Are retailers selling their souls and giving away customers to Amazon?

Discussion
Source: Amazon.com
Jun 05, 2017
Ken Lonyai

Presented here for discussion is a synopsis of a current article published with permission from the blog of Ken Lonyai, Digital Innovation Strategist, co-founder, ScreenPlay InterActive.

In Jim Croce’s classic “You Don’t Mess Around With Jim” he warns “You don’t tug on superman’s cape, You don’t spit into the wind, You don’t pull the mask off that old Lone Ranger, And you don’t mess around with Jim.” If he were with us to update the ditty for some of today’s retailers, the last caution might change to “And you don’t invite Alexa in.”

You see, Walmart, Bed Bath & Beyond, Staples, Best Buy, Fry’s and Target are among the retailers selling the Amazon Echo family of devices powered by Alexa on their store shelves.

Some might think it’s “OK” to regain a few bucks lost to Amazon or “if you can’t beat ‘em, join ‘em,” but these merchants are truly courting danger. Despite any claims to the contrary, with the abundance of innocuous Alexa Skills, the developer program, and third party device/product manufacturers incorporating the interface, Amazon’s fundamental mission for the AI system is to drive purchases of Amazon goods. In a subliminal way (maybe not so subliminal!), she also increases brand recognition, familiarity and comfort with the e-commerce giant.

So when retailers invite Alexa onto their shelves and websites, they summon the very soul of the company that’s leading the disruption of their market and stymying their sales.

It feels as if someone at an Amazon product meeting flippantly made a comment like “Hey let’s get our competitors to sell Alexa!” and after a good laugh, the staff looked at one another and pondered “Why not try?” And here we are today, witnessing the equivalent of Apple stores selling Windows PC’s, Starbucks selling Dunkin’ Donuts, or Chevy dealers hawking Mustangs. Maybe it’s a retailer’s version of Stockholm syndrome?

Bottom line: brand erosion from this kind of “strategy” is unseen at first, but like a tiny fissure in a dam, it grows and when it becomes alarming, is irreversible and accelerates until everyone can hear the thunderous crescendo of failure.

Let’s put a pin in this one and see where things end up in a few years.

DISCUSSION QUESTIONS: Do you see more drawbacks than benefits from retailers selling Amazon Echo devices? What potential risks and benefits do you see?

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29 Comments on "Are retailers selling their souls and giving away customers to Amazon?"

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Bob Phibbs
BrainTrust

Totally agree. I did a quick search for a Lands’ End men’s white shirt and up popped a message pointing me to their brand. Desperate times lead to desperate measures but I agree with Ken. Amazon is a data mining company that sells stuff. Help them with their Trojan Horse and expect the consequences. Especially when something like 55 percent of search starts on Amazon.

Ian Percy
BrainTrust

Scary thought Bob, but we are of one mind on this AND on the Walmart Virtual Reality item today.

Paula Rosenblum
BrainTrust

Interesting question. I keep wondering why retailers are okay with their tech vendors hosting their apps on AWS for the same reason. AWS is the profit engine of Amazon. If it wasn’t there, I think shareholders would be more impatient.

I think it’s a statement of strength on the part of the retailer. It’s time to stop running scared.

Art Suriano
BrainTrust

Interesting point but I don’t see retailers refusing to sell Alexa as stopping consumers from making the purchase any more than retailers can prevent customers from using the Internet. What they must do is to delight and excite every customer that walks into their store, giving them a reason to shop and comeback.

There are clear benefits applicable only to the in-store experience and conveniences that relate only to online shopping. Retailers must understand both and invest in what maximizes both. The in-store experience should be a great one with courteous and knowledgeable associates and the store website should be easy to navigate with an online chat to answer questions. Retailers need to focus more on what they can do that is better than the competition using creativity and powerful marketing and by providing exceptional shopping experiences.

Max Goldberg
BrainTrust

It’s naive to think that refusing to sell Amazon Echo devices will slow the retail giant’s growth. Retailers need to find ways to entice consumers into their stores, and enhance their shopping experiences, rather than try to boycott products that allow consumers to buy elsewhere.

