Amazon has built its brand on being a trusted partner for retailers and consumers alike, a place where consumers feel they can find the lowest price and brands and manufacturers benefit from an open platform model that connects their goods and services with millions of consumers.
As more brands get wise to how partnerships are benefiting Amazon and allowing the retail giant to compete on customer experience, and as consumers encounter more expensive, less predictable features, Amazon may be facing a crisis of trust for the first time in its history.
Here’s why:
Price Creep
Price has always been a de facto differentiator for Amazon (second maybe only to convenience) when it comes to consumer benefits. But the cost of doing business with Amazon continues to increase, and it’s starting to wear on consumers.
Amazon raised the price of Prime memberships last summer for both monthly and annual members, resulting in a drop-off in membership. Last October, data reported that Amazon Prime memberships dipped from an all-time high of 47.8% of all U.S. consumers in April to 42.9% in August. Prime members on average buy $1400 a year on the site, versus non-prime customers who spend $600, according to a Business Insider story. The slowing of the Prime machine could also mean - you guessed it - price increases elsewhere.
This week, Amazon reported that it will be raising prices on more than 500 grocery items at Whole Foods, citing inflation and unrenewed contracts with unnamed vendors. For many consumers, this flies in the face of their original promise of lower prices and negates Amazon’s original price cut on nearly 500 of Whole Foods’ items just after the acquisition. A few short months ago, Amazon said it was “just getting started” on cuts.
It’s only a matter of time before these increases roll into other goods. Retailers have a golden opportunity right now to arm themselves with data that ensures they are offering customers the right products at the best price, to reinforce trust and build brand loyalty.
Price Flux
Amazon was also the first retailer to take a page from Uber’s book by implementing ‘surge pricing’ (the more friendly term is dynamic pricing) on goods sold, meaning consumers can see different prices on products depending on the time of day and other factors. According to this recent story by Digiday, Amazon argues that it can lower prices as part of promotions, or match any price at another retailer that undercuts an Amazon price for the same product.
While this can be great for bargain-shopping consumers who hold items in their account to wait for promotions or price decreases, it comes with the risk of undermining customer trust due to perceptions of price gouging or price discrimination. Target recently faced backlash because the prices of products in stores were higher than they showed in the app.
Non-Amazon retailers will be wise to monitor this and take advantage of situations where Amazon and other retailers may shoot too far when it comes to price reductions and promotions – or dynamic pricing increases. Although it’s hard to beat Amazon at its own game, data and analytics can make it a fair fight. In a lot of ways, dynamic pricing can also fuel the “race to the bottom” and unnecessarily cut into margins, particularly if a retailer is offering a unique product the customer is looking for at a price that they expect.
The Seller Trap
Retailers and brands have been selling goods on Amazon for what seems like forever. As more sellers came on board, the more powerful the Amazon machine became as consumers were easily able to find the products they were looking for at a good price on the Amazon site. With Amazon being the go-to location for most consumers for price and convenience, it’s not likely that many third-party sellers foresaw how Amazon would use their consumer data against them.
With more data on more customers than any other retailer, slowly and carefully, Amazon began to launch its own private label brands on the backs of its sellers, targeting consumers with their own “suggested products” at lower prices right alongside the products of their third-party sellers. Consumers searching for the product or brand they want are often shown a less expensive Amazon version right alongside, which has been wildly successful for Amazon. Check it yourself. The number two position in most product searches on Amazon is an Amazon private brand.
According to Business Insider, Amazon can now capture more revenue from selling its own products than it can from selling another company's, which is certainly making sellers nervous. The article also states that competition from Amazon is a concern for 38 percent of Amazon’s third-party sellers, but with 60 percent saying that they get 61 percent or more of their total sales from the e-tailer's platform, for now, they’re doing little more than grumbling. How long they will sit idly by is anyone’s guess.
Likely sensing frustration, Amazon has been widening the trap further to entice sellers to stay on board. In February, it began lowering “both the minimum fees and the percentage fees it charges third-party sellers for some categories on its Marketplace platform”, noting in an email that “it is making the changes so that sellers can ‘increase [their] selection of products.’” The move only reinforces Amazon’s reliance on sellers for data that they will likely use to create even more of its own private label products.
The good news is that technology has advanced by leaps and bounds since Amazon began wooing consumers with costs savings and convenient shipping. Many retailers are now able to match - or come close enough to compete with- the service Amazon provides. And in terms of understanding consumers, voice of consumer analytics enable retailers to determine the right product and price consumers seek in near real-time.
Let’s face it: Amazon may always be one step ahead. They have more data than anyone, and they know how to use it. That said, the road that has gotten them here has been paved by sellers who now consider themselves more a competitor than partner to the behemoth. Trust has become a factor for consumers as well as sellers. As more consumers are able to find the products they seek at the prices they expect outside of Amazon, and retailers are able to capture and gather insights from voice of consumer data in order to compete, trust may become valuable currency, particularly as the future of retail molds around consumer expectations.
