Plus, five tactics retailers can take to boost their own success.
Article Highlights
- Amazon is poised to overtake Walmart as the country’s largest retailer as their reach and business model continues to grow.
- Consumers who favor Amazon cite a convenient and positive shopping experience and trust as top factors driving their loyalty to the company.
- Retailers can learn from the Amazon business strategy by understanding their customer, leveraging data, being obsessed with customer service, daring to innovate and having a comprehensive CRM strategy.
What is Amazon’s main business model? You’re forgiven if you think it’s, “Do what it takes to rule the world.” As the behemoth continues stretching its multiple arms into an ever-broader range of markets and industries, Amazon continues to be the one to beat — and the one to emulate if you’re looking for retail success. How they’re doing it and what’s driving them are elements worth examining — and learning from — for any retailer.
So, we’re recapping where the company is right now. More importantly, we add tips you can take away to improve your own customer retention by leaning into Amazon’s goals, objectives and strategic plan.
Amazon Business Strategy Update
We used to call Amazon the country’s largest online retailer. We may need to rephrase that to simply the country’s largest retailer — a position the company may steal from Walmart this year, according to JPMorgan analysts.1 They note that the Amazon retail strategy led to a 41% year-over-year increase in gross merchandise volume (GMV), climbing to $316 billion in 2020, while Walmart’s GMV grew just 10%, but to $439 billion.1 If Amazon continues to outpace Walmart with this key metric, it may not be long until it closes the gap.
Amazon objectives did hit a speedbump in Q4 2021, as profits and sales growth dropped.2 Higher labor costs bit into profits. But current Amazon CEO Andy Jassy attributes the dip primarily to a year of “extraordinary investments across our businesses to satisfy customer needs.”2 For example, investment bank Cowen estimates that in 2020 and 2021, Amazon spent $80 billion in logistics investments alone.2
Amazon is betting that those investments will help propel growth this year — and, undoubtedly, beyond.
What is Amazon’s main business model?
Amazon strategic priorities and its business model have long revolved around the idea of making investments to satisfy customer needs. In 1997, in his first letter to shareholders, company founder Jeff Bezos identified the Amazon objective of creating an “‘enduring franchise’ … that would reinvent what it means to serve customers by unlocking the internet’s power.”3 (Mission accomplished.)
Last year, in his final letter to shareholders as Amazon’s CEO, Bezos added, “Your goal should be to create value for everyone you interact with.”3 So, what is the current Amazon product strategy? Patrick Gauthier, VP/GM at Amazon Pay, noted recently that it starts by identifying a customer problem, then determining the best way to solve it.4
What is Amazon’s functional strategy?
It’s become increasingly clear over the years, though, that there’s more to the Amazon business strategy than serving the customer and removing barriers to create a friction-free shopping experience. It’s also about pulling people into the Amazon ecosystem and keeping them there — essentially by trying to ensure that individuals can find nearly anything and everything they need or want within the realm of Amazon.
Here’s a look at some of the ways Amazon has expanded in recent years well beyond its initial scope of selling books online.
Amazon Prime
In April 2021, Bezos announced that Prime membership had exceeded 200 million subscribers — an increase of 50 million over 2020.1 And Amazon continues to pad the Prime benefits list. It’s now so extensive, the benefits page is broken into five categories: delivery, streaming and digital, shopping, reading and other.
Amazon Apparel
Aside from its huge selection of apparel for sale, Amazon now offers Try Before You Buy, which lets Prime members order and try on apparel and accessories at no cost, paying only for what they keep. The company has also introduced a Personal Shopper styling service, available only to Prime members for a monthly fee.
Bricks, Mortar and Cashier-Free Stores
Amazon’s growth strategy pushed beyond e-commerce several years ago. The company now offers multiple physical stores — many with contactless payment solutions. For instance:
- Amazon Go stores have no cashiers or checkout lines. Sensors in shopping carts automatically scan items placed in the cart, and shoppers’ accounts are charged as they leave the store. Established retail chains here and abroad are now incorporating this approach.
- Amazon One is another “just walk out” payment technology. Using biometrics, it lets shoppers pay by scanning their hands. It’s active in some Whole Foods locations.
- Amazon 4-Star sells items rated 4 stars and above by customers, as well as new and trending items on amazon.com. There are locations in 18 states with more coming soon.
- Pop-up Stores bring “the hottest and most exciting items” from amazon.com to shopping malls, according to the company website. Product selection is updated regularly and stores often include interactive displays.
- Amazon Books stores present highly curated book selections, as well as Amazon devices, smart home accessories, toys and games.
Grocery Shopping Options
While Walmart currently owns 26% of U.S. grocery spending,5 Amazon objectives apparently include pushing hard to challenge. The company now has its own Amazon Fresh online grocery store in addition to nearly 500 Whole Foods physical stores, both offering a range of grocery delivery and pickup options.
It all ties back to the Amazon strategic plan, with the idea that selling groceries to a customer is key to selling them everything else. More importantly for Amazon, the strategy further embeds their brand into our daily routines.
And more …
Part of the Amazon strategic plan is to constantly test and learn to keep evolving and innovating. So, the company isn’t afraid to try something a little different. For instance, one Amazon retail strategy taps into FOMO (fear of missing out) with its Treasure Truck concept, which offers new, trending and local hand-picked items in 30 cities.
Of course, we know Amazon goals and objectives are often based on being bold with tech. Now that smart speakers are solidly part of many consumers’ daily lives, Amazon marketing objectives include exploring voice-based advertising and the idea of letting other companies target Alexa users based on shopping behavior.
Last but by no means least, Amazon strategic priorities continue stretching into financial services. The company currently has three credit cards: Amazon Prime Rewards, Amazon Prime Store and Amazon Prime Secured. Other financial products include:
- Amazon Pay, a digital wallet
- Amazon Cash, a non-traditional checking account alternative that lets consumers turn cash into Amazon gift cards through Coinstar machines; consumers can also purchase gift cards from select merchants, Western Union and MoneyGram to turn cash into Amazon credits
- Amazon Allowance reloadable debit cards designed for parents to give to kids
- Amazon Lending, which provides loans to third-party merchants — to the tune of $1 billion in 20194
Loyalty Study Helps Explain Amazon’s Success
If you didn’t believe it already, customer.com’s Retail Customer Loyalty Study helps prove that Amazon is a dominating force in today’s retail environment. The report asked consumers to list retailers they tend to exclusively shop for particular needs. Amazon was second only to Walmart among the list of 600+ businesses referenced in the study.
Statistics from the study also gave insights into why Amazon is ruling the roost, and it comes back to the retailer’s focus on the customer experience. For example, consumers who favored Amazon cited a convenient and positive shopping experience and trust among the top factors driving their loyalty. That shopping experience also helps Amazon attract nearly as many “Loyalists” (shoppers who tend to stick with one store for a particular need) as Walmart and as many as Target. Amazon also captures more “Roamers” (shoppers who tend to shop around before making a purchase) than the other two retailers.
On the bright side, the study also uncovered factors that can help any retailer drive greater customer loyalty. For instance, price is, not surprisingly, an important factor. But, when access, price and products are equal, consumers say that a convenient shopping experience, ease of making purchases and a positive shopping experience are the top three factors that would encourage them to shop at one retailer over another. Ease of making returns and customer service rounded out the top five.
What Retailers Can Learn From Amazon’s Marketing Strategy: Five Tips for Success
Both bricks-and-mortar and online retailers face competition from Amazon, but that competition also invites opportunity. To survive and thrive in 2022, retailers will need to adapt to changes in consumer behavior and develop customer-focused strategies that integrate data and technology to deliver more personalized customer experiences. Here are five takeaways retailers can learn from the Amazon corporate and growth strategy.
1. Know thy customer.
Understanding consumer behavior is key to successful long-term relationships and healthy bottom lines. Staying competitive starts with understanding what compels people to shop elsewhere (like Amazon). Then use your data from transactions, surveys and employee feedback to really understand who your customers are, as well as their wants and needs.
Take all this knowledge and put it into action to create a more convenient, positive shopping experience and to satisfy your customers’ needs. For instance, can you pick up from Amazon’s example and streamline the purchase process with biometrics, auto-scan solutions or fast, contactless payment?
