Amazon Prime Day is, by many accounts, a bid by the ecommerce behemoth to stir-up summer spending by introducing a second day of mass digital discounts in the vein of Black Friday. However, the deeper story involves a fierce battle for customer loyalty and member subscriptions that is breaking out in the ecommerce arena.
Today Amazon is celebrating Prime Day, a one-day-only global shopping event that will offer, in the ecommerce retailer’s own words, “more deals than Black Friday”. Crucially, there is one key difference between the two: today’s Prime Day deals will be available exclusively to Prime members, Amazon’s $99/year premium-member service.
Wait… Did Amazon Just Make This Up?
While digital marketers have long used seasonal promotions as a means of boosting sales, since when did it become acceptable for a brand to create an event-based sales day around exactly that (their brand) and that alone?
Jonathan Alderson, founder of daysoftheyear.com, a website that aims to “bring all of the world’s weird, funny, wonderful and bizarre holidays under one roof,” is no stranger to brands looking to leverage “event days”. However, there is a obvious risk to Amazon’s Prime Day strategy. Just slapping your brand and a hashtag on a calendar date or seasonal event and expecting the association to resonate is going burn bridges and reputation pretty quickly, according to Alderson.
“If you’re creating your own ‘days’, it’s best to decide up front whether it’s essentially just a branded sale, such as Prime Day, which doesn’t anticipate building any kind of broader community, longevity, or equity in its own right, or whether you’re looking at something bigger. As more brands fill more of them up with their own shallow ‘deal days’, they’re going to mean less and less – you’re encouraging consumers to be deal-driven and to shop/switch around, rather than building brand association and connection,” Alderson said.
“If you’re thinking bigger, about starting or engaging with an event with a wider meaning, then it’s important to understand that event days and micro-holidays are created celebrated and shared ‘as a democratization of time itself’. These events are, at the heart of it, collections of people who are carving out a place to define, reflect upon, or celebrate the things they hold dear to them,” Alderson said. “To bluntly apply interruption marketing techniques to an established community won’t cut it. Tread lightly, and earn a voice in a conversation which is about more than just you, your products, and your cut-price bargains.”
While Amazon Prime Day will clearly have its detractors, the brand has a strong track record in the field. After all, Amazon has become one of the biggest brands offering Black Friday and Cyber Monday discounts, and has in recent years taken to offering an entire week of heavily cut price deals.
Exclusive Discounts: A Risky Move?
Exclusive to Prime members. At the risk of sounding like a broken record already, this one detail is critical to understanding the reasoning behind the event. It opens up a whole host of questions about the retailer’s strategic motivations.
Firstly, there’s the natural fallout from consumers who feel left out, or who are simply downright resentful of the concept of members-only discounts. In the past, consumers have made their feelings clear about the retailer’s decision to have one treatment for Prime members, and another for regular users.
While members-only discounts undoubtedly work effectively for retailers such as Costco, there is a clear contingent that feel that it isn’t fitting for a retailer that prides itself on customer-centric values, and providing an exceptional user journey that has traditional sought to make low prices, a diverse product range, and excellent customer service available to all.
One user even took to poetry to express his distaste with Prime Day:
As an out-and-out initiative to boost summer spending, Amazon Prime Day seems a risky move, and not only because of the exclusionary element. As one commentator stated: “it is a strategic mistake. They are getting shoppers accustomed to seeing that level of promotional offers the whole year.”
It’s difficult to comprehend that Amazon would be so naive as to think that there wouldn’t be a degree of fallout for introducing a day of members-only discounts.
So what, really, was their strategy motivation behind the move?
And why, if the aim was to encourage a boost in July spending, did they not simply introduce a second Black Friday, where discounts would be available for everyone?
Battlelines Are Being Drawn
Amazon’s move hasn’t only alienated certain consumers, it’s also incited a reaction from competing retailers.
Walmart is the most high-profile brand to launch a counter-offensive, declaring in a blog post that they will also be holding a day of sales. In what seems to be a direct move against Amazon, Walmart has boldly stated that their sales will be for everyone “who sees no rhyme or reason for paying a premium to save.”
Target, Macy’s, and JCPenney are among the other retailers with plans for a July discounts sales push, and Amazon’s move has led one HBR analyst to say that the strategy represents Amazon “clearly setting its sights on fully invading land-based retail territories.”
Amazon Prime Day must, in the cutthroat and invasive world of ecommerce, be interpreted as nothing less that an aggressive step. Perhaps the most fitting question for analysts is why they have picked this particular moment to make their move.
Prime Is A Loss Leader?
Amazon has never been overly concerned with profits. At the heart of the organization has been an enduring commitment to customer service and a unfaltering belief, embedded in the company culture, that if they do right to the consumer, that future successes will follow. In fact, in the 2014 fiscal year, they are estimated to have made a $241 million net loss.
