Amazon’s Need for Touch

An Opportunity for Innovators

By: Maxwell Abram (P’19)

Since June, experts and intrigued civilians alike have weighed in on the rationale behind Amazon’s acquisition of Whole Foods. Some have hypothesized access to consumer data and control of Whole Foods’ private brand product. Others posit access to rich urban consumers and rapid expansion into groceries, a coveted category. None of these, or the plethora of other popular rationalizations, offers a complete picture of the benefits of this acquisition to the online megastore, though. None except for that of Ben Thompson, who explains that Amazon did not buy Whole Foods to buy a retailer; Amazon bought its customers. And, further, that these customer relationships exist almost entirely offline is not a pain to the online mega-retailer, but in fact exactly why the acquisition makes sense.

[Consumer in Whole Foods examining produce by holding it, via NPR]

Before diving deeper into this argument, it is necessary to explain the little-discussed problem that Amazon has begun to address by way of this acquisition. Online retailing platforms, Amazon chief among them, have a big roadblock in the way of future growth: some products, and some consumers, simply require touch. I will not buy expensive clothing without trying it on in-store first. My dad will feel five different $2 paper towel brands before deciding which he’ll buy “this time”. And my produce-enthusiast roommate has called it “unholy” to buy avocado, that most delicate and sensitive modern delicacy, without testing its firmness first.

By its acquisition of Whole Foods, Amazon bought the grocery chain’s 14.5 billion regular customers, which includes many customers in this inaccessible or under-tapped group.

The evidence of “need-for-touch” isn’t just anecdotal. Since 2003, “haptic marketing” scholars have been looking into what factors most drive demand for touch of product at the point of sale. Multiple studies have found that the material salience of the product (is feel core to its purpose?) and the consumer’s inherent “need-for-touch” (as measurable by this questionnaire) predict a product’s sell-ability to that consumer when touch is impossible. High need-for-touch consumers are typically uncomfortable buying a high material salience product, like fresh produce or a cashmere sweater, without touching it first.

Despite policies built with the low-confidence shopper in mind, like free returns, these findings spell trouble for an expansion-oriented online retail industry. Internet stores are already dominant in most low material salience sectors, like book sales, where Amazon alone controls 65% of the US market. But if online retail is to keep growing faster than the consumer goods market as a whole, the sector’s companies must first become the trusted methods for my fashion expenditures and the go-to for my roommate when seeking avocados. The need to enhance consumer trust in products offered online certainly drove Amazon’s October 2017 acquisition of BodyLabs, which is building a B2B software platform that will offer true-to-life virtual body models. Amazon no doubt hopes to apply this software to its growing fashion business, allowing customers to see what pieces and even outfits might look like together in real life.

Amazon’s acquisition of BodyLabs proves that capacity to sell high material salience products is on the company’s mind, passing on great credibility to the thesis that access to high need-for-touch consumers contributed to Amazon’s decision to acquire Whole Foods. To build an offline presence is by no means unprecedented for maturing online retailers. Warby Parker and Bonobos, for example, have benefitted greatly from supporting their online presence in brick and mortar. In tow, following the Whole Foods acquisition, Amazon now boasts over 370 physical locations globally. These, like Bonobos’ and Warby Parker’s showrooms, and like the potential of BodyLabs, offer to Amazon valuable opportunities to sell high material salience products to high need-for-touch consumers.

However, a more complete solution is needed. BodyLabs’ product, which hasn’t even reached market, will offer only a partial solution to the challenges of selling only apparel. Further, to build more brick and mortar stores is not a viable strategy for the online marketplace giant or its peers — it’s about as natural as a modern airline reverting to the use of cruise liners for transcontinental voyages.

This need is clearly understood by the market — even if only tangentially. Companies that capably sell high material salience goods to high need for touch consumers online have benefited from massive demand. Stitch Fix, an online-only service sending personalized boxes of fully returnable apparel to customers, closed its first day on the public market at $1.46 billion after six years of operation.

[Stitch Fix is built for easy returns, via My Subscription Addiction.]

