How The Worlds Most Relentless Retailer Will Continue To Revolutionise Commerce

Amazon is the world’s leading consumer sales company and its second-most highly valued firm

Amazon dominates retail by putting customers first. It is the world’s most active product search engine. When people want to buy something online, Amazon is the place most of them go first. Amazon stays relevant in its efforts to deliver what customers want. It works on their terms and according to their timetables and other requirements.

“We’re going to be unprofitable for a long time. And that’s our strategy.” (Amazon founder Jeff Bezos in 1997)

Amazon sticks to a long-term orientation. Founder Jeff Bezos never worried about profits, an attitude that has helped make Amazon an international force.

Amazon operates in the dog-eat-dog retail sector

Amazon has the globe’s most comprehensive consumer database and makes good use of its valuable marketing information about its customers – a powerful weapon for fighting hot competition within and among its many sectors.

“The online marketplace is simply a modernized, digital version of the shopping mall – but open 24/7 and with infinite assortment.”

In one example of the cutthroat practices that Amazon’s success generates, some rival retailers attacked their shoppers’ smartphones with “wireless-signal jammers” so the people in their stores couldn’t use their phones to try to find better prices elsewhere, like, for example, on Amazon.

Amazon benefits from the “flywheel effect”

Management author Jim Collins defined the flywheel effect as a virtuous cycle in which one successful business activity within a company enables other successful business activities.

“There is no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment.” (Jim Collins)

In Brad Stone’s book about Amazon, The Everything Store, he explains its flywheel progression. Cheaper prices lure repeat customers. Repeat customers bring huge sales, which in turn bring more commission-paying, third-party sellers. This leads to higher efficiencies, enabling Amazon to get more bang for its sunk costs – such as servers and fulfillment centers – and to charge lower prices.

Amazon’s constant diversification makes the flywheel spin faster and stronger. Each new service represents an added, interdependent “spoke on the wheel.”

Amazon follows 14 core leadership principles

Amazon’s success has much to do with its core leadership principles or priorities, which are: “customer obsession; ownership; invent and simplify; leaders are right a lot; learn and be curious; hire and develop the best; insist on the highest standards; think big; bias for action; frugality; earn trust; dive deep; have backbone, disagree and commit” and “deliver results.”

The three cornerstones of Amazon’s business are its Marketplace, Prime and Amazon Web Services

Amazon bases its current operations and future plans on these “three pillars”:

1. Marketplace – As part of its ambition to offer “Earth’s biggest selection,” Amazon became an internet leader in permitting third-party sellers to use its website to sell their wares. This allows Amazon to minimize its inventory, overhead and risk. Amazon earns approximately 15% of the purchase price of all the third-party products sold on its site. After its own retail products, the outside sellers’ Marketplace is the firm’s next largest source of revenue – $32 billion in 2017.
2. Prime – This popular membership program is the “glue” of Amazon’s ecosystem. Prime encourages customers to spend more, to buy more frequently and to remain loyal. The army of Prime consumers pays about $100 per person each year for free shipping of Amazon purchases and access to its digital entertainment.
3. AWS – Amazon’s most profitable business division is Amazon Web Services (AWS), which the firm markets to other companies.

Thanks to its remarkably diverse offerings, Amazon is known as the “Everything Store”

Amazon is a vital component of the world’s online infrastructure. By 2021, it expects most of its sales to come from its web services – cloud computing, subscriptions, advertising and financial services – and not from selling products.

Amazon is a TV producer, publisher, fashion designer, home-security provider and cargo airline. It manufactures hardware. It is a high-tech payment processor and one of the internet’s most in-demand advertising platforms. It has created a worldwide delivery network. It wants to become a bank and a health care provider. Amazon has already established a major position in food retailing. With its purchase of Whole Foods Market, it set out to become a primary grocery retailer.

Amazon must develop a robust offline presence by opening numerous stores, but that is part of its ambitious vision of the future of retail as being made up of a mix of online and physical stores. Amazon’s physical stores won’t have checkout lines – scanners will do that job – and will rely on advances in mobile technology and versatile apps.

“Retail is going through a transition. The naysayers will call it an apocalypse; to others, it’s digital transformation.”