In addition, Amazon’s 40 million Prime members spend $1,500 per year on average, compared to non-members, who spend $625 per year on average, according to Consumer Intelligence Research Partners report. Yet, Sucharita Mulpuru, an analyst at Forrester research estimates that Amazon loses $1 billion to $2 billion a year on U.S. Prime shipments – a loss that is even more exceptional when you consider that it amounts to 11 times as much as Amazon’s operating profit.
Something doesn’t quite add up. Essentially, Amazon’s move amounts to a risky, and somewhat alienating move that pursues short-term profits in a way that is uncharacteristic for the retailer.
In fact, the one goal that Amazon Prime Day does seem to prioritize, and perhaps the clue was in the name all along, is loyalty subscriptions to it’s eponymous, Prime.
While Walmart may have laid their stake in the ground, firmly on the “discounts-for-all” side of things, they were perhaps never Amazon’s chief concern. Then who is?
Jet.com is due to launch July 20, just five days after Amazon Prime Day. On closer examination, it’s difficult to consider the two events are but pure coincidence.
Without even a website, Jet.com filled many a business headline at the beginning of this year as a hot property in the world of digital ventures, and posing a genuine threat of disruption to a sector which has more-or-less fought itself to a uneasy balance of power.
Jet’s business model does something that Amazon has never prioritized – leverage the power of loyal subscribers, and forgoing almost all potential profit margins, to offer its members sizable discounts.
The power of this model is simple. Lower prices. As re/code sums up: “We searched online for a Sonos Connect device and decided that $349 was pretty much the best price out there. Then we checked Jet: $301. Wowser.”
If Jet can provide acceptable levels of customer service, it’s fair to say that consumers wouldn’t argue with that kind of saving. The obvious conjecture, is that Amazon perceives Jet, or indeed the Jet model, to be a genuine threat to their value proposition, and has decided to preempt the launch of Jet.com with a day celebrating their own members-only discounts.
…Churn? (Or Will Loyalty Work?)
Amazon Prime Day is beginning to look like part of a grand chess game. Bearing in mind the customer dissatisfaction as a result of the event, the fallout from members-only exclusion, and the pre-emptive grab for marketshare as retailers seek to introduce loyalty-based discounts, the question still remains:
Is a hard push towards membership and loyalty programs a good move for Amazon?
Alderson, who as well as founding daysoftheyear.com, is also Head of Insight at Linkdex, said the following:
“Loyalty programs have always been an effective form of corporate bribery; voucher codes and discounts in exchange for marketing permissions, tailored advertising and behavioral data has always been a powerful trade-off for brands. The idea of ‘membership’ of a brand is something a little different: there are a few brands in a traditionally ‘retaily’ space, such as Achica (and, Amazon Prime if we consider it to be a slightly different entity to Amazon), who are heavily pushing the concept of membership (paid or otherwise) as a concept beyond simply having an account.”
The products-as-a-service brands have a different model, one engineered from the ground up to lean on a virtuous circle of membership, referral and growth. However, when it comes to whether existing retailers such as Amazon can utilize such a model, it may encounter unique challenges, he said.
“You can’t bolt their ‘membership and community’ component onto an existing retail model or website effectively – especially one which is, for example, just access to a poorly indexed product warehouse.” Alderson said, “I already get too many emails and too much junk mail, pay for too many subscription services, and have too many loyalty cards in my wallet. While a move toward gating access to preferential treatment and products might ‘lock me in’ to a subset of brands, it’ll just as soon spur a wave of enterpreneurs to set their sights on creating businesses and models which target all the people who aren’t part of the club.”
It’s possible that Amazon Prime Day, by principle, is too much of an imposition on consumers online shopping experiences. Although consumers may be blissfully unaware of the strategic moves and tactics being played out in the ecommerce arena in a bid to win consumer loyalty, what they will notice is a stream of pushy messages, or a constant impetus to sign up to this loyalty program, or that membership model, as a means of gaining this particular discount.
“The system will churn,” Alderson said. “And I’ll still have too many loyalty cards, and too many emails, etc. Overall, I’m not sure we, as an industry, will achieve much by trying to inject a ‘members only’ flavor into the general retail model.”
Perhaps it will simply be too much for consumers. It may be supposition, but part of the appeal that exudes from digital culture is its natural support for openness and inclusivity. In recent years, Amazon has prided itself on being able to provide the remotest regions with the same level of service that they offer those from cosmopolitan areas.
Demanding customers to commit to a paid loyalty program may be one way to deliver lower prices, but in the long-term perhaps Amazon could benefit from sticking to their laurels and continuing to provide and improve experiences for the huge, and largely loyal consumer base that uses their site on a day-to-day basis, in battles that they have already won.
Let us know your thoughts on Amazon Prime Day… Will it prove to be a good move for the retailer?