In business, winning isn’t just about playing the game better than your opponents, but is often more effectively and sustainably achieved by changing the rules of the game to your advantage - forcing your opponents to compete on your terms gives you the competitive edge.
In 2005, Amazon changed the game. It spun its flywheel momentum by launching its Prime membership program, with a powerful two-day free shipping proposition. Since it took years for most retailers to take notice and strategically respond, Amazon grew to become one of the leading and most influential market forces in the US and beyond. As a result of this newfound growth, Amazon’s promise of complimentary two-day shipping became the new terms by which all retailers were measured by consumers.
Over the last few years, competition grew as retailers invested significant resources into improving their own ecommerce and omnichannel value propositions, hoping to challenge the value of Amazon Prime.
Let’s look at just two key market leaders’ journeys:
Catalyzed by its Jet.com $3.3B acquisition in 2016, Walmart, since under the leadership of Marc Lore, has made transformational shifts commercially and logistically into this ecommerce-driven future. Key highlights from 2019 to-date:
- Acceleration of Online Grocery Pickup across 3000+ stores
- Launch of Free NextDay delivery Walmart.com shipping offer on eligible orders $35+, with 75% US population coverage
- Expansion of Delivery Unlimited, a $98/year grocery delivery membership program across 1400 stores and 50% US population coverage
- Improvements to in-store experience and convenience through in-store automation via robotics and PickUp towers
- Early innovation with three-market testing of InHome delivery services, offering to bring your groceries right into your fridge
While these pivots have required scalable investment and have come at short-term profit loss, they’ve also generated impressive results, with latest Q2 FY20 growth at +2.8% Walmart US comp sales and +37% Walmart US ecommerce sales.
Target already began digitizing its shopper experience in-store through its Cartwheel app experience, since re-branded as the one Target app, for a seamless omnichannel experience including payment, savings and shopping. Its acquisition of Shipt, in December 2017, spurred a transformational sprint setting Target up to thrive in today’s evolving marketplace. A few key highlights from 2019:
- Expansion of 3 different same-day delivery options available, with in-store pick-up universally available, DriveUp curbside delivery available at 1700+ stores and Shipt same-day delivery at 1500 stores with a $99/year delivery membership
- Curation of more exclusive digitally native brands and private brands, including Harry’s, Quip, Native, Welly and more recently Good & Gather’s 2000 food SKU assortment starting in September.
- Launch of now 100 smaller format stores for both improved convenience and proximity within more densely populated areas to get closer to the consumers
- Continuous remodel of over 1000+ traditional stores to improve in-store experience
- Launch of their new Target Circle loyalty program via their app, enabling 1% savings on all purchases in addition to REDcard 5% savings, as well as the engagement of their guests into their charitable giving at the local level, impacting their own communities
Target’s efforts have paid off as well with latest Q2 growth at +3.4% Target comp sales and +34% digital channel sales.
So how is Amazon responding?
That’s the ironic part of this, Amazon isn’t responding, they’re setting the pace. Almost all the developments activated by Walmart, Target and other market leaders to-date have been to re-secure a competitive edge in the face of the Amazon effect, as well as to “out game” Amazon at the very game Amazon redefined on their terms back in 2005.
Now that competition has improved to be a “fair fight”, and now that it has proven to the market that it can generate profits consistently, Amazon is reinvesting some of its profit back into playing the long game – correction, its long game of growth – continuously testing and adjusting, to accelerate their flywheel and redefine the rules of the game again and again in their favor, because that’s what they do so well.
Here are several areas Amazon has been adjusting to focus on its consumer-side growth leadership:
- Free One-Day Shipping & Same-Day Delivery Acceleration: Much of the recent marketplace expansion of next-day and same-day delivery came from Amazon’s free One-Day Shipping announcement earlier this year on over 10 million products nationwide, as well as its Free Same-Day Delivery announcement on over 3 million products in select metro areas and growing. Amazon has upped its national advertising via digital, TV, OOH and more to drive local and national awareness around this “game changing” consumer benefit. Much of its profit reinvestment is behind middle-mile and last-mile infrastructure, acquisitions, partnerships, inventory and innovation to expand their coverage, including their air cargo fleet and delivery van ownership, small business package delivery network program, drone program testing, their new Seattle multistory urban warehouse lease and many more.
