AMAZON PRIME WEAKNESS

It shows that Amazon's strength is its supply chain.  Few retailers and manufacturers transform their supply chains to compete.  Why?

Brief

Weaknesses in Amazon Prime leave openings for rivals

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Daphne Howland @daphnehowland

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Published

Nov. 6, 2017

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Dive Brief:

• Even Prime members have their reasons for not shopping at Amazon, according to research from behavioral marketing platform SmarterHQ, leaving opportunities for rivals to exploit. Above all, a massive 82% of Amazon Prime members would cancel their membership without free two-day shipping, according to a report released last week.
• There are other weaknesses, according to the report. For one, Amazon isn’t much of a discovery playground: More than half (57%) of buyers on Amazon are looking for a specific product, and 63% of all shoppers go onto Amazon’s site knowing what they want. A quarter of the time they’re buying name-brand items, the research found.
• Most Amazon shoppers are sticking to a limited number of categories, SmarterHQ also found. Between 37% and 57% buy electronics, books, movies and leisure products like toys and hobby items. Most chose not to purchase products above $200 on Amazon, according to the study.

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Dive Insight:

Amazon’s Prime membership has grown to 90 million in the U.S. and those customers are spending, on average, some $1,300 each year, compared to about $700 for non-member customers, according to the latest guess, in October, from Consumer Intelligence Research Partners.
Amazon itself hasn't so far revealed the size of its membership base and not all analysts are buying the big numbers consistently found by CIRP. Moody’s Investors Service analysts are skeptical, earlier this year throwing cold water on the kind of statistics from CIRP and other outlets that try to figure out the size of Amazon’s Prime base, calling them "seriously overstated," "highly improbable" and made "in the absence of any real guidance from the company itself."
Whatever its size, Prime is widely seen as providing a sticky customer base to Amazon. But this research demonstrates that it’s also sticking Amazon with free two-day shipping on millions of items with no minimum order.
"While Amazon is viewed as Goliath by the industry, there are certainly weaknesses that retail brands can exploit to help drive their bottom line," Michael Osborne, CEO of SmarterHQ, said in a statement. "Our report tells a surprisingly upbeat story for retail brands — consumers can be persuaded to ditch Amazon and shop in their store or on their website."
The premium shipping perk has also hit the e-commerce giant with massive fulfillment expenses. Amazon’s shipping and fulfillment costs are growing faster than its revenue, but so far the company has focused on making moves to optimize those operations rather than cutting back its benefit. Amazon’s efforts include an Uber-like crowdsourced ground delivery network it calls Amazon Flex, the purchase of thousands of semitrailers and, of course, drones. Last year, the company unveiled its first Prime Air-branded cargo aircraft in an inaugural flight during Seattle’s annual Seafair Air Show.
Amazon Prime members do, however, pony up $99 per year, providing some level of a pre-paid shipping cushion. Walmart earlier this year eliminated its $50 Prime-like membership, opting for a $35 minimum order requirement for free two-day shipping. Amazon shortly after responded by lowering its own minimum order for non-Prime member shipping, though that fulfillment isn't two-day.
The morphing of customer expectations from "fast or free" to "fast and free" is expensive, and that's increasingly recognized by retailers and analysts. Nearly 60% of retail supply chain executives believe it isn’t possible to fully recover fulfillment costs, and even more –– 70% –– agree that the cost of fulfilling and delivering online orders erodes gross margins, according to the Seventh Annual State of the Retail Supply Chain report this summer from the Retail Industry Leaders Association.
Still, SmarterHQ's report reveals how much pressure brands are under to compete on Amazon's terms. Customers are likely purchasing a retail brand’s products on Amazon simply because they have better shipping options, according to its report. SmarterHQ surveyed more than 1,200 people ages 18 to over 65 for its report.