Phil Masiello
BrainTrust
First, lets define two things. Alexa is an interface device and Amazon.com is a selling marketplace. Selling a good manufactured by another company is exactly what Target, Best Buy, Staples and the others mentioned sell all the time. Does Target or Staples not sell HP printers? Have they not built their businesses selling other brands? In fact they have. And herein lies the problem for retailers that has manifested itself. Retailers have not built anything that cannot be taken away by better execution. Because they do not have anything proprietary that sets them apart from another retailer. They all sell the same products as the next guy and it becomes a real estate game of location. If these retailers you mentioned had spent the last 20 years understanding e-commerce and the consumer, they would be in a more powerful position. To the second part of the article: Amazon marketplace sells brands and products by brands. I have been a seller on Amazon for over a decade and I can tell you that if you understand the platform and handle your business correctly, you can build your brand on Amazon. There are many brands on Amazon thriving and creating a solid… Read more »
Ken Lonyai
BrainTrust

Phil, interesting discussion points, but you need to keep comparisons, apples to apples. I don’t believe Target or Staples makes printers and I don’t see Google Home being sold by Amazon (or Apple), both great consumer brands.

Regarding your statement “…they do not have anything proprietary that sets them apart from another retailer.” check the RW archives, we’ve had infinite discussions surmising that brands that want to survive/thrive especially against Amazon, need to have unique (non-commodity) products.

Ricardo Belmar
BrainTrust

I think a better comparison would be how Amazon chose not to sell Google Chromecast or Apple TV for much the same reasons we are discussing here. I don’t think that hurt sales of either product. Consumers have plenty of avenues to buy products and if they want one of these devices they’ll find a way to buy it. Of course today we’re expecting to hear that the Amazon Video app will find its way to the Apple TV and, in exchange, Amazon will start selling Apple TVs again. So I’m not sure this concern really is a significant one when we look at the big picture.

Phil Masiello
BrainTrust

I agree Ricardo. Selling the device is not the problem for the retailer. The bigger problem is the vulnerability they have created.

Phil Masiello
BrainTrust
Ken, I like the discussion. However, I disagree. Staples is a retailer who sells other brands. I don’t know of a proprietary product that Staples sells that no one else does. So if Staples chooses to sell products on Amazon, which they do, then they put themselves in that competitive position and need to be on the Alexa program or lose out to their competitors. Staples sells commodities on Amazon. Is Staples-branded paper different than anyone else’s? They sell masking tape, printer paper and other office supplies along with over 100 other sellers. So they are fighting for the buy box every day. They are vulnerable. What does Target have that you can’t find anywhere else? Nothing. That is my point. So in those cases, you are just another seller on Amazon. And you’re vulnerable because you don’t have any brand loyalty for your printer paper. The lowest price wins and, therefore, they don’t have customers. They have transactions. But Brands like Ghost Bed, Stanley B&D, Gillette, etc., that have differentiated items, are thriving using Amazon as another channel of distribution. They have been smart to limit other sellers on the platform so they can hold onto a price and… Read more »
Ken Lonyai
BrainTrust

Ricardo and Phil: I appreciate your perspectives.

“…retailers are vulnerable to losing their customers to Amazon because they have not spent the last 20 years focused on their customers like Amazon has.” – many comments on RW where I’ve said the same. However, it’s not about the marketplace, it’s about a retailer opening a gateway for their customers to Amazon (including the marketplace). It has been claimed that Alexa limits products in categories of Amazon’s choosing. One example: every physical device has a unique MAC address, so if it chose to (speculation) Amazon could track what device came from what retailer and use that data to tailor Alexa responses to limit a retailer’s customer’s choices, give loss-leader prices, or take those customers away.

The discussion is not about keeping the Alexa genie in the bottle (no competitor can), it’s about retailers effectively choosing to put their customers in the bottle too.

Phil Masiello
BrainTrust
That would be a heck of an algorithm to write and maintain. To customize product visibility by where a unit was sold? That is a stretch, I think. Amazon has always been a customer-centric marketplace. As is all e-commerce. The consumer is in control online. And Amazon algorithms show the best product at the best price provided by the seller with the highest rating. There is far more complexity, but that is the foundation of Amazon and e-commerce. Retailers are retailer centric and show what they THINK the customer wants or benefits them. Where the Alexa device is purchased or even who sells it, is irrelevant. Amazon doesn’t need to play those kinds of games. The consumer is the one who is speaking. Amazon has built loyalty and trust with the consumer not by boxing out competitors, but by focusing on the customer, providing value and understanding what they want. Target losing customers is Target’s fault. Not Amazon’s. Staples losing customers is Staples’s fault. I will say it again. If these companies spent the last 20 years focused on understanding their customers the way Amazon has, they would have nothing to worry about. But they didn’t. It is the very… Read more »
Adrian Weidmann
BrainTrust