- Disappearance of “Add-On” and “Exclusively for Prime”: Amazon used to designate specific lower-price, less profitable products as “Add-On” items, requiring that a customer build a basket of $25 or more in order to purchase those items. In addition, there were also items designated “Exclusively for Prime” items available only to paying Prime members. These designations were profit-centric efforts to drive memberships and bigger, more cost-efficient baskets. However, over the last 7 months, these designations have almost completely disappeared as Amazon repositions to growth mode and ensures a comprehensive, no-barrier assortment to compete with the increasing offerings available at Walmart, Target and other competitors.
3. Prime Pantry Becomes a Prime Membership Value-Add: Prime Pantry was designed to expand assortment across lower-price and smaller-pack food and CPG products, as well as to encourage larger basket-building behavior. Amazon had been charging an extra $5 Prime Pantry subscription every month to your annual Prime membership to get unlimited Prime Pantry shipments. But now, Prime Pantry has been rolled into your Prime membership at no extra cost, simply requires a $35+ Prime Pantry order total to get free shipping and offers much deeper promotions up to Buy 15, Save $15 in order to increase the Prime value proposition, lower the barrier to adoption and drive basket-building behavior and greater share of wallet in now highly-competitive grocery categories.
The War for Attention: As both a powerful benefit of Prime membership but also a way to drive share of attention, Prime Video and Prime Originals content are both high priorities and investment areas for Amazon going forward. Per a recent 2019 study by Reelgood, Prime Video outperforms its streaming rivals like Netflix and Hulu in number of movies and shows available, as well is in number of high quality movies. It only currently falls behind in number of high-quality shows. This is exactly why Amazon is estimated to be investing billions of dollars into original content, talent agreements and exclusive networks, events and sports coverage, as well as is outspending competition in advertising for its content and offering.
In addition, attention isn’t just about the content itself, but the devices that content is on. Amazon has continued to innovate and drive the penetration of its Alexa-enabled devices, tablets, Fire TVs, smart speakers and smart home technology and integrations to further embed itself into the heart of the US consumer.
Simplification of Amazon Returns Policy: 50% of shoppers define a positive online retail experience as one having an easy returns policy per a 2019 consumer survey by Avionos. And not surprising, Amazon recently improved its policy with the launch “free, no-box returns” on all purchases, available at Amazon Books and Amazon 4-star physical stores, Whole Foods Markets, Kohl’s and The UPS Store.
Amazon Grocery Delivery Expansion: While Amazon Fresh expansion has trailed that of Prime Now (now in over 88 cities) and pickup services and most recently expanded 2-hour delivery services at Whole Foods Markets (now in over 30 cities), Amazon is still investing in its same-day grocery delivery service with Amazon Fresh entry into 3 new cities, now totaling coverage in 18 major metro areas. Amazon is moving forward with plans to open a new chain of grocery stores in the United States, having signed multiple leases in Los Angeles with plans to expand to other metro areas in the mid-term. Amazon has its eye on the grocery prize and has years of infrastructure and capability development behind it to expand quickly in the coming years.
Amazon’s list of game-changing adjustments could undoubtedly be two to three times as long as what’s shared above, considering all of the areas Amazon is leading to fortify its impenetrable ecosystem and accelerate its flywheel for long-term growth.
Amazon is not immune to disruption or competitive outmaneuvering; however, for the last 15 years, it has been designing a long game of rules – again, its long game – by which its opponents are playing. It will be critical for brands and retailers to understand this so that they may pursue both competitive tablestakes, and the game-changing opportunities at pace with Amazon through this holiday season.
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