How Retailers Can Respond to the Amazon Effect
The “Amazon Effect” is the term for the reality that, these days, every retailer must respond to Amazon’s constant innovation and digital-first approach in order to compete. One thing Amazon does that traditional retailers rarely do is it “creates” the future. It does not wait to see what will catch on and buy the tech to do it after it has already been market proven. The retail grocery industry has never been a tech-first industry. But Industry 4.0 means every industry has to factor cloud computing, the internet of things, and data first, into the way they do business. Industry 4.0 has, in many ways, redefined what customers want. The knowledge of how to stay at the forefront is in the data.
The Most Popular Stores
The good news for traditional retailers is that a study by Bain & Company shows traditional supermarkets still lead in terms of Net Promoter Scores. The data also shows that promoters spend twice as much at their stores as detractors. What many supermarkets fail to do is take what customers love about them in brick and mortar and translate that to their digital presence.
Often, various magazines and websites laud one store concept or strategy over others, making some retailers question their approach. But a Harris poll study showed three of the top grocers include Wegman’s, Aldi, and Costco, all of which have very different strengths. Wegman’s has nearly twice as many products as other grocers—bringing them a little closer to an Amazon. It is not known for bargains–as Amazon is—but for ambiance, like having its own pub. Aldi and Costco are known for bargains, though Aldi is known for imported foods and store brands while Costco is known for stock-up shopping and introduction of new items.
It’s key, when thinking about how to compete in a digital world, to keep in mind what your customers love about you and make that part of your digital strategy.
For example, as the Bain study suggested “ If fresh is your differentiation, offer five degrees of ripeness for bananas ordered online.”
Meat and produce are a good example of the disconnect that often exists between the digital world and the physical one. Meat and produce are two main reasons shoppers choose a store. And they’re two main reasons shoppers don’t use delivery services or even click-and-collect. They don’t trust the average delivery person to pick fresh items that meet their standards. Getting subpar items is definitely a bad customer experience even if it is digitally-enabled.
So how can you competitive in Industry 4.0 and provide the experience shoppers love? Perhaps you can let them choose their own meat and produce online—either through something like Walmart’s app Fresh Online Experience or just by having your professional shoppers use their phones to show customers produce and meat and let the customer pick. HEB has its own training program for Curbside service to ensure customers are satisfied with the items they get. The digital relationship can help preserve the physical one. it has to be seamless across channels.
Use the Technology
Gartner published a piece called How Retailers Can Compete With E-Commerce Giants. In it they recommended several things including using Artificial Intelligence to create customer-centric experiences; integrating your offerings with the Internet of Things—like letting people connect their smart refrigerators to your store offerings; and building up a collaborative ecosystem with other suppliers, retailers etc.
You can’t invest in every technology, so which ones are the most essential to your ability to make a profit while creating a customer experience people want? The intelligence is in the data: from loyalty apps, coupon collection, sales, audits. Today’s world runs on data. And it must be current data, because things change fast.
What does the data tell you about your customers? Are they bargain shoppers? Are they changing their diets according to current trends—organic, vegetarian, gluten-free—or not? Are they using their loyalty apps? If they’re not using the loyalty app but they do use digital wallet to pay or shop online, it could be a problem with the app itself needing improvement.
If you were to create a separate fulfillment center for delivery or click-and-collect, do you know which would be the smartest items to stock in that fulfillment center? As the Bain report said: “The best companies have a portfolio mindset (e.g., 70% of investment is to support the current business, 20% is for near-term changes and 10% is for farther-out innovations.)”
Imagine the Future
The Amazon Effect isn’t without its upsides. for example, The Motley Fool says curbside grocery pick-up is a $35 billion industry that Amazon can’t compete with. After all, Amazon Now doesn’t deliver everything, and often their prices are high. The Motley Fool calls this the opportunity that Amazon is missing out on.
The National Retail Federation reports that 93 percent of customers want more personalization, but don’t like how invasive a lot of personalization campaigns are. They’re happy to share their purchase choices, but not their personal contacts. Stores can use this to create online platforms and communities where people voluntarily share their favorite products, opt-in for notifications, suggest store innovations, while the store makes extra effort to protect their data and not ask for anything too personal.
Bottom line, retailers need to recognize that Amazon is imagining the perfect shopping experience of the future and investing in everything to make that happen. They can afford to make mistakes. Retailers have to begin by imagining the perfect shopping experience in the store of the future, too. But with traditional margins, they can’t afford to make all the changes that would entail. Picking what to incorporate in the dream shopping experience is a matter of really collecting and examining the data about your customers, your market, and your community and choosing the most strategic investment both for now and for later.
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