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Breaking Down “The Amazon Effect”

By Sharon Shapiro

How the online retail giant has disrupted an industry, plus advice on where retailers can compete

It’s clear that we’re in the midst of a massive eCommerce explosion, but just how much is technology changing the way we shop?

Consider this: As of 2016, 54% of consumers worldwide purchased goods online every week or month. Against this backdrop, the US eCommerce market is predicted to reach $414 billion by 2018, growing by 40.8% in a mere four years.

How Amazon is Fueling the eCommerce Explosion

While there are no doubt several factors that are contributing to the eCommerce explosion, it’s hard to ignore the role that Amazon has played in shaping the market.

For example, in the ten years from 2006 to 2016, Amazon increased its market value by a whopping 1,934%. This exponential growth has had a major impact on the larger market explosion, with Amazon alone accounting for 53% of eCommerce growth in 2016.

Although Amazon has had an impressive ten years, the same can’t be said for more traditional retailers. During the ten year period that Amazon experienced a 1,934% increase in market value, eight other major retailers (including Walmart, Target and Kohl’s) experienced an average of 51% decrease in market value. And across the board, big box and department stores decreased at a 4.7% compounded annual rate from 2006 to 2015.

If that’s not quite enough proof of Amazon’s push to eCommerce domination, consider the fact that Amazon moves nearly six times as much eCommerce merchandise as the eight biggest brick and mortar retailers combined.

What’s Behind Amazon’s Rapid-Fire Growth?

Given the jaw-dropping growth that Amazon has experienced over the last ten years, it’s not surprising that it led the online retail category in the 2017 Customer Loyalty Engagement Index, meeting customer expectations 94% of the time.

But all of this begs the question, why exactly is Amazon performing so well? Research reveals three key points of differentiation for consumers when it comes to shopping on Amazon:

Delivery

In today’s instant gratification world, consumers expect to get their purchases as quickly as possible. And it just so happens that Amazon does the best job of delivering on that expectation.

Specifically, Amazon reduced its average ship time by approximately 1.5 days over the past two years, putting its shipping at two days faster than most competitors. At a time when 69% of consumers say one-day delivery is a key incentive for shopping online more, this ship time reduction gives Amazon a massive advantage in the market.

Site Experience

Amazon also has the second-highest rated website experience in the US, falling only behind USAA. It turns out that this site experience makes quite a difference, with 33% of consumers choosing Amazon over other retailers because of it.

Amazon’s search capabilities, in particular, have helped set its site experience apart, with approximately 50% of consumers rating Amazon’s site search and product-filtering capabilities as superior to other retailers. This superior search experience translates to big wins for Amazon, with 55% of consumers now turning to Amazon first for online product searches (compared to 28% who start on a search engine and 16% who start on a retailer’s site). In light of numbers like these, NYU professor Scott Galloway has gone on the record saying that he believes Amazon “could soon become a more important search engine than Google.”

These search capabilities not only drive initial traffic to Amazon, but they also pull consumers to Amazon when other retailers don’t deliver, with 41% of consumers admitting to having left a retailer’s site for Amazon after a poor search experience. And once those consumers leave, fewer than 20% are likely to return.

Loyalty

Finally, Amazon has built a tremendous amount of loyalty through Prime membership. While Amazon has kept the number of Prime subscribers underwraps, experts estimate it ranges somewhere from 65-80 million members globally. Notably, retention among Prime members is remarkably high, with 91% of first year members renewing for a second year and 96% of second year members renewing for a third year.

Beyond Prime, Amazon has succeeded in creating a stickiness with shoppers, as nine in ten consumers comparison shop on Amazon even if they find the product they want on a retailer’s site.

How Can Retailers Compete with the Force of Amazon?

There’s no denying that Amazon has disrupted the retail industry and currently has a stronghold on the eCommerce market. However, there are still opportunities for retailers to compete. In fact, despite all of its growth, the only product categories that Amazon held a complete majority over in 2016 were books and movies (61%) and electronics (54%).

Strategically, the biggest opportunity for retailers to best Amazon lies in personalization. Currently, 41% of shoppers say better personalization would make them more likely to buy from a retailer over Amazon and only 33% of consumers rate Amazon’s site personalization and product recommendations as superior to other retailers.

The good news is, retailers have spent years collecting mountains of customer data they can use to create a personalized experience — it’s just a matter of making that data actionable. Along the way, the key for retailers will be to use that data to create a value-add, personalized experience that feels seamless for consumers as they move across channels like email, social media and onsite.

What To Do Next

Ready to learn more about what’s behind the force of Amazon and the best way for retailers to respond? We’ve got you covered.

Check out our interactive infographic on the Amazon effect to dive into the stats behind Amazon’s incredible shot to the top.

Sharon Shapiro

Sharon Shapiro

Sharon leads Bluecore's content marketing program, collaborating with top retailers and strategists to highlight the latest trends in retail marketing, spotlight industry leaders and share advice on how marketers can stay ahead of the curve. She has spent her career building content marketing programs for B2B SaaS companies. Sharon graduated from Emory University with a B.A. in journalism.