Amazon's Whole Foods, Can Amazon Push Online Shoppers to Brick and Mortar?
Amazon's online marketplace offers a customer-friendly platform. Anyone can access the marketplace and browse for products from various vendors. Amazon offers substantial Customer-Perceived Value (CPV) by offering seamless functionalities and usability while reducing the costs by encouraging competition among the sellers. Amazon further henced customer experience by vertically integrating one of the critical services, shipping. By vertically integrating, Amazon improved customer value and loyalty that other companies could not match. However, growing demands and operation costs could eventually increase liabilities and operating costs.
Warehousing, shipping, and delivery operations can become a threat to customer satisfaction in the long run. For instance, one of the external threats, such as raising the minimum wage, could significantly increase the operating costs. Amazon factored in the shipping costs into the long-term operational costs, but a drastic movement in external environments can make the operations unprofitable. To mitigate this problem, Amazon can allocate funds from other business units and try different ways to lower operational costs. One of the ways is to reduce the workforce and increase workload. This strategy's adverse side effects could ultimately pass down to the customers and weaken the customer value delivery system.
Amazon has a stout customer lifetime value (CLV) business model. By offering a complete shopping experience, many users become long-term customers. However, not all long-term customers are profitable customers. Increasing lifetime purchases matters, but Amazon would likely prefer to focus on improving sales from profitable customers. For example, a customer engaged in a single transaction of purchasing a pack of pencils would be highly unprofitable for the company. The low revenue and the fixed average cost of shipping could drive down the margins below zero. Marketers need to use analysis and tools to target the right customers. Customer Profitability Analysis or Activity-based Costing can help marketers find profitable customers.
Profitability analysis is a method of segmenting products and customers. The highest valued customers would be in the highest-profitable customer and product buckets. In contrast, the lowest valued customers would be in the lowest-profitable buckets for both areas. For Amazon, the highest-profitable customers would likely be the ones that purchase high-margin and price products at the above a particular frequency. The company would also yield a higher profit if customers buy products in fewer transactions, reducing operational costs (particularly shipping and delivery).
To further enhance the Customer Profitability Analysis, marketers measure CLV to quantify the values. For example, Amazon could look back to a specific period based on the customer buckets. In a given period, marketers can find correlations from trends. The measurement would include the acquisition cost of sales transactions, then further monitor to see what type of customers return to make more purchases. Amazon customers are long-term customers, requiring fewer acquisition costs.
Many Amazon customers use the smartphone app to make purchases or search for products at any time. Companies like Amazon use the push notification tool on smartphones to directly offer new products and services. As a result, costs would go down, which leads to higher CLV.
Although Amazon already has strong brand positioning, its marketers must proactively acquire new customers and turn existing customers into loyal customers. A company has a much higher probability of recapturing loyal customers at lower costs within its marketing funnels. Marketers use marketing funnels to enhance understanding about the customers beyond Customer Profitability Analysis and CLV measurements. For example, Amazon horizontally integrated by acquiring Whole Foods. Whole Foods had a strong brand positioning among younger generations, but it also offered logistic advantages for Amazon. Amazon leveraged the grocery chain to expand online product offerings using similar logistic processes from its online business. Amazon's decision to penetrate a new market segment required some level of changes to its core competencies.
Whole Foods was a traditional brick-and-mortar company compared to Amazon's online business. Amazon could not apply the same online business model to Whole Foods as the customers behave differently. For example, an online customer would search for products using keywords or phrases. On the other hand, a grocery store customer would typically ask someone for help. Hence, marketers must reconfigure the Customer Relationship Management (CRM) framework to understand customer behaviors and establish new touchpoints based on when customers engage or encounter the brand. For example, managers must pay close attention to interactions with customers. There are many different touchpoints to consider, and employees should be encouraged to maintain strong relationships and interact closely to receive feedback. For example, Employees should not idly wait for customers to ask questions and proactively approach customers by greeting and offer help. Developing a clear line of communication would allow Whole Foods to learn about customer behaviors beyond numbers.
Alike the warehouse stores such as Costco and Sam's, Amazon charges customers for a monthly or yearly membership. Amazon tried to harmonize the two business brands by offering grocery delivery services and membership discounts. Building loyal customers is a complicated process, and Amazon is leveraging its online customers to improve Whole Foods' market share. If successful, Amazon would break the institutional ties between the customers and its competitors. Furthermore, targeting its online customers means that Amazon is merging its online customers to Whole Foods business. If successful, Amazon can combine Whole Foods into the existing brand communities.
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