Many observers believe that that digital firms like Amazon are destroying offline stores in a “retail apocalypse.” But as the world’s toughest retail competitor, Amazon has a beneficial effect on offline retailers. Its dominance forces all retailers to up their games. Those who can’t will disappear. Brick-and-mortar stores are now working to develop a strong online presence while many major digital retailers – including Amazon – are looking to establish offline stores.

In 2008, Amazon operated in six international markets. Today, Amazon operates in 18 non-US markets from Mexico City to the Himalayas. International sales represent one-third of Amazon’s total retail sales. In 2018, Amazon owned or rented more than 250 million square feet of space worldwide.

Amazon is a retail company, but even more, it’s a technology and innovation company

As an innovation leader, Amazon devoted more than $20 billion to R&D in 2017, leading all US firms.

“When retailers talk of innovation, they tend to mean things like pop-up stores and digital displays. With Amazon, it’s underwater warehouses and robotic postmen.”

In 2015, Amazon applied for an unusual patent on delivery trucks that feature an internal 3D printer so drivers could manufacture goods and deliver them to waiting customers.

Amazon has made drone delivery a commercial reality. Bezos announced in 2013 that Amazon would dedicate itself to drone technology. In 2016, Prime Air successfully managed its first fully automated drone delivery in Cambridge, England. From “click to delivery,” that first drone delivery took only 13 minutes.

Amazon doesn’t do everything perfectly. In 2014, it introduced the Amazon Fire phone, but consumers and the media hated it. A month after its introduction, Amazon cut the Fire phone’s price from $199 to to 99 cents. In 2015, Amazon announced it lost $170 million on the Fire phone.

Nor are all of Amazon’s policies enlightened or acceptable. Social activists criticize its work rules, working conditions and the salaries of its warehouse employees. In 2013, German unions issued strike calls against Amazon to raise the pay of warehouse workers.

Amazon now has too big a lead. Its retail competitors will never be able to catch up

Today’s customers demand “on-my-terms” shopping, which drives Amazon’s plans and actions.

“Amazon’s very existence impacts every single retail business. They are hands down the most disruptive retailer in the Western world.”

Other retailers can never catch up with Amazon and its digital ecosystem, particularly not those laden with unprofitable brick-and-mortar stores and poorly integrated e-commerce channels. Amazon’s amazing digital ecosystem and access to vast capital are pretty much not replicable.

Amazon’s retail competitors can’t hurt the company. But the US government can

Amazon’s dominance makes it a target for antitrust regulation based on laws designed to protect consumer interests against monopolies. According to “Amazon’s Antitrust Paradox,” a Yale Law Journal article by Lina Khan, Amazon’s saving grace is its “missionary zeal for consumers.” Amazon sets out to deliver low prices, superior customer service and consumer value.

“Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers.” (Vox executive editor Matthew Yglesias in 2013)

According to the online software and services firm Profitero, Amazon adjusts its prices more than 2.5 million times daily. That makes it an unlikely target for government regulation or legislation, even though government antitrust activity – and not Amazon’s competition – could pose a legitimate threat. As Amazon continues to grow and dominate, government overview is certain to increase.

How We Can Help You

At Bentley Moore Executive, we have specialists with excellent commercial experience in behavioral change, transformation, service delivery, cost savings, cost containment initiatives, as well as operational efficiencies gained operating in the public, private and charity sectors.

If you want to know more or wish to engage us to have a consultation on sustainable cost savings for your business or organisation, please do feel to contact us.

Learn More About Us and Our Services

Contact Us

Email:             [email protected]

Web:               www.bentleymoore.co.uk

LinkedIn:        https://www.dhirubhai.net/company/bentley-moore-executive

                        https://www.dhirubhai.net/in/jasongeorgebme/

                        https://www.dhirubhai.net/in/davidmparkin/

Tel:                0333 012 9079

About the Authors

Natalie Berg founded NBK Retail, a retail strategy consultancy specializing in retail strategy, changing shopping habits and future trends. She also co-authored Walmart. Miya Knights heads Eagle Eye Solutions, owns Retail Technology magazine and is one of Vend’s top 50 retail influencers.