Alexa will become modern history’s voice of Helen of Troy and Amazon’s Echo (and similar devices) are today’s Trojan Horse. Traditional retailers are selling their competition. These devices are like an invasive species and inviting them into your home and selling them through your store is expediting your further loss of privacy and the relevancy of your brick-and-mortar store. These sensors will suck up any bit of insight and data in your home and it is all being collected, curated and logged into a vast collection of servers around the planet. You will become a “person of interest” to every brand — leveraging all this data to sell you more stuff.

Retailers selling these devices and services are not thinking about their future. Unless they get access and intelligent use of all the data being collected they are helping expedite the success of the opposition.

Brandon Rael
BrainTrust

I highly suggest that retailers proceed with caution. There are deeper considerations that retailers have to take into account before reselling Amazon Echo devices. The current online commerce climate is dominated by algorithms, namely Amazon’s followed by Google’s and others. The concept and significance of retail and CPG “brands” has reached a critical state as voice activated commerce, led by Amazon’s Alexa, has essentially created a seamless shopping experience for the customer while leading the ultimate shopping decision to Amazon’s own brands. The challenge for retailers and CPG companies is, how do they rise up the ranks in this new commerce paradigm led by Amazon’s algorithm?

The challenge for retailers remains, how do you navigate through this technological challenge by motivating your customers to your native mobile apps? They have to offer an extremely engaging, integrated experience that combines mobile payments, loyalty, social, voice and omnichannel capabilities. In addition, retailers and CPG firms should consider strategic partnerships to optimize, drive and sustain relationships with existing and new customers.

This very topic was very well articulated by Scott Galloway and the L2 team last week.

Ian Percy
BrainTrust

I don’t know how Ken wrote this insightful article without once referring to a “Devil.” Such an entity is usually a core part of any discussion about selling one’s soul. No one talks about selling one’s soul to God, or Truth or Integrity or Innovation or all those other values dutifully posted on websites and staff-room bulletin boards.

I’m sure those who fashioned the iconic Trojan Horse had a jolly time too with more than one builder asking in amused skepticism, “do you really think they’ll go for it?”

Steve Montgomery
BrainTrust

Most of these retailers saw the short-term gain from selling Alexa and ignored the long-term pain that is likely to follow. The question is, did they even think about the consequences of their actions or was it simply a competitive reaction? Were they thinking, if X sells Alexa they may get traffic that we won’t so we’ll sell it too and negate any advantage they hoped to gain? This reminds me of the story of putting a frog in a pan of cold water and slowly raising the temperature over time. We know who the frogs are.

Ricardo Belmar
BrainTrust

I see this as similar to a department store selling Ralph Lauren apparel knowing that Ralph Lauren has stores themselves competing for the same customer. Does that mean the department stores should stop selling Ralph Lauren apparel based solely on this fact? No, I don’t think so. I agree with Phil Masiello on this one — retailer brands have been built on selling other brands’ goods, so why should this be different? While many retailers produce their own house brands to try and maximize margin on select items, the ultimate goal for the retailer should be to create an amazing in-store experience that leaves a memorable, positive impression on the customer so they keep coming back and keep buying. If selling an Amazon device helps do that, then so be it. In the end, these brick-and-mortar brands are not going to make a big dent in Amazon device sales such that if they stopped selling these devices Amazon would lose any customers for it.

Peter Charness
BrainTrust

At the rate that Amazon is taking customers and revenue away from every other retailer, killing off more than a few in the process and severely wounding others, is there any question that aiding and supporting Amazon in any way is a bad strategy for a retailer?

Gene Detroyer
BrainTrust

The only question is “by not selling Alexa, will it stop people from purchasing Alexa?” If Alexa is the future then retailers have bigger problems than selling Alexa-enabled products. Not selling Alexa is Maginot Line thinking.

Lesley Everett
BrainTrust

Isn’t this simply a matter of giving consumers what they want in one place, bringing them into the store where they will make other purchases and as a result potentially become a loyal customer?

Kenneth Leung
BrainTrust

Amazon Echo is definitely a stealth shopping device. The question is whether retailers not selling Echo will make a difference. Consumers are going to buy Echo if it fits their lifestyle, whether it is from a retailer or directly from Amazon.

