What is the Amazon Effect and What Do eCommerce Companies Need to Know About It?

Amazon has reshaped the way that retailers and eCommerce companies do business. With each passing year, the brand becomes more entrenched in the lives of consumers and grows its thumbprint across new industries. You’d be hard-pressed to find a retailer that hasn’t felt the “Amazon Effect.”

Despite its rampant popularity, Amazon is still seeing huge growth each year. In 2016, the company saw its North American sales increased by 25.2%. Meanwhile, eCommerce sales were up only  15.6% in 2016 as a whole. Consumers are eager to find new ways to reduce their in-store shopping requirements, and often Amazon is the top choice to fill that role. Amazon has seen steady, consistent global growth throughout the 2010s:

Source: Business Insider

You could point to many reasons why Amazon enjoys this continued success. One common argument is that Amazon has been able to identify and capitalize on the needs of the younger generations. Their ability to effectively appeal to millennials, in particular, has helped facilitate their rapid adoption. According to a survey and study by Millennial Marketing, Amazon is the leading company at appealing to people in these age groups. Using a set of pre-defined questions, the company compared the company’s ability to serve millennials to other top brands.

Even against other brands that are popular among millennials, Amazon comes out decidedly ahead. There are a few key ways in which Amazon continues to grow their footprint and appeal to younger customers:

 

  • Shipping speed. Amazon is first and foremost a distribution company. They rose to prominence largely through their ability to make shipping faster and more cost-effective. Amazon’s shipping times are fast and keep getting faster. By closing the gap between clicking the order button and the item arriving on your doorstep, they continue to improve the online shopping experience and supplant physical retailers for a wider array of products. In the last two years, Amazon’s average ship time has been reduced by 1.5 days. This reduction has been driven by Amazon’s free 2-day shipping offer for Prime subscribers. This year, Amazon reached more than 80 million Prime subscribers. With Amazon Air drone deliveries on the horizon, we could soon see deliveries just hours after ordering.
  • Subscriptions. Amazon is constantly debuting new subscription services to create new recurring revenue streams. Amazon Prime now offers monthly subscription plans, Amazon Family allows consumers to sign up for ongoing subscriptions on items like baby food and diapers at a steeply discounted rate, and Kindle Unlimited is essentially Netflix for eBooks, allowing customers to read more than 2 million titles per month for a low monthly fee. These are a few of the more than a dozen subscription programs that Amazon has launched in recent years. Amazon’s clear focus on creating recurring income streams has helped propel their growth.
  • Ease of ordering. Amazon has gone out of their way to make ordering as simple as possible, from the ability to order with a single click, re-order previously purchased items, or use the Amazon Echo or Dash Buttons to order without having to log in to their website. Amazon continues to find new, innovative way to make ordering quick and painless.

 

These practices have contributed to what has become known as the “Amazon Effect.”

So, What is the Amazon Effect?

The “Amazon Effect” is a broad term that describes the change in customer habits following the rise in popularity of Amazon and online shopping in general. It refers specifically to the ongoing evolution of eCommerce, retail, and their merging over time.

Today customers have it easy. A product pops into their mind and within a few clicks, they have it purchased and ready to arrive on their doorstep in just a few short days. In the future, that time could shrink to a few short hours. So how do physical retailers compete? That question is central to the Amazon effect. As customers have increasingly turned toward online shopping, physical retailers have been forced to adapt and offer new reasons for customers to visit stores.

The “Amazon Effect” doesn’t just force physical retailers to adapt, either. All retailers are dancing to the beat of Amazon’s drum, including eCommerce brands. Amazon offers hundreds of thousands of products at competitive prices. Their algorithms and dynamic pricing operations ensure that they will always remain competitive in that sense. These facts combined with their worldwide brand awareness make it tough for eCommerce retailers to carve out their own market share in Amazon’s wake.

How Have Retailers Reacted?

The rollout of changes due to the Amazon effect has been slow but steady over the course of the last ten years. As the popularity of online shopping has grown, retailers have realized that they need to bring more to the table to give customers a reason to come into their stores. In recent years with the advancement of internet-of-things tech, these changes have become more profound and more visible. Retailers have reacted early by embracing eCommerce, but many of the largest brands have had a hard time duplicating even a fraction the success that Amazon has enjoyed.

Let’s explore some of the other ways that retailers have reacted to the Amazon Effect.

Making In-Store Experiences More Compelling

Retailers know that they must find new ways to make the in-store experience compelling for shoppers. American retailers and especially malls have had a difficult 2017. Malls, in particular, are finding it difficult to stay afloat while more of their business heads toward eCommerce and online fulfillment. For years, malls have tried to find ways to add value for shoppers and customers. A few of the ideas that you have likely seen as you walk through your local mall include new play areas for children, relaxing lounges, salons and massage parlors, or events that may attract crowds. A great example of this comes from the Mall of America, who offer attractions like an aquarium and a dinosaur walk museum to help make the shopping center more appealing to children.

In-Store Pickups

One of the ways that Amazon was able to win over the favor of consumers was in their ability to quickly ship items to their customers. Their free two-day shipping with an Amazon Prime account has been a big hit. Many big retailers have tried to duplicate this by offering customers the ease of ordering online, combined with the ability to receive the product quickly through in-store pickups. However, in-store pickups have failed to win the hearts and minds of customers, with 82% of respondents in a recent survey saying that they would still prefer to have their items shipped to them, even if same day in-store pickup were offered.

Event-based Marketing

If you want to give customers a reason to come into your store, a special event could be the right approach. Capitalizing on a popular trend and offering a related event can be a great way to bring in new business. Last year during the sudden rise in popularity of the mobile game Pokemon Go, we saw many businesses capitalize on this by offering special Pokemon Go events. Another great example comes from the recent solar eclipse. Companies around the U.S. attracted customers to their stores by handing out (or selling) glasses that would protect customer’s eyes during the solar eclipse.

But event-based marketing doesn’t have to be limited to cultural phenomenon. Something as simple as having a local sports star in your store to sign autographs can be a great way to get the crowds flowing in. More retailers are looking to create events to catch the attention of shoppers who otherwise might prefer to do their shopping online.

eCommerce Brands Offer a Store-like Experience

It’s hard to compete with a worldwide brand that offers nearly every product on the planet. To add value to a shopper’s experience, many eCommerce brands have adopted some of the perks of an in-store shopping experience into their online checkout process. A great example of this comes in the form of expert consultations. If you were shopping for a new formal dress, an online retailer might make a fashion expert available to shoppers through live chat to help you find the perfect outfit for your event. Smaller eCommerce brands can offer a more personal experience that may cater to some customers.

Keeping Up With Amazon

Amazon is good at a lot of things, but one area where retail has them beat is in product marketing. The way customers shop on Amazon is fundamentally different from the way they tend to shop at most eCommerce shops. Amazon is transactional. Shoppers only go there when they know what they want. It’s not a place that’s easy to browse and discover completely new things – despite the recommended products section. At least, that’s how it’s worked so far – as always Amazon is looking to innovate.

Honestly, the best way for eCommerce companies to keep up with Amazon is to invest in the tech side of their business and not be afraid to pivot or innovate when new technologies become available. Amazon’s greatest strength is their ability to attract great tech talent which allows them to innovate and become more efficient.

Retailers may not be able to attract the same caliber of tech talent as a Silicon Valley company, though it is worth trying, but, there are emerging technologies out there which will help retailers to use their data as efficiently as Amazon.

ABOUT THE AUTHOR


Jennifer is Head of Content Marketing at crealytics