Expect Major Changes When the Dreadlord of Online Retailing Sets Up Shop in Australia in 2018
When Amazon’s storm troopers make their much-delayed debut in Australia in 2018 as part of Jeff Bezos’ eternal quest for global domination, they will likely usher in a seismic shift with ripples spreading far beyond Australia’s online retail landscape.
Amazon accounts for nearly half of all US online retail. It currently operates in 13 countries, most notably the US, UK, Japan and Germany. And soon it will be in Australia. Although Australia’s market is 13 times smaller than the US, we already have an established online consumer culture and infrastructure similar to that of the US.
Australian consumers are already in love with Amazon, spending around $500 to $700 million with the retail giant in the United States. Amazon’s ability to attract loyal customers is anchored on its business model’s holy trinity of:
- Epic customer choice across a huge range of categories;
- Providing a robust platform for a spectrum of affiliate retailers;
- Supported by an imperiously efficient integrated logistics operation.
Low price, vast selection and fast delivery are key to Amazon’s success. Brand loyalty needs to be kept and fed, and that is what Amazon understands perfectly well.
With Amazon Prime, consumers can reorder lifestyle items via a trusted system in under a minute and receive them in 2 days. In addition to 2-day delivery (and in some cities same-day or 1-hour wait times), a $99 yearly subscription fee includes video and music streaming, and many other perks. Amazon is bundling value for customers beyond shopping convenience, including producing its own TV series with top talent and offering them exclusively on Amazon Prime Video.
All of this has generated fierce loyalty to Amazon. In the US nearly half of all online shoppers go directly to Amazon for product searches, and 80% of Amazon's customers order once a month.
This is the benchmark for today’s online marketplace and if your business is to prosper, you have to match it or beat it.
‘Amazon knows how each of its customers behaves.’
—John Riccio, PwC Australia's national leader for digital services.
At the heart of its brand lies Amazon’s ability to understand consumers, complemented by deep insights into the buying cycle and their purchase decisions, thanks to its investment in big data. Amazon uses complex algorithms to beat offline and online competitors on price and offer users related products that might enhance the enjoyment of their purchases.
This benefits both the consumer and Amazon, as sales increase and consumers enjoy an ever-easier shopping journey aided by these advanced self-service algorithms.
Adopting a data-driven approach to business will be at the heart of the fight to survive Amazon's invasion.
Despite enjoying healthy growth over the past few years, Australian retailers have yet to encounter competition comparable to the Amazon retail ‘Death Star’. Many of Australia's brick and mortar retailers’ forays into the online ecosystem have been half-hearted at best and handicapped by their owners’ obsession with short-term profitability rather than a passion for creating a sustainable strategic position.
Now a brick and mortar retail apocalypse is on the horizon and many Australian retailers are opting for the business version of closing their eyes, whistling loudly and hoping it goes away. The market is already factoring in sharp revenue declines amongst the retail smart set: Myer, Harvey Norman, JB Hi-Fi, Supercheap Auto, Rebel Sports, Big W, Kmart, and Target.
‘Officeworks is the most vulnerable to the intrusion of Amazon, because a large percentage of its products are consumables with no brand loyalty.’
—Barry Urquhart, Marketing Focus.
The bigger they are the more they have to lose. As the major retailer with the largest online sales share in Australia at 17%, Officeworks is rightfully threatened to the point of dumping its planned $1.5 billion float via an initial public offering.
Australian retail is exposed. “Amazon’s e-commerce store could pull in around $4 billion per year in sales,” says Macro Investing. This accounts for more than 20% of Australian online retail and the market will likely shrink for everyone else.
Expect to see some winners emerge from Amazon’s Australian initiative. Savvy local suppliers and businesses that decide to retail their products on Amazon can hope to see increased sales via Amazon's consumer reach and efficient logistics.
US Giants, like Walmart, have tried to fight back by investing billions in fulfilment centres and installing infrastructure to support a high traffic e-commerce sites. Amazon’s total revenue for 2016 was 136 billion and Jeff Bezos doesn’t like to sit on his cash. He uses it to eliminate competition with aggressive price cuts and impossible delivery times.
Funded by Amazon’s drive for dominance, the concept of a two-day delivery via Amazon Prime and one-hour delivery via Amazon Now may soon be in Australia and this will raise the bar for all retailers.
A new era begins, and only the businesses that adapt fast will survive. User-centred design (or value proposition design as we like to call it) and a self-service experience will be at the heart of this online retail renaissance.
Create Experiences People Want
To strengthen brand loyalty, Australian business must create products and services that people want. For a great example of a “small” brand that consistently excels at increasing brand engagement and transparency, look no further than FMCG social enterprise Thankyou.
Thankyou is the opening keynote speaker at this year’s Online Retailer Sydney, one of Australia’s biggest two-day and multi-stream conferences, for a good reason. They have a story worth telling and the impact they deliver is communicated via every customer touchpoint, from the product on the supermarket shelf, to their Instagram channel, their website and Track Your Impact web app redesigned and redeveloped by Yump. For more on Thankyou's digital ecosystem, check out our case study here.
‘The best customer service is if the customer doesn't need to call you, doesn't need to talk to you. It just works.’
—Jeff Bezos, CEO of Amazon.
70% of customers now expect a company’s website to include a self-service application. We know that customers are delighted when things respond and work seamlessly. With consumers prizing convenience and accessibility above all else, Australian businesses will be expected to match Amazon’s “astute” approach to self-service.
Investing in UX (User Experience) is no longer an option. Amazon is moving faster than the natural evolution of online retail, leading the way in self-serving applications and customer-centred experiences.
Customers are demanding speed knowing that technology can deliver and if you’re not investing in streamlining your service delivery, you will eventually struggle to stay afloat. If a service can be automated and completed online, why shouldn’t it?
Our tips for businesses and organisations:
- Invest in UX. Understand your customers’ needs and goals better with in-depth user research. What motivates their decision-making and what are the barriers to conversion? With detailed understanding, you will eventually be able to map out the entire customer experience journey for each customer type.
- Empower customer self-service. Once you understand how much your customers value speed and convenience, and how much those factors influence their buying decisions, consider how much of your service delivery can be completed online or made more automated. Perhaps it’s time to ditch the enquiry form and invest in a self-service application.
- Answer customer needs in a brand-proprietary way. Once you have a clearer understanding of your customers’ motivations, consider increasing storytelling opportunities that speak to those motivations using rich content (beautiful imagery, stories, animations and videos) via your digital touch points including social media and brand website. Communicating the story behind your products is ever more important in the face of Amazon’s onslaught of supreme convenience and customer service.
Jeff Bezos has been quoted in the media as saying, “your margin is our opportunity”. Amazon’s playbook for expansion is to aggressively price cut its way to dominance. Expect tears and weeping from Australian retailers post-Amazon’s launch, but also plenty of resistance, revival and opportunity for those that:
- bundle value where possible
- adopt a data-driven approach to their online business
- create experiences that people want through user-centred design
- facilitate consumer self-service via their online experience
If you're interested in getting a jump start for your business, let's start a conversation.