But Stitch Fix’s solution to some consumers’ low confidence in online shopping –easy free returns– is too only a bridge, albeit a powerful one, between online retail and high need for touch consumers. It, like building brick and mortar stores, is not a digitally native solution. While competition on this plane in the near-term makes sense, Amazon and other mature online retailers should and will seek out virtual touch marketing technology that will offer customers greater confidence in the products themselves and enable more profitable customer-retailer commercial relationships. And herein, in developing SaaS-model touch marketing platforms, lies a massive opportunity for capable entrepreneurs.

Touch marketing has a proven, powerful effect on retail sales. In a 2012 Linnaeus University study designed to test the power of integrated atmospheric and touch marketing in practice at a Swedish IKEA outlet, sales of wine glasses jumped 64.5% over the control condition. Further, a larger share of those items purchased were from the premium line. Online retailers stand to benefit just as IKEA does from touch marketing if successful in developing a virtual touch-analogue.

Skeptics may argue that despite the clear power of physical touch in marketing, that there is no way virtual touch could match its effectiveness or be executed on the browsing platforms online retail customers currently shop on. But results from mature hardware manufacturers and niche startups utilizing early virtual touch technology prove otherwise.

Early testing of the limited technology that exists in mobile haptic marketing today has turned in notable response rates. Chinese technology manufacturer Huawei has boasted delivering 10x typical engagement on company-run ads on their own smartphones, employing only features common to most devices today (like vibration). American startup Immersion can run haptic ads on all Android devices and remains the only company dedicated to building a platform for use by advertisers. The marketing company has run campaigns for legacy brands offering a 50% lift in brand favorability over a traditional version of the advertisement. Though these specific figures carry no monetary scaling, it’s safe to say that this technology once more fully developed will deliver, long term, a serious bump to Amazon and co.’s bottom line if implemented across the marketplaces’ offerings. And just this past month, Warby Parker, already a pioneer in marketing to high need-for-touch consumers given their field-leading move to open brick and mortar locations, implemented a “face-mapping” tool to help consumers determine the right pair of glasses for their face shape. Though not haptic marketing by strict definition, this tool similarly serves to give additional confidence to hesitant online shoppers. And this is only the beginning for touch-analogue marketing. [Warby Parker’s new face mapping tool for iPhone X, via Engadget.]

Yet despite this early evidence of efficacy in advertising, no B2B platform has been developed to offer a virtual haptic representation of products, in place of traditional photos, within online marketplaces. (Former Penn Professor Katherine J. Kuchenbecker, a leading researcher in the haptics field, and her team coined the term “haptography”, short for “haptic photography”, to describe devices offering the capacity to “quickly record the haptic feel of a real object and reproduce it later for others to interact with in a variety of contexts.”) Given proof of the power of online haptic ads, and of the power of in-store touch marketing via the Linnaeus/IKEA study, it’s clear this is a massive opportunity. Given the size of the online retail market, and that such a technology is no doubt eligible for patent protection and easily licensed, there is no doubt anyone successful in applying haptography to online retail stands to encounter great market demand.

Online retail as it stands today is a perfect model for the sale of low material salience products, like books, and for selling to low need-for-touch consumers. But as the sector reaches a high level of saturation in these sectors, it will need to overcome more substantial hurdles to continue growth. To sell high material salience products to high need for touch consumers is a clear opportunity, but one which will require the development of appropriate technologies. And given the size of the market, those who develop this technology will stand to grow rapidly and powerfully fuelled by massive market demand and keen support from the online retail giants who will stand to benefit most from such a technology.

Max Abram is a project manager on the Innovation Fund and also leads external fundraising efforts. He is a Philosophy, Politics & Economics (PPE) major. Having grown up surrounded by start-ups, Max especially enjoys discussing ideas for innovative martech, machine learning, and B2B companies, and he hopes to build a career in growth stage investing focussed on these fields. Outside the classroom, Max is a varsity athlete on the Lightweight Rowing team and enjoys endurance sports of all kinds. Feel free to reach out to him at maxabram@sas.upenn.edu or here.

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