Three New Rules to
Create Customer Loyalty
Hanging on to consumers
and clients has never been more difficult. Make sure you know what you're up
against.
EXPERT OPINION BY HOWARD TULLMAN, GENERAL
MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH INVESTORS @HOWARDTULLMAN1
MAY 21, 2024
It's
becoming increasingly obvious that Amazon is still the leader of the online
retail pack even as a number of other major players like Target and Walmart
successfully grow their own online presences. To date, the relative growth of
the other big players doesn't appear to be coming out of Amazon's share of the
pie which is still increasing.
Instead,
the online pie itself continues to expand and, to the extent that there's
ongoing cannibalization, it's mainly at the expense of traditional retail
operators. There has already been a wave of store closure announcements from
the likes of Family Dollar, Rue 21, CVS Health, Rite Aid, Express, The Body
Shop and Macy's, to name a few.
Today,
if you're not building a competitive and protected position on one of the major
provider platforms, you're absolutely nowhere and just waiting for
the ax to fall. The big platforms are the only place left for the
smaller merchants to be.
And,
if you're a large traditional retail player, (unlike Amazon which fairly
quickly abandoned its own attempts to create a retail bookstore business), you
have to keep one eye on the problem of how the expanding web activity is going
to adversely impact your physical stores. This is the nightmare scenario that
we're increasingly seeing in terms of legalized online casino gaming. There are
currently seven states that allow betting by phone on these kinds of
games - whereas almost 40 states have legalized mobile sports betting, which
has exploded. The casino owners are already starting to complain about
decreases in physical traffic at their venues.
Suffice
it to say, all of these issues are only going to get worse as the next generation
picks up the play. You can bet (no pun intended) that the
biggest traditional retailers are watching this gambling action quite
carefully. Not only isn't this an issue for Amazon, but I'd also guess (to add
some additional insult to their injuries) that some of the backend computing
resources for these new online casino games are being supplied by Amazon Web
Services (AWS) itself. Plenty of oars in the Amazon boat.
Amazon's
own results and growth are being accelerated by the power of its other
platforms - advertising, fulfillment, video and AWS for starters - the
stickiness and expansion of the Prime bundles, and its aggressive race to
continue to be the best and fastest player in the delivery game. Speed, ease of
access, and convenience are still the dominant differentiators, but there are a
number of new drivers for success in online retail, which will increasingly
separate the winners from the also-rans who don't pick up on the new rules.
Amazon is already on top of all of them and the rest of the world is playing
catch-up.
There
are three main areas of concern:
First,
too many choices often result in no decision. The more options people have, the
less likely they are to choose anything. The clearer the offer, the fewer the
choices, the quicker the buyer decides. The trick is to remove as much thought
and evaluation as possible from the purchase process and continually shorten
the window between consideration and consumption. Amazon's Overall Picks
and Best Seller labels help simplify the selection process. Limited time
discount offers also accelerate the speed of the transactions.
Second, brand loyalty is
the best tool for overcoming decision confusion, reluctance, and fatigue.
Consumers want fewer choices and total confidence in them, and this is exactly
the promise that strong brand identities offer. Life is increasingly
complicated and buyers are most comfortable returning to familiar products and
services rather than making new and risky selections. Amazon's Subscribe and
Save programs for recurring regular purchases, especially on replenishable
consumables, assure the consumer of reliable, timely, and consistent
deliveries. That basically removes price from the equation.
Third,
price is rarely the final determinant in most online transactions anyway.
Because most of the sites have real-time price adjustment and matching
algorithms which virtually eliminate material differences in the prices of
comparable items. No one wants to deal with, or negotiate the prices of items
they regularly purchase. They are far more concerned with availability and
speed of delivery - and, of course, they believe that their time is typically
more important to them than a few incremental dollars. In fact, the smoother
and quicker the initial transaction, the more likely the buyer is to add
additional items to the cart. And it's become apparent as well that the faster
you can deliver after the purchase, the more the consumer will buy from you. Near
instant gratification is a powerful and addictive element of the overall web
experience and a crucial component of the dopamine culture.
One
final thought. In the old, pre-web days, consumers had many needs and few
choices. It was a local seller's market. The most obvious example of the
changes is probably the newspaper business where news, ads, classifieds and
sports were all historically geo-bound. But, by the end of this year, one-third
of the newspapers in the U.S. as of 2005 will be gone. Local retail,
having shakily survived the development and impact of major shopping
malls in many communities, is probably next on the chopping block.
Today,
the whole world is just a click away and buyers have infinite choices but
little time, and even less loyalty. Time is the scarcest commodity and the
winning merchants will build and optimize every aspect of their online
presences to streamline, simplify, and speed purchases to make the sales
process as quick, productive and painless as possible. Trying to lock them in
through loyalty and reward programs, subscription incentives, and
"secret" sales of premium brands and also overstock inventory are all
short-term solutions.
Even
then, consumers whose expectations are perpetually progressive will continue to
ask "what have you done for me lately" and will seek out the best and
most effortless experiences - regardless of the provider. They remain
loyal only until they find something better. They may stick around due to
other constraints, lack of alternatives, and practical considerations that
drive frequency and repeated purchases, but these limitations shouldn't be
confused with loyalty or true preference. If you want your customers to keep
coming back, you've got to try to be the best in the business and Amazon is
currently the gold standard.
