales, 43 percent of online goods bought in U.S. were purchased through Amazon. Amazon only reports as revenue the fees collected from Marketplace sales, not the full value of the sale, so the revenue numbers don’t reflect their true sales growth. Even so, Amazon has seen $64bn in sales growth since 2010 – the equivalent of the entire business of Macy’s, Nordstrom and Sears combined. And it’s growing both organically and through acquisition.

The Outlook

Amazon will continue to disrupt by adding new products, services and extensions as it spins more cycles of innovation. Amazon is building a moat around its 90 million+ Prime members by anticipating and responding to customers’ desires around convenience, speed, price and selection. It will invest in and acquire new technologies and companies that make operations more efficient and drive costs down. For the foreseeable future, it appears Amazon will continue its meteoric growth and set the bar even higher for every other business on the planet.

Almost twice as many online shopping searches start on Amazon (55 percent) than on Google (28 percent). Amazon Prime makes shopping convenient and easy with voice ordering, free shipping and free returns. Amazon is expanding their network and logistics capabilities to enable faster fulfillment (same-day, same-hour). And Marketplace enables price comparison and broad selection, with different sellers competing to deliver the lowest price.

Convenience: Prime creates stickiness with customers and reduces friction with fast, free shipping for members. Amazon is even moving the sale away from the store, computer and phone and integrating it seamlessly into consumers’ lives through voice ordering with its Alexa/Echo products. Today, Amazon has 90 million Prime members in the U.S. – approximately 65 percent of U.S. households. In the last year, 1 in 5 U.S. shoppers made a purchase using voice.

Speed: Speed has always been a differentiator for Amazon. Their rapidly expanding distribution network and logistics capabilities allow them to deliver on the promise of Prime. With the acquisition of Whole Foods and the addition of physical stores, the company is building an omnichannel presence that could further increase speed. They are reinventing the shopping experience with Amazon Go stores designed for speed and convenience. Customers skip the checkout and are charged for their items when exiting the store. And they leverage other retailers’ brick-and-mortar investments with lockers that allow convenient 24-hour order pick-up and returns.

Price and Selection: Half of the products sold on Amazon are through Marketplace sellers. Marketplace enables broad selection, and competition for the “buy box” drives low prices for customers. These third-party sales generate revenue for Amazon whether or not it ever touches the product. Marketplace also gives Amazon insight into top-selling items on the site, and the pricing dynamics of those products. Amazon’s private labels often outperform brand name category leaders, due to low prices and free shipping, which are favored in the “buy box” algorithm. And because Wall Street doesn’t demand it of them (yet), Amazon doesn’t have to worry about profitability. So they can use their scale, operational efficiency and lower margins to offer greater savings to the customer than many other retailers.

All of this is a recipe for fueling continued growth. Amazon is larger than it appears. In 2016, when you factored in third-party (Marketplace) sales, 43 percent of online goods bought in U.S. were purchased through Amazon. Amazon only reports as revenue the fees collected from Marketplace sales, not the full value of the sale, so the revenue numbers don’t reflect their true sales growth. Even so, Amazon has seen $64bn in sales growth since 2010 – the equivalent of the entire business of Macy’s, Nordstrom and Sears combined. And it’s growing both organically and through acquisition.

The Outlook

Amazon will continue to disrupt by adding new products, services and extensions as it spins more cycles of innovation. Amazon is building a moat around its 90 million+ Prime members by anticipating and responding to customers’ desires around convenience, speed, price and selection. It will invest in and acquire new technologies and companies that make operations more efficient and drive costs down. For the foreseeable future, it appears Amazon will continue its meteoric growth and set the bar even higher for every other business on the planet.

Four Ways Amazon Disrupting Customer Expectations