How Personalization Gives Savvy Retailers an Edge Over Amazon
Everyone knows that Amazon is a retail and technology powerhouse. Its loyalty program, Prime, boasts more than 100 million members. Last year, Amazon accounted for 44% of ecommerce sales in the U.S. The company has a market capitalization approaching half a trillion dollars.
Many retailers set strategies specifically assuming that they either will or will not compete against Amazon. But given how much Amazon has diversified in the past few years, it only makes sense for retailers to figure that even if they’re not directly competing against Amazon today, they will be very soon.
But how, exactly, given Amazon’s size and scope, can they hope to do that?
That’s just one of the interesting questions we are able to answer — at least in part — with our Retail Personalization Index. The Index is the result of exhaustive research into how different retailers are personalizing their communications with customers, and to what end. Out of 100 retailers in last year’s inaugural Index, Amazon ranked number 17 with a score of 55 points.
Analyzing brands for our second Index, the first thing that jumped out at us was how dramatically the scores jumped for retailers in every category. However, Amazon did nothing differently from year to year, scoring 55 points once again. That caused the brand to drop from 17th place to 50th.
So while Amazon is a fearsome competitor, there are other retailers that are thriving in ecommerce by using very different strategies. Despite the promises of low prices and free shipping, there are plenty of places where Amazon seems to be missing out on occasions to improve the customer experience — and where other brands sense opportunity.
The Power of Product and Personalization
The key to understanding and competing with Amazon is acknowledging that Amazon doesn’t care what its customers buy. They want just them to buy it through Amazon. As a result, Amazon rarely communicates with its customers in anything other than a transactional context. Even the email that Amazon does send – such as its Deal of the Day – isn’t particularly personalized. In fact, the company scored zero points in the email category.
Meanwhile, its competitors are using digital communications to nudge customers toward loyalty programs. They’re using email and mobile to welcome their customers on board, to deliver compelling content, to help solve their customers’ problems, or simply to enable them get the most out of their experience with the brand. In some cases, they’re capitalizing on a network of brick-and-mortar stores.
Successful retailers are also using their unique domain expertise and knowledge of their customer to come up with solutions that customers love. Amazon may believe these sorts of solutions won’t scale in their environment. They may also think that product-centric initiatives are a waste of time (because they don’t care which products a customer buys). But we’ve found that, for many retailers, there are many other strategies working. Here’s how.
Rent the Runway
Rent the Runway allows customers to rent clothing for a short period of time rather than buy it outright. Many of its customers use the service for special-occasion clothes. So Rent the Runway asks each customer to provide a back-up size, reasoning that if an item is ordered for a big event and doesn’t fit, there probably won’t be time to swap it out for another. RTR also asks its customers which parts of their body are hardest to fit, which helps the brand make better recommendations. You can bet the Rent the Runway customer feels that they’re getting more out of their experience with Rent the Runway than the Amazon customer does out of buying apparel on Amazon.
Sephora is building a superior customer experience by fostering an active community on its site. Sephora members are quick to help other shoppers choose the products most suitable to them and figure out how to use them. Amazon, by contrast, doesn’t have any particular community on its site. It hosts a massive number of reviews, but those don’t generate a sense of community, especially given the increasing prominence of paid reviews. Sephora also uses its email and digital channels to convince customers to visit stores for consultations. That’s not something Amazon will be able to match for some time.
Best Buy is succeeding against Amazon partly because Best Buy understands that buying a television online can be just awful. Even if you want to buy a tv online, you’re probably going to at least visit a store to compare the quality of the images. No one wants an expensive television just sitting on their front step, waiting for them to come home. And because not everyone has the patience or ability to get a smart tv working perfectly, Best Buy has a service that will come and install it. Suddenly, it’s hard to rationalize buying a spiffy new television through Amazon.
If there’s one lesson to be learned from comparing Amazon to other online retailers, it’s that every retailer has to find their own strategy to successfully compete, and that that strategy has to be firmly rooted in their own superior knowledge of their customers and loyalists.
Amazon, has, essentially, provided a one-size-fits-all solution for online shopping.
But now, thanks to personalization, one-size no longer has to fit everybody. Each individual can have their own size, perfectly tailored to their wants and needs. For retailers, that’s a huge opportunity waiting to be seized.