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How Amazon Beat The World, And Why You Shouldn't Be Amazon

Retail giant Amazon is typically held up by every business school as an exemplar to follow. However, as retail expert Richard Hammond explains, it can lead to failure if companies try to follow in its footsteps. Instead, you need to consider the unique relationship between friction and reward that will attract customers to your doors By Richard Hammond

We are in the era of ultimate choice. The customer holds all the cards. They can choose you, or they can choose your competitor, whether that competitor is on the next block or the next continent.

The companies who currently dominate the world have seen this customer power for what it really is: massive opportunity. They have used this knowledge to their advantage, disrupting markets, reinventing retail, and transforming services, all through the power of customer choice.

The undisputed king of the era of choice, the market ruler that have brought down rivals and pretenders in every sector, is Amazon, that have persuaded millions of customers to pay it for easier shopping and access to high quality entertainment.

How Amazon cleaned up by erasing friction

In the era of ultimate choice, Amazon have come out on top by using two simple tactics; reducing friction (the things a customer has to do to buy) and increasing reward (the things a customer gets out of buying).

Amazon have smashed friction in ways that have disrupted multiple markets, by putting millions of products within a few clicks of the customer and getting them into the customer’s hands within a matter of hours.

Amazon are constantly innovating in the friction reduction space. ‘Dash’ buttons fixed to your washing machine that deliver a new box of washing powder with one press. Affordable cloud computing that gives businesses to access flexible internet services. Drones that can deliver purchases within hours.

And there are other companies that are copying Amazon’s friction-busting approach. Most notably Alibaba, that are making it easy to do business anywhere across the globe, acting as a low-friction connector of Chinese manufacturers and overseas business customers.

So, is this the business lesson that every company should be taking from Amazon’s success? That all we need to do is smash friction and the punters will come running?

Don’t be like Amazon, be like… How can your business benefit from the consequences of the customer holding all the cards? The Amazon approach is only one way of succeeding in this new era of choice, and the truth is that it probably isn’t the right way for you.

Reducing friction is a good thing, and increasing customer reward is a good thing, but the real power comes from truly understanding the relationship between the two in your own business. When your customers encounter friction, what rewards are they getting in return? Do the rewards outweigh the frictions? How do your customers really feel about those frictions, in relation to their customer mission, and the reward at the end of it?

The answer for your business is likely to be very different to the answer for Amazon.

Changi Airport in Singapore is a great example of how understanding the complex relationship between friction and reward in a particular sector can pay dividends. In the world of airports, the speed of a customer’s journey through the airport is traditionally seen as a major friction point. Customers hate waiting at airports, the wisdom goes, so the quicker they move through the process, the happier the customer will be. But Changi understand that what customers hate at airports is really stress, not waiting. The airport owners have delivered a relaxing environment with incredible indoor hanging gardens and an invitation to sit and pause a while. The reward of reduced stress outweighs the friction of time spent in the airport.

McDonald’s reduced friction in the restaurant business by offering customers affordable food that they didn’t have to wait for. But McDonald’s have also realised in recent years that this friction-reduction wasn’t enough to retain customers with so much reward on offer in the modern food market. The company have begun to concentrate on the reward side of the equation, discovering what customers really want and delivering it to them in healthier menu options, visible food provenance and redesigned seating spaces. Switching from frozen patties to fresh recently in single-product trial is a great example of a reward boost that has equalled huge sales uplift.

The two customer states you should be worried about

Most customers can be covered by just two broad buying states:

1. I know exactly what I want
2. I don’t know what I want, but I want something

Amazon have changed the world by offering the lowest friction, often lowest cost, way in which to fulfil buying state one. I want to ice a cake and I know I need a cranked palette knife… I can type that into Amazon and see six different options … one click and I get it this evening.

But Amazon are not the place to go, usually, for buying state two. I know I want to make an amazing Thomas the Tank Engine cake for my son’s birthday, but my icing always goes wrong, I probably need some fancy icing tool, but I don’t know what. Amazon can’t help with this need state. A company offering free video content on how to ice a cake, with an easy link to buy the right equipment, might well win this sale from Amazon, because they have increased reward.

Try to become more like Amazon and, in fact, you’re shutting yourself out of the major part of your customer base—customers who don’t know what they want but know they want something.

While you might not stand a chance of competing with Amazon on winning customers in need state one, in fact, need state two makes up the vast majority of retail purchase scenarios. Amazon are successful because they service millions of instances of need state one, with incredibly low friction. But for all the need state twos, other businesses can trump them by offering increased reward. And yours can too.

What choice really means

We are in the era of ultimate choice, and Amazon offers customers the pick of a global market of suppliers. But, in fact, most of the time customers don’t really want choice at all. When they say they want more choice, what they really want is the right product to fit their need. The MD of a small firm doesn’t want a choice of 18 different accountancy software packages. Choosing from 18 options is a friction. What she wants instead is two or three options that exactly fit the needs of her business.

A supplier that can up reward by reducing choice, narrowing down the 18 to three good options that meet her needs, are the ones who are going to get her cash.

Try and be more like Amazon and you’re putting yourself in direct competition with them, which is a fight you’re not winning. But try and be less like Amazon—by considering the unique relationship between friction and reward in your business and by cutting through the friction of over-choice and delivering rewards your customers truly want—and you’ll be unlocking parts of the market that Amazon can’t reach.

For tools and ideas on how to understand friction and reward in your business, visit www.frictionreward.com or play the friction versus reward game at £www.uncrowd.uk/game

Richard Hammond is CEO of Uncrowd Ltd and the author of Friction/Reward : Be Your Customer’s First Choice (Pearson Business), available on Amazon priced £16.99 in paperback.

This was posted in Bdaily's Members' News section by Richard Hammond .