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Retailers, Fight Amazon With Data

There is no bigger news in the world of retail in Australia than Amazon. Some are publicly denying that they are worried. But the reality is that every host of every online marketplace and every retailer, in a best case scenario, risks losing customers to the retail tech giant.

Can local retailers fight back? Absolutely.

They can fight Amazon with data.

Data has been relegated to the “important but not urgent” basket for a long time. While I’d argue that focusing on what’s important is a sounder strategy, it doesn’t really matter because the landscape has shifted.

Data powers the two tenets of Amazon’s strength: knowing their customers and using it to market to them as well as drive their powerful recommendation engine. Local retailers have the arsenal to beat Amazon at its own game if they move quickly and play it right.

It won’t happen overnight, but it will happen.

It took Amazon four years to dominate the retail space in the US (see graph below) but there are surely efficiencies in opening up your 13th global market.

Amazon's Retail Dominance 4 Years in the Making

What separates Amazon from every other company in the world (other than the tech giants in its orbit) is how well Amazon collects and monetises data. Underpinning this is its portfolio of 6,234 granted patents that include the algorithm behind its recommendation engine that generates 35% of its $43.7bn annual revenue.

That's huge. In dollar terms, Amazon's recommendation engine generated $15.3 billion in 2016 alone.

At the heart of the buzzwords of “customer personalisation” and “customised experiences” is having data, using it, and feeding it into a well-designed recommendation engine powered by machine learning algorithms.

Local retailers have the home soil advantage. Will they use it?

Amazon uses hundreds of millions of data points to power its engine. It has ingested and processed years of customer data. When Amazon lands in Australia it won’t have data depth on the majority of its Australian customers and it will take time to optimise for the habits and preferences of local shoppers.

Retailers that have been collecting data are, on the face of it, at a clear advantage. Retailers that have not been collecting data… well, their advantage is directly proportional to the speed at which they can start to collect data.

But having data is not the same as using it.

Amazon’s recommendation engine took years to develop and while the algorithm is, without a doubt, one of the most sophisticated in the world, its intelligence is also dependent on the volume of data input. The more data you feed it the more accurate it becomes.

Local players have an advantage here, they have been collecting customer data for years. The question is whether or not they’ll use it.

Know your customer and grow your revenue.

KYC or Know Your Customer is a pillar in financial services for all sorts of compliance reasons. In retail, it has become the 11th Commandment. Knowing your customer means organising your data in a way that allows you to use what you know about customers to personalise their experience of your brand and grow loyalty.

The alternative is to lose them to a competitor or commoditise your brand.

The key to effective personalisation is dynamic and responsive segmentation that is based on data, not assumptions. It does not matter if your customer is a 30 year old single mother or a 40 year old father of four if their primary purchasing driver is price. On the other hand, if a customer rarely shop sales then discount-driven marketing will devalue the brand and eat margins – and likely lose you the customer.

Getting it right means two things: a deep analysis of your CRM and smart, commercially-driven segmentation. We have had clients for whom this work grew customer monetisation rates by 450% over six months and website conversions by more than 30%, essentially overnight.

It’s not a stretch to say that, done right and implemented properly, knowing your customers is revenue transforming.

If not now, then when? If not you, then who?

The fact is that there is no reason to panic. Australia is far behind the world in how it uses data so outrunning most of the competition doesn't require hiring rocket scientists (for now). And frankly, it is high time we became data driven. Personalisation means better customer experiences and, eventually, operational efficiencies.

It will be some time before Amazon brings its genius predictive analytics driven shipping to our shores. It will also be a while before they gain momentum on the ground. Their arrival will crackle and fizz and many will look around, still standing, and get comfortable again. 

The domination will take time and until then, there is plenty of time for the locals to dig in their heels, commit to defending their turf, and start focusing on how to truly monetise their data.