2. Maximize data.
Take advantage of every touchpoint to create a more personalized customer experience. Leverage your customer data to gather behavioral insights. Reach out to other departments in your organization for additional customer feedback and data.
3. Get obsessive with customer service.
Start by building a customer-centric culture from the top all the way down. Empower your line associates. Stronger customer connections will lead to more useful feedback that helps keep retailers focused on delivering what matters to customers.
Look for ways to improve customer service. For instance, can you emulate any of Amazon’s strategy, such as offering personal shoppers or “try before you buy” options? Can you partner with other companies to expand your product or service offerings and become more integral to your customers’ lives?
4. Be innovative.
Be bold and don’t be afraid to take risks, try new things and even fail. Testing is a major part of Amazon’s business strategy — and even they don’t get it right every time.
Some ideas: Update merchandise to excite existing customers, embrace a new technology to increase convenience or try a new marketing approach to attract new customers. Using a test-and-learn approach, you’ll not only discover more about what your customers want, but will also better position yourself for success in the ever-changing retail environment. If budget or staff resources are a concern, start small, testing a single variable at a time.
5. Create a comprehensive CRM strategy.
Integrate transactional, demographic and behavioral data with the right systems and technology to develop actionable customer profiles. Use data and technology to add value to the customer experience by offering more personalized interactions.
Strategy: An Eye on the Future
Amazon’s business strategy is based on one primary goal: to meet every customer need and want with a superior experience, so Amazon becomes part of every single purchase made. More than merely wanting to sell as much stuff as they can to the most people, Amazon goals and objectives center around becoming so ingrained in people’s lives that they can’t imagine living without it. This presents challenges as well as opportunities for retailers who stay focused on current trends, embrace a customer-centric culture and turn their data into action.
CCG has focused on helping clients build stronger, more profitable customer relationships for more than 40 years. Our retail marketing services and solutions include strategic customer-centric initiatives, data tactics and technology support. To learn how we can specifically help your organization meet its customer retention goals, click below or call 303.986.3000 to schedule a complimentary consultation with one of our retail marketing experts.
Sources
1 “Amazon Will Overtake Walmart as the Largest U.S. Retailer in 2022, JPMorgan Predicts,” Annie Palmer, CNBC, posted June 11, 2021, https://www.cnbc.com/2021/06/11/amazon-to-overtake-walmart-as-largest-us-retailer-in-2022-jpmorgan.html, accessed Dec. 7, 2021
2 “Amazon Sales Growth Slows and Costs Rise,” Karen Weise, The New York Times, updated Nov. 1, 2021, https://www.nytimes.com/2021/10/28/business/amazon-stock.html, accessed Dec. 7, 2021
3 “Jeff Bezos is about to hand over the keys of Amazon to a new CEO. Read his final letter to shareholders right here,” Ben Gilbert, Business Insider, posted July 3, 2021, https://www.businessinsider.com/amazon-jeff-bezos-final-letter-to-shareholders-as-ceo-2021-4, accessed Dec. 7, 2021
4 “Amazon Pushing Deeper into Banking in the Post-Pandemic World,” Steve Cocheo, The Financial Brand, posted July 30, 2020, https://thefinancialbrand.com/98994/amazon-banking-as-a-service-baas-marcus-bezos-prime-small-business-loan/?internal-link-blist, accessed Dec. 7, 2021
5 “9 Amazon Trends for 2021/2022: Top Forecasts & a Look into What’s Next,” FinancesOnline, https://financesonline.com/amazon-trends/, accessed Dec. 7, 2021
“‘Amazon Bank’” Is Already Here, Without a Charter or Regulatory Approval,” Steve Cocheo, The Financial Brand, posted Aug. 20, 2018, https://thefinancialbrand.com/74543/amazon-bank-checking-account-regulators-charter/, accessed Dec. 7, 2021
“Amazon now operates seven different kinds of physical stores. Here’s why,” Ben Fox Rubin, CNET, posted Feb. 28, 2020, https://www.cnet.com/tech/mobile/amazon-now-operates-seven-different-kinds-of-physical-stores-heres-why/, accessed Dec. 7, 2021
