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Will Amazon team with third-party sellers as a Prime perk?
Kelly Shermach
Through a special arrangement, presented here for discussion is a summary of a current article from The Wise Marketer, a website and newsletter serving the global loyalty industry.
With indications that Prime’s U.S. membership may have peaked, according to RBC Capital Markets’ latest study, Amazon.com may need to add even more perks to drive sign-ups. Some market observers are wondering if more discounts at third-party retailers may work as an incentive.
Already Prime customers who shop at select Whole Foods pay lower prices and get two-hour grocery delivery. Could members who live in cities and towns without Whole Foods start to see similar benefits from their grocery stores?
Speaking to Forbes, Jim Fosina, CEO of Fosina Marketing Group, believes other supermarkets would “jump at the chance to partner with Amazon as a way to drive new customers and existing customers back into the store for yet another visit.”
Jared Berger, VP of client partnerships for Ansira, wondered how Amazon and its existing Prime Now partners, such as Best Buy, Kohl’s and Sears, will “view the Whole Foods /Amazon expansion and see if they adopt a similar program.”
Speaking to The Wise Marketer, Debbie Hauss, editor-in-chief of Retail TouchPoints, said she doubted Amazon would choose to undercut its Whole Foods customers by offering similar Prime discounts to customers of other grocery chains. But if Best Buy and Kohl’s, retailers with which Amazon has existing relationships, “truly believed that their overall profit and revenue would increase by offering Prime discounts, they would do it,” she said.
RBC’s study found that about 90 percent of Americans prefer Amazon over any other online retail site at which to make purchases.
Retail partners, however, would likely shoulder the cost of discounting and, by design, share incremental customer data with Amazon. As attractive as traditionally based brands may find building their customer bases and sales under Amazon’s powerhouse position, “they don’t want Amazon to take over to the point that they lose access to their proprietary customer data,” Ms. Hauss said.
Discussion Questions
DISCUSSION QUESTIONS: Would offering discounts at third-party retailers as a perk for Prime be more beneficial to Amazon or the third-parties? What terms of such an arrangement would make sense for both parties?
Poll
BrainTrust
Brandon Rael
Strategy & Operations Transformation Leader
Richard J. George, Ph.D.
Professor of Food Marketing, Haub School of Business, Saint Joseph's University
Retailers beware! Sharing your priceless customer data with Amazon — and paying for the privilege to do so — is a devil’s bargain. Helping Amazon secure more Prime customers and giving them access to that rich data to help them win more share of wallet from you in the long run? Decline! Do not pass “Go,” and instead go directly to investing in new experiences and more localized assortments!
This is one of the most intriguing discussion topics on RetailWire in recent weeks! Do you “lie down with the devil” in order to grow your presence and sales? Is growing online sales worth the risk of losing customer relationships to the online Goliath?
Rest assured that Amazon will prioritize the terms to maximize its advantage. As Debbie Hauss points out, Amazon will not add third parties that will jeopardize Whole Foods. They will most likely have other strategic criteria in terms of who to partner with in order to drive Prime memberships.
The most vexing dilemma for third parties is access to data and being able to maintain some kind of customer relationship. If sales go through the Amazon engine, they will have the data — the question is, how much will they share? More importantly, Prime is all about long-term relationships for Amazon, not third parties.
If third parties do offer advantages that become perks for Amazon to sell Prime, have they in fact increased short-term sales only to lose long-term potential?
While good for Amazon, the primary benefits would redound to the third parties. Amazon represents a rising tide that will lift all boats in its harbor.
Amazon will dictate the terms and will be sensitive to any potential negative impact on Whole Foods. The third parties need to protect their brands and pricing.
Amazon has a voracious appetite to grow and other retailers could use the traffic, so there may be some synergies here. Adding Prime perks makes membership more valuable, which will allow Amazon to raise the price of Prime — a logical next step if membership is saturated. Merchants could benefit from having more shoppers, even if it means absorbing the Prime discount and sharing data with Amazon.
My first thought was that this was really off-strategy for both Amazon and any large retailer they partner with who is in mortal combat with Amazon. But then I thought about this more — maybe the best way to do this is as a long tail play. Smaller retailers already DO sell on Amazon. They could bring Amazon Prime into their stores and drive a lot more traffic there assuming Amazon promotes the connection in some way. This would give Amazon a physical presence throughout the country but in a transformational way. As a point of reference, going after the long tail is exactly how Google became so dominant in search.
Joining Amazon’s ever-expanding ecosystem has become a necessary competitive move for retailers and brands to remain relevant and top-of-mind. However with that added reach and those added capabilities comes the price of sharing your valuable customer data and insights into Amazon’s already dominant platform.
The key for retailers and brands is to not put all their eggs in one basket, or rely on Amazon’s marketplace. While they should capitalize on the Amazon channel, retailers and brands should concentrate on building their story — their sense of why and purpose — and continue to build in-store experiences that will help connect them with their existing and new customers.
Enhanced in-store experiences, which are powered by personalization and localized assortments, will continue to be critical for long-term success.
The question for retailers is if the potential short-term gains in additional traffic are worth the long-term impact of Amazon using their proprietary customer data base for its own uses. To use an old adage, “if you lie down with a dog you get up with fleas,” or in this case the dog walks away with your customers. My answer is no.
Of course Amazon would consider this. But let’s be clear – it would do so on its own terms and in a way that advantaged it more than its retail partners. That means they bear the costs (like Whole Foods suppliers do for Prime deals), they share data, and they use Amazon systems.
For desperate retailers this may be appealing, but for many others it might be a step too far.
As for peak Prime, I don’t think we’re there yet. The market is more mature, sure, but there’s plenty of scope for growth – including from changes to pricing and membership tiers.
If Prime membership in the U.S. has peaked, Amazon needs to pay attention to what’s known about subscription programs at this point. They are reaching that point where members are exponentially more costly to sign up, keep their membership for shorter and shorter times, and end up as a losing proposition.
It wouldn’t surprise me if Amazon is peaking in Prime membership. Now let’s see if Amazon knows how to manage a mature program. Many “startup cultures” fail at exactly this point.
The concern over lowering e-commerce prices and increasing the benefits for owning a PRIME membership should not be underestimated. With the United States Supreme Court just passing into law the States’ right to levy and collect e-commerce taxes, the largest persuasion for e-shopping with eyes wide winced and fingers crossed is largely diminishing. A release of the time tested and largely ineffective consumer loyalty plans is all but certainty.
So what advantages still own consumer interest? I suspect time might be the answer. Fast anywhere turnaround combined with information and/or experience will make an impression on Americans that have need to maximize their “Free Time” availability. Loyalty is a choice dependency is a need that can be intensified with proper application and use. Look to the information technology market to see a demonstration of this to enforce levels of participation.