Amazon and Data, Shifting the Consumer Experience: A Retailer’s Dilemma

Amazon.com has raised consumer expectations of retailers on levels of service, speed and ease of use. Amazon has built an amazing search and recommendation engine by capturing years of transactional and search data on its platform. Once a consumer has found their product, the transaction is designed to be frictionless, incredibly fast and convenient with a one-click checkout. Delivery, as we all know, is consistently fast and timely, with Prime customers receiving packages within a two-day window, seemingly for free. How does Amazon do all of this? By creating a platform born on the internet and driven by data that optimizes the customer experience.

Incumbent retailers ostensibly have a leg up on pure e-commerce brands with their brick-and-mortar locations as a source for marketing, community, experience and fulfillment. Unfortunately, legacy technology infrastructures don't allow retailers to gain the same kind of insight into their customers’ needs and wants that Amazon has. Inventory data is often siloed by the business it services, whether that's outlet, retail, wholesale or e-commerce. Customer data is also often siloed by the same channels, creating an impediment to a holistic view of the customer. Understanding a customer’s behavior online, offline, and the way they want to interact with a brand or retailer is crucial to being able to provide the level of services people are becoming accustomed to.

Amazon collects data on every search and transaction to utilize in each decision it makes about product, inventory, distribution, marketing, shipping and product development. The online retail giant is using its data acquisition to hone its offering and further spoil its customers for other retailers. When Amazon realized its Prime membership had much deeper penetration in wealthier demographics vs. lower-income demographics (household income greater than $150,000 vs. household income less than $50,000), it created different pricing plans. The result? Amazon increased its Prime penetration, adding more households in 2017 than in any year prior.

Amazon also uses its data to fill gaps in its product assortment with its private-label brands. Furthermore, Amazon creates products that fulfill areas of improvement its customers desire. Using customer reviews and purchase data, Amazon can better understand its customers’ product wants and needs. Amazon also leverages its ubiquitous data troves to provide great product recommendations, delighting the customer and increasing basket size. Due to this wholly focused effort on the customer experience, there are over 100 million worldwide Prime member households. In fact, over 50 percent of U.S. households have come to expect two-day shipping and convenience across the entire shopping process.

How can other retailers evolve to take advantage of what should be an advantage to Amazon? How can other retailers that were built on legacy technology infrastructures capture the value of their data? Different technologies exist to add a layer on top of existing infrastructure to pull data from silos and make them usable across the enterprise. For example, a new order management system (OMS) can fulfill an order in the fastest time by pulling inventory data from a warehouse management system for e-commerce and from an in-store inventory management system. By understanding where inventory is, a sales associate can route the product to the customer in the fastest time with the least cost. Certain payments providers are taking a more holistic view of the customer and gathering data across retailers to provide a more seamless transaction and cart experience to minimize friction at checkout. One technology company provides retailers with data on customer behavior in-store in the same way e-commerce companies understand how customers click through their site. With the right information, retailers can better merchandise their greatest asset and manage personnel, their biggest cost.

By leveraging technology, existing retailers can “catch up” to Amazon and regain the lead they had developed over the years with their retail stores and brands.

Steve Sarracino is the CEO of Activant Capital Group, a growth-stage investment firm which specializes in commerce and direct-to-consumer businesses.