This post was first published on Medium.com
In his yearly letter to shareholders published 15th of April 2021, Jeff Bezos shared some fascinating back of the envelope calculations on the value that Amazon creates to its customers.
28% of purchases at Amazon are completed in three minutes or less and 50% in less than 15 minutes. He concludes than on average a shop in Amazon takes 15 minutes. In contrast, he mentions that a visit to a store would take on average an hour and each customer would save two visits to the store per week (this latter part lacks mention of how that data was arrived to) If a time saving is value as 10$ per hour and multiplied by the 200 million of Amazon Prime members, the value creation in 2020 alone is $126 billion (after discounting the cost of Prime member fees)
As Amazon prime member myself, I have completed many of these quick purchases and find the value proposition compelling. However comparing time of purchase in store, which includes time to travel, with time for a digital sale is not a fair comparison. The lockdowns and pandemic have accelerated the transition to digital sales but should have also reminded us of the importance of the in store sales experience.
The challenge to compete with Amazon for retailers is huge. The logistics and commercial advantage that Amazon has through its scale are unparalleled. However if the main value to customers as stated by Jeff Bezos in this letter, is a frictionless digital sale, this is something that retailers can improve on today, on their own digital experiences.
A frictionless digital experience is only part of the value proposition for a store sale. If it is a convenience shop in a store, customer is not travelling to the store, the location is nearby and needs to have the ability to be in and out quickly, it is indeed the main value. Solutions around scan and go should be available so there is no need to interact with staff, if the customer doesn’t want to. This is not a sale that takes an hour. However if customer is travelling to a shop, in order to be motivated to do so, having a different rich experience is what would differentiate from buying online.
Metrics to differentiate between time spent in friction in the sales process and the value add provided by an in person experience are useful to explain why people still go to shops. Investing in both frictionless digital experiences and rich interactions delivers on critical metrics to generate value and compete against Amazon. The value add can translate into entertainment, education, loyalty rewards, gamification, social interaction, or others based on the specific retail brand. This value add is part of the digital solution.
At SkillNet a lot of our focus over the last 12 months has been to help retailers to design and implement the right retail customer journeys with the metrics built-in to track and reduce friction and enrich customer experience. Starting with the retail customer journey allows asking the right questions about how to best use technology to serve customers and better measure the real value creation. Knowing the technology and the retail domain operation is still critically important but not sufficient.
As Jeff Bezos reminds us in most of its public communications, Amazon’s vision for being Earth’s most customer-centric company has paid off well.