Ama­zon eases way into more lives

Re­tailer keeps grow­ing with strat­egy of vol­ume over profit

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - ANICK JESDANUN

NEW YORK — Ama­zon is al­ready a huge part of many peo­ple’s lives. And its $13.7 bil­lion deal for the or­ganic gro­cer Whole Foods likely will bind its avid cus­tomers even more tightly, an­a­lysts say.

“It kind of feels like they’re tak­ing over so much com­merce in our life,” said Er­ica McGivern, a Whole Foods and Ama­zon cus­tomer who lives in Seat­tle, where Ama­zon is based. “It’s in­tim­i­dat­ing.”

Ex­perts don’t be­lieve U.S. an­titrust reg­u­la­tors will op­pose the deal. That’s largely be­cause it doesn’t cre­ate any­thing re­sem­bling a tra­di­tional mo­nop­oly. It merely ex­tends Ama­zon’s long quest to make shop­ping so con­ve­nient that con­sumers won’t even think about step­ping away from its em­brace. The more suc­cess­ful that strat­egy, the more Ama­zon can mo­nop­o­lize the at­ten­tion and shop­ping dol­lars of its cus­tomers — which is le­gal.

Ama­zon is just one of sev­eral ma­jor tech com­pa­nies — such as Google and Face­book — fac­ing new scru­tiny over their mar­ket power, which doesn’t map neatly onto tra­di­tional no­tions of mo­nop­oly.

When a com­pany dom­i­nates a mar­ket, it typ­i­cally pushes up prices to in­crease prof­its — some­thing U.S. an­titrust law is geared to pre­vent. Ama­zon, how­ever, has a track record of keep­ing prices low and lock­ing cus­tomers in to sell more stuff. For in­stance, the com­pany typ­i­cally sells gad­gets like its tablets for lit­tle or no profit — but then pushes peo­ple to buy dig­i­tal movies they can watch on the tablet.

“Ama­zon’s strat­egy has al­ways been a vol­ume strat­egy, not a profit strat­egy,” said Lau­ren Bei­t­elspacher, a marketing pro­fes­sor at Bab­son Col­lege in Mas­sachusetts.

Ama­zon still faces lots of com­pe­ti­tion. Wal-Mart re­mains the lead­ing re­tailer over­all, with more than three times Ama­zon’s re­tail rev­enue. Even with Whole Foods,

Ama­zon will have less than 3 per­cent of the U.S. mar­ket share in gro­ceries, ac­cord­ing to Kan­tar Re­tail. Wal-Mart is the leader, with a 22 per­cent share last year.

And while Ama­zon is the clear leader in e-com­merce, 90 per­cent of world­wide re­tail spend­ing is at stores, ac­cord­ing to eMar­keter.

Rather than dom­i­nate in mar­ket share, Ama­zon dom­i­nates “in reach­ing into cus­tomers’ lives,” Gart­ner re­tail an­a­lyst Robert Hetu said.

Ama­zon has got­ten some com­plaints that its most prom­i­nent re­sults in shop­ping searches aren’t al­ways the cheap­est. But for many fre­quent cus­tomers — the more af­flu­ent ones who tend to be mem­bers of Ama­zon’s $99-ayear Prime loy­alty pro­gram — Hetu said Ama­zon just needs to be more con­ve­nient.

Con­ve­nience can come in the form of Dash but­tons, which put re­orders of baby

wipes or cof­fee beans a fin­ger-press away. Voice-shop­ping ca­pa­bil­i­ties in Alexa-en­abled Echo speak­ers make it pos­si­ble to shop while do­ing house­hold chores.

Ama­zon also of­fers dis­counts for shop­pers who sign up for reg­u­lar de­liv­ery of fre­quently pur­chased items. Free ship­ping with a Prime mem­ber­ship makes it tempt­ing to check Ama­zon first, even if ri­vals also of­fer free ship­ping for larger orders. And Ama­zon of­fers bonuses and cash back when us­ing its gift cards and credit cards.

The Prime mem­ber­ship of­fers not just TV shows and movies but also mu­sic from such artists as Cold­play, Adele and Bruno Mars with cus­tomers ac­cess­ing en­ter­tain­ment via an Ama­zon Fire TV de­vice or lis­ten­ing on the Echo.

Add to that a new fea­ture re­sem­bling the so­cial net­work Pin­ter­est. Cus­tomers share their fa­vorite de­signs, recipes, books and other items. But whereas Pin­ter­est users can buy what they like any­where,

Ama­zon Spark would di­rect cus­tomers to Ama­zon’s own store.

“They are per­va­sive in the fun parts of life, shop­ping and en­ter­tain­ment,” Bei­t­elspacher said. “You have all these things that evoke pos­i­tive feel­ings. So when they in­tro­duce some­thing new, it’s much eas­ier for them to over­come the bar­ri­ers of en­try be­cause they have this pos­i­tive brand eq­uity.”

Ama­zon de­liv­er­ies may evoke good­will among con­sumers, but they have has­tened the de­cline of sev­eral re­tail­ers, in­clud­ing book­store chains.

Ama­zon’s size also gives it tremen­dous buy­ing power. Just like Wal-Mart and other big com­pa­nies, Ama­zon can use that power to wring low prices from sup­pli­ers of prod­ucts and ser­vices that Ama­zon sells. While Ama­zon can pass those sav­ings onto cus­tomers, an­a­lysts say smaller sup­pli­ers might have to re­duce qual­ity or staff to cut costs. Some might even go out of busi­ness.

AP/ELAINE THOMP­SON

A Whole Foods Mar­ket sits just down the street from Ama­zon head­quar­ters in Seat­tle. A Whole Foods and Ama­zon cus­tomer in Seat­tle said the com­bi­na­tion of the two “feels like they’re tak­ing over so much com­merce in our life.”

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