Published on: December 16, 2015
"The Innovation Conversation" is sponsored by ProLogic: Leading the Industry in Loyalty Marketing Services for Independent Grocers.
Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.
And now, the conversation continues...
KC: Tom, since this is our last Innovation Conversation of the year, I thought it made sense for each of us to choose a disruptive technology-and-retail innovation from 2015 that strikes us not just as a game changer, but also indicative of broader opportunities and possibilities down the line - "killer apps," if you will, that have legs.
The only rule is, neither of us can choose drones. (Just kidding. You can choose drones if you want to.)
I'll go first.
For me, I think the one that sticks out is the introduction by Amazon of its Dash Buttons, which allow consumers to reorder products by just touching a wi-fi enabled button that they place on or near relevant locations. A button for Tide would attach to the washing machine, for example, or a button for Huggies would attach to a changing table. While Amazon charges five bucks for each button, you get that amount back with the first order ... which means that yet again Amazon is developing a smooth, seamless, path-of-least resistance between the shopper and its online store.
Part of the reason I think this is important is that it plays into the whole notion of Amazon creating an ecosystem in which it is, as often as possible, the first and best choice for shoppers ... but I also think it builds on the company's longtime broader strategy, which is to whenever possible make other retailers irrelevant, or at least an afterthought. That's what Amazon did with its Subscribe and Save service, which allows for automatic replenishment by consumers of regularly used products ... and which remains a service that we find enormously useful in our household. And now it is building on that with the Dash Buttons.
Now, I understand that there are some drawbacks and inconveniences to the Dash Buttons. You can't compare prices, can't even change sizes from what you've ordered before, and if you used these for a number of different products, you'd have buttons all over the house. I wouldn't be surprised if they were obsolete in a few years. But for me, they represent a broader strategic approach to customer-friendly marketing that is changing the game.
What do you think?
Tom Furphy: I agree that the Dash Button is an important innovation. It is spot on Amazon’s ecosystem approach to retail. We started working on them back when I was at there as a way to more deeply partner with brands and to expand the customer’s traditional shopping paradigm. At the time, Subscribe and Save (SnS) was our most successful merchandising program by far despite its several limitations, which we can talk about in a future Conversation. Dash wasn’t necessarily a direct extension of SnS, but it is certainly laying the foundation for a next generation of shopping where shoppers can engage with their retailer of choice in any number of ways that suit their shopping needs.
Which brings me to my innovation, which is Amazon’s burgeoning Internet of Things (IoT) strategy, led by the Amazon Echo. We talked about the Echo last month when challenging the thinking of several retailers that have agreed to offer it for sale. It is an Internet of Things (IoT), voice-activated, connected “hub” device that answers to the name “Amazon” or “Alexa”. Using voice commands, you can operate lighting, turn up or down your thermostat and operate any IoT connected device. It also allows you to verbally access the weather, check sports scores and ask just about any question. You can also order any product that Amazon carries. And all of these voice interactions are logged and used to offer better personalized shopping experiences.
While this in itself is interesting, even more interesting is the platform that is being built underneath it. Amazon is building what it calls the Dash Replenishment Service (DRS). It’s a service that will accept a demand signal (i.e. order) from any IoT connected device. They envision a future where all IoT devices are connected to the Amazon platform via DRS. Refrigerators, coffee makers, smart pantries, washers & dryers, the Echo and any of a number of new ordering devices coming to market. The idea is that shoppers won’t have to remember to order many of the products that they buy regularly. Their devices and the DRS will take care of it for them. Plus, Amazon’s fulfillment network will physically exist in most markets and will be able to get the products to their homes quite inexpensively. It’s a natural progression in the buildout of the Amazon ecosystem and I think it gives us an intriguing peek into the future.
KC: I guess here's what I don't understand. When you talk about the Echo and I talk about the Dash Buttons, and we both agree that they are strategic extensions of a marketing philosophy that was embodied in Subscribe and Save, it begs the following question:
What the hell are traditional retailers doing to combat this strategic disruption of the marketplace in their stores and in their e-commerce offerings?
And I guess the reason I find this question so perplexing, and don't really have a good answer to it, is that to this point I can't identify a single retailer that has successfully introduced its own version of Subscribe and Save. Which leads me to another question ... if they can't or won't compete with Subscribe and Save, how will they compete with game-changing technologies like the Dash Buttons, the Dash Replenishment Service, and Echo?
TF: That’s a great question.
To retailers’ defense, I will say that subscription programs like SnS are not easy to build. At Amazon, we had a very smart, dedicated team and a clear vision. And it still took us well over a year to build and launch the first version of SnS. And in the nine years since then Amazon has maintained a significant engineering effort toward SnS, which has resulted in hundreds of thousands of hours of work to get it where it is today. Things like figuring out the correct replenishment interval, coordinating multiple products, changing sizes, flavors or scents, managing credit cards, managing deliveries, are all more difficult than they appear and all end up interrelated. Building those things into the engine and handling via the user interface is complex. Often customers end up with too much or too little of their subscription products, or end up with the wrong products and that causes them to cancel their subscriptions.
Amazon still hasn’t gotten it quite right, but they are the best. Many other retailers that have been active in e-commerce have tried to launch a version of SnS. Some more successfully than others, but most without a great deal of success. It’s just hard to get it right. I do think you will see more retailers and manufacturers move into this space in the coming years. I know from speaking with several of them that they have subscriptions or “replenishment” in their plans. It’s where the shopper is going and they realize it’s important to help them get there. If you are a retailer or manufacturer and do not have this as part of your strategy, you may want to rethink your strategy.
KC: Agreed. I write here often that what I think will make retailers successful in coming years is having actionable information and actually acting on it. The corollary is using that information to establish direct, enduring and encompassing relationships with customers ... which is what Amazon has done and continues to do with its ecosystem approach to retail. And I have to say that I think the companies that don't do these things, that don't engage with consumers using tactics like automatic replenishment programs, will find themselves playing checkers while innovative companies like Amazon play chess.
And that's the wrong way, I think, to start the new year. But it'll certainly give us a lot talk about here.
"The Innovation Conversation" will return in a couple of weeks. If there are subjects you'd like us to chat about in the future, let us know.
- KC's View: