The quest for seamless, growing, recurrent customer spending
Original Publish Date: May 28, 2020
Picture the perfect customer for your company in your mind. Doesn’t matter if you’re in the B2B or B2C space. What characteristics do they possess? I can speculate on a few characteristics of the preferred, highly desired customers. They…
are cheap to acquire (or ideally don’t cost to acquire)
don’t stop buying after the first purchase
consistently increase their spending with you over time
give you new opportunities to push more offerings
ignore your competitors anytime they’re ready to buy
What else can you add to the list? I’m sure you can add other items to the list once you go customer-centric and analyze your average customer by the value you generate for them, their lifetime or lifecycle value, and overall buying experience.
Since the talk of the town right now is Amazon; I want to analyze the retail side of their business using my own simple set of 3 questions to see how it continuously improves its “profit per customer” metric. I also want to try and eke out lessons for every B2B, B2C company out there accordingly.
What are few sources of customer value that Amazon taps into?
Menial Shopping
COVID-19 has shifted the way we shop and might impact us quite some time. Even prior to that, the regular grocery trip (for example) was no fun for a lot of folks. People were abandoning grocery trips in favor of online shopping due to long lines, slow checkout experience, among other reasons. There’s been a growing urge among shoppers to alleviate the uncomfortable, periodic experience of shopping for essentials.
“Everywhere & Anywhere”
We want anything that we decide to buy available and ready to use immediately. The channel sometimes doesn’t matter much as long as we get to decide when and where we take receipt of the product. Doesn’t matter if it’s a pickup (at a store, locker) or a straightforward delivery. We desire the option of switching channels as we please.
How does Amazon capture some of the value they generate for the customer?
Investments
One way to figure out a company’s view of the future (or what it likes to bet on) is to look for their type and scale of investments from their investor reports, conference call transcripts, etc. It’s no surprise that Amazon works actively to solve the last mile challenge. The acquisition of Whole Foods is partly a solution to tackle this challenge by reducing their last mile costs and freeing up another channel for a consumer to take receipt of their products.
New Avenues
The “Amazon Flywheel” is so popular these days that every new company is trying to either replicate or create their own unique version of a flywheel. Central to Amazon’s flywheel are few key parts like low prices, customer experience, traffic, and more importantly “selection”. By opening up to 3rd party sellers and tackling their fulfillment needs; Amazon keeps the momentum of the flywheel going by increasing product selection while also uncovering new ways to offer their own products under different retail categories.
Increase Stickiness
A study by Bain & Company reveals that “increasing customer retention rates by 5% increases profits by 25% to 95%”. Also, an existing customer is cheaper to retain compared to acquiring a new customer. While Amazon tries to attract new customers, a number of their initiatives are aimed at maximizing the value gained from their existing customer base. For example - building loyalty through amazon prime, using ‘subscribe and save’ to eliminate hiccups in ordering essentials. It shouldn’t be a surprise now that prime members spend a lot more than non-prime members!
What are few creative moves on Amazon’s part to continue capturing more customer value?
Keep Selling the Story
The great companies do this part really well especially the ones that don’t want to return money to the shareholders anytime soon. Selling the story made a huge difference for Apple during the days of Steve Jobs. This very same move helps Amazon get access to capital and reinvest in its businesses.
Build Out Infrastructure
There’s talk to also analyze Amazon as a logistics company as it starts to “own more of its delivery infrastructure”. Besides investing in breakthrough technologies to disrupt the costly parts of delivery, Amazon continues to build out its fleet of jets, trucks, related infrastructure.
Maximize Everything
The loyalty to brands is declining with every passing day in favor of convenience – just ask the CPG brands. Amazon’s search results (even through Alexa) favor its ever-growing list of in-house products. Another way to play to our convenience and retain more customer spend instead of bleeding it to 3rd party sellers. If we consider this as a move to keep increasing its top line, Amazon is also actively improving its retail productivity measures through use of robotics in warehouses, efforts like Amazon Go.
So what?
The purpose of briefly dissecting Amazon’s retail business for this write-up is simple. This real-world example shows a fluidity in strategy that connects customer value to company investments to creative business thinking.
There’s clearly some value you’re generating for your customer anytime you have revenue to show for it. No one can deny that. It’s the ultimate test for any business. You need to keep polishing the value you generate for your customer and evolve as the customer’s expectations change.
Let’s for a second assume you’re completely in tune with what your customer values. Think of your current initiatives and investments, while asking yourself the following questions.
What are you doing to ensure that a customer (existing or new) brings their business to you?
How are you increasing the overall spend of each customer?
Which hurdles are you eliminating to win customer spend in a seamless and recurring manner?
Being customer-centric doesn’t mean anything if your initiatives and investments don’t always seek to establish it as a reality for your company every single day.
It’s worth concluding by looking at what Jeff Bezos has to say about his priorities for his retail business. A lesson as simple as channeling your energy to capture more customer spending by delivering on “evergreen” customer expectations.
“[I]n our retail business, we know that customers want low prices, and I know that's going to be true 10 years from now. They want fast delivery; they want vast selection. It's impossible to imagine a future 10 years from now where a customer comes up and says, 'Jeff I love Amazon; I just wish the prices were a little higher,' [or] 'I love Amazon; I just wish you'd deliver a little more slowly.' Impossible. And so the effort we put into those things, spinning those things up, we know the energy we put into it today will still be paying off dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.”