ablokhinSUMMING UP
Is the Amazon Organization Losing Its Ability to Learn?
There was little sympathy for Amazon’s loss of online retail market share at the outset of the current global pandemic among respondents to this month’s column. As “Shock” put it, “It’s somehow comforting to see that several of Amazon’s competitors out-thought Bezos & Co. to take advantage of an economic shock.” Nevertheless, there was no shortage of advice for a Company that may not need much. The advice fell into suggestions regarding supply chain management and everything else.
Liel’s comment stirred perhaps the most interest: “The value of diversification is as true for supply chains as it is for investment portfolios… Amazon is just the topic of the article but the same could be said for digital platforms that dominate their industry.” Jacob Navon added, “Building on Liel’s point … I suspect that manufacturers and service companies will seek permanently to diversify their supply chains radically going forward… We might accept the lower financial results as the insurance premium we have to pay to remain more robust in the face of future disruptions.” MJC said, “This may cause Amazon to streamline its product offerings, start treating the third party suppliers like partners, and invest in local distribution centers.”
Other concerns included those associated with changing customer shopping habits, the use of new technologies, and government regulation. Jasper Ojongtambia commented that, “Customers’ habits are changing with the coronavirus pandemic… one they leave Amazon, they may be reluctant to return.” “Bac” expressed the following concern: “Amazon better worry about its relationship with law enforcement and facial recognition technology… I am tired of having my privacy steadily eroded …” Liel asked, “Is this a good time to begin thinking about prudential limits so that the brick-and-mortar stores will continue to be around when the next lockdown happens?”
Perhaps the most basic question was one raised by NickC when he said, “The question for me … is whether or not Amazon is a learning organization and prepared to challenge its own doctrines about how it operates to drive … more resilient features into the entire platform (e.g. supplier partnerships and sourcing under duress, prime membership adjustments) that supplement the unique delivery promise of when things do go according to plan.”
Is the mammoth Amazon organization able to capitalize on this kind of advice? Or has the organization gotten so large the we have to ask: Is the Amazon organization losing its ability to learn? What do you think?
Original Post
Over the past few months, several competitors have made successful competitive challenges to Amazon in ways unimagined before the pandemic. While Amazon’s sales increased during the early months of the COVID-19 scare, by mid-April its share of online spending had fallen from 42 percent (imagine that for a moment) to 34 percent, while retailers including Target, Walmart, and Etsy ate that part of Amazon’s lunch that Amazon couldn’t finish.
One problem for Amazon was its inability to meet the tremendous demand surge for online services and products. Its stockouts increased and delivery times ballooned beyond what customers were used to experiencing for many items. Meanwhile, Target and Walmart smartly deployed their formidable power over suppliers and the more than 7,000 large format retail stores between them to out-compete and out serve Amazon’s fewer than 200 North American fulfillment centers, increasing their comparable sales figures by even more than Amazon.
Customer service is relative, a product of customer expectations compared to actual experiences. Amazon has created very high customer expectations for in-stock merchandise and rapid delivery and, in the past, generally met them. That’s why I, like an estimated 112 million other Americans (as of the end of 2019), pay $119 per year for Prime membership’s free and rapid delivery and then proceed to spend an estimated $1,400 per year for merchandise and services. (Think of it; that’s a locked-in base of more than $170 billion in sales from which to attack competitors.) When Amazon doesn’t perform, customers notice.
Marketing roulette
For example, those who use Amazon’s Subscribe & Save service to preschedule periodic deliveries at a discount, may believe they deserve preferential treatment from this customer-centric giant to make up for limitations on product availability. Apparently not, given my own experience with a standing order for rubber gloves for which I’m still waiting. Canceled orders for items to which I have, for some time, subscribed for periodic, automatic delivery are especially annoying. Has Amazon set customer expectations so high that it cannot now always meet them? That sounds like marketing roulette.
Amazon is known for its constant experimentation. It has the perfect website and Alexa technology for conducting endless experiments. It uses them to discover what people of various profiles are buying so that it can adjust its product lines as well as more effectively manage its geographically dispersed distribution center inventories. It knows as much about me as I know about myself. Up to now, it has been able to satisfy customer needs for rapid response. But during the pandemic, both Walmart and Target used their technology and stores to out-satisfy Amazon.
The managements of Walmart and Target didn’t just come up with emergency strategies on the spur of the moment. Clearly, their managements had for some time been plotting ways of competing against an organization that threatens nearly every corner of the retail spectrum. The pandemic provided an opportunity to test some of their ideas.
Don’t get me wrong. I’m quite sure that Amazon will get those eight percentage points of share back quickly. But what Walmart and Target accomplished raises questions about winning retail distribution strategies of the future.
Will Amazon establish new policies for treating Prime members differentially in the next distribution crisis? Will we see Amazon go after its retail competitors by increasing its retail store network beyond Whole Foods and some high tech test stores? Or will we see a major move to serve up new in-home customer experiences?
Will Amazon tweak its retail business model post-pandemic? What do you think?