In case you haven’t seen it, although highly unlikely given their media profile, Amazon plans to geographically distribute products to local markets ready for home delivery. These parcels could literally be sitting on a truck that is circling the city just waiting for a shipping label. While one can argue what’s old is new again, thinking of the music by mail delivery services like BMC that I participated in back in the 1970’s, the extensive personal information available to Amazon can certainly help it anticipate sales. Like multichannel retailers it has realized the benefit of product staged locally in anticipation of sales. Not that different from what retailers have been doing for some time, although I have extensively written about the need to bolster this approach with multichannel customer analytics. So what will the impact be on physical store sales? This particular Amazonian challenge poses only a minor risk to multichannel retailers at this time provided they have a well developed strategy that is focused on customer centricity.
Citing “predictive analytics” Amazon feels it can be reasonably certain that you will buy product X, even if they have to give you a special incentive to complete the transaction. But are they really using predictive analytics or an advanced version of analytics driven by past purchases combined with wish list items? For example, it’s relatively easy to determine that a consumer of conservative views from a given commentator will be interested in his next book. Even if the Amazon customer buys these items as a gift for a loved one chances are good they will be interested purchasing again. Contrast this with a much more complex form of prediction able to determine through a variety of indicators that this person’s views are changing and therefore predicting an alternative purchase. The latter of course is much more complicated but offers both a higher risk and reward.
Let’s get back to the question of the impact on multichannel retailing. Look beyond the hype to the realities. In this case Amazon seeks to improve its availability in order to solve the instant gratification that consumers crave and multichannel retailers rely on. No question that this represents risk for the traditional model, just as almost everything that Amazon has done from day one. This is however I think a little different as it shows just how important it is for Amazon to get product into the local market and takes them a step toward being a multichannel retailer. As I noted in a previous post, Just how far can ecommerce push the home delivery model before it breaks?, there are fundamental issues with the home delivery model. Most notably in this example increasing costs will be a factor. Not just the cost of shipments that will perhaps never end up on a customer’s door step, but the costs of additional discounting that avoid the complete waste of profits caused by returning un-purchased products. One day Amazon’s retail operations will have to make a profit, and with every additional pool of inventory and node in the supply chain it is growing costs which will make this challenge even more difficult.
Customer centricity and the application requirements that will support store specific assortments are the future for multichannel merchandisers. These assortments must be driven by multichannel customer analytics and will quite likely challenge many of the past practices of assorting. The basic model for customer centricity requires a shift in thinking:
- From share of wallet to share of customer
- From differentiated products to differentiated customers
- From finding customers for products to finding products for customers
- From managing products to managing customers
- From thinking of customers as adversaries to thinking of them as collaborators
- From creating value with just current sales to creating value from future sales
- From the value of hidden information to the value of transparency
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