Part 2: Quantifying Experience in Offline Retail and why is Amazon venturing into this?
It has been the objective of every retailer to grow their inventory slower than their sales. Seems pretty simple, right? Not until you consider what was going on in trying to get the magic formula working. Earlier, most retailers were arguing on supply chain innovations, like charging vendors a handling fee, having a larger payment window or using advanced analytics to know which SKUs to stock and which to get rid off.
Most of these approaches were aiming for superior prices and superior selections, a balancing act which meant the prices and selections would remain in an eternal battle.
Meanwhile, something interesting was brewing in the Amazon ecosystem(now economy!), which changed the game. The new vectors for competing in the changing landscape weren’t based on prices and selections. Amazon’s low prices and infinite listings on virtual shelves promised a very high return to scale. These new vectors for competing are now based on experiences(both online and offline).
Amazon is becoming insanely good at delighting customers, try using Amazon Prime with same day delivery option in San Francisco, New York or major US cities. You get great recommendations and advanced features like real time delivery tracker.
A big reason why Amazon is becoming a champion of consumer experience is owing to their massive size, they have become the biggest market for their own products(case in point: AWS, that it uses for its own e-commerce business). Remember the old adage “Charity begins at home”, Amazon being the biggest user of its own products is tackling experience problems head on, and is on it’s way to creating the epitomy of seamless user experience, by solving its own problems for its own consumption.
Case in Point: Prime Now, Amazon Go and Whole Foods:
With respect to the Prime Now experience, Amazon can streamline its moving parts to achieve the perfect product experience(fulfillment infrastructure, integrated delivery and payment information), as the first direct customer of Prime Now initiative is Amazon’s e-commerce business itself.
Amazon planned more than 400 fulfillment centers, and while speculators were predicting click and collect and other online-offline interplay for Amazon, it introduced Amazon Go in the mix. The kind of technology stack present in Amazon Go, provides Amazon yet another opportunity for unleashing it’s e-commerce power at scale. With Amazon Go, it becomes possible for Amazon to understand the product assortment that interests you in stores even if you don’t buy them(much like online retail and recommendations).
Using this data Amazon Go can then employ its distribution and fulfillment infrastructure to first send you recommendations, and then ship your favorite products to your home. You can keep them if you like them and return them if you don’t (covered in Part 1 of the blog). It’s successful e-comm business will play a great role in optimizing SKUs for Amazon Go(assortment optimization is a very difficult problem to solve). Imagine the fee brands would be ready to pay for featuring in hot sections at Amazon Go.
Whole Foods acquisition gives Amazon the ability to spawn grocery which is a tricky market to be handled by it’s fulfillment infrastructure because of the inherently perishable nature of groceries. With Whole Foods, Amazon gets another integrated distribution chain ready for handling perishables.
With Prime Now, Whole Foods and Amazon Go, it becomes possible to imagine a truly brand-less, seamless product experience where anything you touch or see can be made available to you on the same day.
While speculators spend time deciphering Amazon’s strategy, Amazon spawns retail and adds its competitors to its top line.
By extension it becomes possible for Amazon to venture into any service business, as it’s e commerce business will pose as the biggest consumer of most services it intends to build at scale. Where e-commerce isn’t already the biggest market, Amazon will buy startups/ companies for access to their markets (only the ones that integrate distribution and user relationships well).
It probably makes sense for most retailers, to match the momentum of the visionary giant in terms of your ability to measure and quantify experiences, and then think about a smarter omni channel distribution strategy. The obvious risk retailer’s run by not matching Amazon’s ability, is getting Amazon’d.