Personally, I don’t need Echo to tell me how to shop. I use Siri on my phone to get information the same way someone would use Echo.

Michael Iovine
Guest
1 month 17 days ago

Reading the comments, I think the best one was the Trojan Horse thought. Future enhancements of this product will gain more knowledge about the user and direct them to Amazon products. Welcome to the future. Also agree that retailers need to do more to entice customers to come to their stores.

Alex Senn
BrainTrust

This is certainly a dilemma for retailers, but what I do not see anyone talking about is using the Alexa platform as an advantage for their own brand. Not only can a retailer earn the revenue on the product through their stores, but theoretically they can create their own Alexa apps to actually bring in more customers from it. Why not teach Alexa a skill which searches and displays or announces your store locations, or easier ways to buy, or even buying from you (probably not possible in the Amazon-owned ecosystem)?

In any case, I would advise retailers to look into stealing some market share from Amazon by creating their own similar product, Alexa skills, or other methods. It is surprising as well that more retailers have not come together to build a marketplace connecting them all together to provide a fighting chance against Amazon, yet they have not. If there is anyone that wants to, I’m happy to lead the tech end of that endeavor. 😉

Jeff Miller
BrainTrust

Retailers like the ones listed are focused on consumer demand for products from other brands and suppliers. If Alexa was not sold at Target and consumer demand is there, they will just purchase it from someone else. As refusing to sell them will not stop the tide of sales, they might as well turn some short-term profit since that is what retailers are now judged on by Wall Street.

The people who should be even more concerned that the retailers are the brands who now with Alexa are becoming less and less important. Try ordering batteries on Alexa and see if dominant brands Duracell and Energizer are even options.

Kai Clarke
BrainTrust

Perhaps this is a concern. However, retailers are truly in the business of filling their customer’s needs. Great retailers recognize this and have factored this into their success. Offering Alexa (at full pricing) can be used to get customers into the store and demonstrate how great your retail pricing, performance, customer service and model is, as well as showing off Alexa. Great retailers should think of themselves as a phone store, rather than a dedicated store for just one type of phone.

Larry Negrich
BrainTrust

This is not about the tiny amount of incremental revenue gained as a seller of a device. When a retailer sells Alexa or sells products on Amazon.com it is validating these services to the consumer, making it easier for the shopper to shop its competitor, and further minimizing its own brands’ reach and value. For a retailer to use AWS as its hosting provider is to provide funding for a competitor. I don’t understand why any retailer who wants to have its own channels and support its own brands would participate in any of these activities.

Min-Jee Hwang
BrainTrust

This is certainly a catch 22: selling a competitor’s product gets you in on the profits and traffic, but the goal of product in question literally is to sell more of that competitor’s products. Either you sell it and potentially doom yourself in the future or don’t sell it and miss out on those dollars now. It seems like a bad call for retailers, since there’s no telling what financial impact it might have.

If shoppers want one, they will get one. But whether it’s better to sell them yourself or let Amazon handle it will remain to be seen.

Sid Raisch
Guest

What is the cost of missing all that customer base — which is really everyone’s customer base anyway? With Amazon commanding such a huge percentage of shoppers search (55% and growing rapidly), we have to ask, “Is it viable in the future to not be found there and still be in business?”

It is time for the government to step in. You can see Amazon taking steps in anticipation of this, and backdoor deals in Washington are surely underway. Anyone remember when Microsoft and the government cut their deal? You could hardly tell today, could you?

Franklin Chu
BrainTrust

Amazon can be a smart, strategic channel for certain retailers. For brands with high margins and strong control over their supply chain and distribution channel, Amazon’s online marketplace is a good way for them to quickly draw more traffic and expand their sales channels to reach their target consumers.

However, medium-sized or small retailers need to be more careful in making this decision, as they will more often “disappear” under the big marketplace brands. There is also fierce competition on Amazon, which means retailers have to invest more in marketing to win consumers’ attention and sales. As a result, selling on Amazon should only be a short-term strategy for these retailers as a channel to convert traffic to their own website.

Indeed, Amazon is very consumer-centric and attracts lots of traffic. Yet before retailers enter Amazon’s online marketplace, they need to consider whether all these shoppers are suitable for their brands. Also consider which types of consumers you are looking for and how could you provide the best service to keep them loyal to your brands.

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