Is Amazon Go the supermarket of the future?

Is Amazon Go the supermarket of the future?

Jan 25, 2018 | Innovation, retail, Strategy

Amazon has been experimenting since December 2016 with a concept store ‘Amazon Go” in Seattle. It has been a ‘Beta’ store, open only to Amazon employees, as they set about solving the obvious wrinkles in an environment with no cashiers, and no self-serve cashier machines, just a ‘walk in walk out’  App that manages the whole process.

Oh wonder of wonders, no queues!

Amazon Go opened to the public  on Monday this week. The key question is what are they going to do with it?.

It seems to me there are two basic strategic choices:

  • Roll it out via their own stores, an Amazon Go expansion,  and/or via Whole Foods, which gives them an immediate footprint of 470 stores in areas with higher income, and tech savvy consumers
  • Sell the technology to other retailers,  just as they have with Amazon Web Services.

Of course, they are also able to do both. Amazon is perhaps the most agile large enterprise the world has ever seen, able to manage multiple lines of concurrent innovation that would choke every other business.

For what it is worth, my bet is that Amazon will progressively roll out the technology into selected Whole Foods stores, the ones surrounded by higher urban densities, in what will be a ‘mass beta’ of the technology, then sell the technology to others as they have done with AWS. This would enable them to capture a slice of the installation costs as well as ongoing software subscription revenue and a percentage of sales.

A goldmine amidst a disrupted retail business model and consumer experience. Not since the first Piggly Wiggly supermarket was opened in 1916 have we seen the potential for retail disruption on such a scale, and at such speed as I suspect we will see.

I do not know what is happening in the executive suites of Coles and Woolies, but if they are not deeply concerned about their current business model in the face of this coming Amazon tsunami, they are truly short sighted.  My instinct is that the strategic deficit of Coles and Woolies is just too wide to be easily bridged by the tactical stuff they have both used with varying success for the last 30 years. It is not as if they are alone, major retailers worldwide will be in trouble, Tesco, Wal-mart, Carrefore,  and all the rest will be on life support with them without radical change. I suspect the only one capable of that scale of change is Wal-Mart, run by a Kiwi expat Greg Foran, who missed out on the top job at Woolies a few years ago.

I have previously suggested that Amazon might reach out to Harris Farm as a way to build a footprint in Australian retail, by leveraging the lessons that will emerge from Whole Foods. This now seems even more likely than it was 6 months ago when Whole Foods was acquired.

Amazon is going gorilla hunting.

Addendum April 2024  It seems the answer to the question, asked way back in 2017 is ‘NO’ According to this report in 2024, the technology, even with the addition of AI which has exploded onto the scene since December 2022, the AI is really a bunch of Indians sitting at desks annotating video feeds. https://www.businessinsider.com/amazons-just-walk-out-pullback-shows-ai-way-to-go What a let-down!!!!

 

 

 

How do you measure the scalability of your business?

How do you measure the scalability of your business?

Jan 23, 2018 | Change, Governance, Management, Strategy

Almost every business I know  seeks to grow, as there is a recognition that growth brings benefits beyond simply the size of revenues and profits. It  brings credibility, attracts good employees, enables negotiation from a stronger position, and much more.

It seems to me that there are four macro measures that can be applied, each with a few key sub measures that can be used as appropriate.

‘Stickiness’.

This is a term I use to describe a combination of factors vital to the health of every business.

  • Customer retention rates. How much customer ‘churn’ do you get, how long is the average ‘ ‘lifetime’ of a customer, and what is the subsequent lifetime value of a customer. Associated with customer retention is the cost of customer acquisition. At some point, investment in further customer retention will start to deliver diminished returns. It is therefore sensible to have a parallel process in place that delivers a steady flow of new customers coming in to replace those that do move on, and build the spread of customers and the penetration of your preferred markets.
  • Share of Wallet. Regular readers will be aware of my attraction to this measure. In effect, how much of a customers purchases that you could service, do you actually attract. Calculation becomes an important strategic exercise as it forces you to consider which types of business you can and want to service, which markets you are able to compete in effectively, and the relative power of your value proposition in any market segment.

 

Referrals.

How likely are your customers to refer you to others? When an existing customer values the services you provide sufficiently to recommend you to their own networks, that is marketing gold. One of the formal measures that has gained a lot of traction is the Net Promoter Score. This is a very binary system, which has its merits, but I like to see some qualitative evidence as well, gained by customer stories, feedback, and various answers to the question ‘where did you hear about us’?

How likely are those in your value chain to recommend you, these referrals are as useful and relevant as those from your customers, as they have a commercial relationship with you, and are in a great position to judge.

Margins.

The simple word ‘Margin’ can have different meanings to different people, particularly accountants, but in its simplest form, is the profitability divided by revenue. However, you do not bank percentages, just dollars, so you also need to consider the absolute amounts of money that can be made from a market. Generally the higher the margin, the better, but generally, higher margins attract competition, so over time margins become eroded. The key is  to make the margins sustainable, which requires appropriate strategic investments to be made.  Measurement  of margin can take many forms:

  • Customer margins can be measured both individually and by group, depending on the nature of the business.
  • Product margins similarly can be measured by product and product group.
  • Both the customer and product margins can then be further measured by geography, market segment, and any other sensible parameter. The absence of margin management is a sign of poor or at least lacking management, and the mixing of marginal costs, particularly in the case of a manufacturing business, with overheads is a significant drain on management ability to make informed price and cost management decisions.

Investments.

Effective financial management captures all investments of cash irrespective of the nature of that investment. It makes no distinction between operational and regulatory investments necessary to keep a business functioning, and those that have some risk associated with shoring up future revenues and margins. Investment in marketing, innovation, staff capability, process optimisation and others do not routinely turn up in financial statements, but without them any business is doomed, so seek them out in any due diligence exercise.

Good businesses make the investments in line with their strategic priorities, and track the outcomes of those investments over time.

Need help thinking about these issues, give me a call.

 

A brand is a red highlighter in your brain.

A brand is a red highlighter in your brain.

Jan 19, 2018 | Branding, Marketing

Brands have a number of useful commercial purposes. They can build margins, gain distribution, provide a base for expansion, and a whole lot more, but that is all from the perspective of the brand owner.

From the opposite perspective, that of the customer, and potential customer, a brand also has a whole lot of purposes, none of which have anything at all to do directly with your prosperity.

A brand is the end result of all the impressions and emotions individuals have experienced while coming into contact with the thing to which the ‘brand’ is attached.

Our individual responses will be marginally different, but as a group, we label those collective experiences  a ‘brand’

Our brains are just massively complex parallel computers, something the boffins in Silicon Valley are trying valiantly to replicate.  In effect, we absorb and process all sorts of things at the one time, mashing them all up to something that gets ‘remembered’ and which our brains can retrieve automatically when presented with the ‘trigger’

This is a combination of rational and emotional inputs that has its roots in evolutionary biology.  It enables all the things going on around us to be sorted quickly and efficiently without resorting to consciously making a series of choices. This applies as much to the choice of yogurt on the supermarket shelf as it does to the rustle in the bushes that last time resulted in your sidekick caveman being a tigers breakfast. You do not forget that, but at the critical point, when you hear the rustle again, your brain registers the rustle, and auto responses kicks in, and you get the hell out of Dodge.

There is a lot of bullshit and hyperbole around the notion of ‘brand’. However, like many things in life, we complicate it past the point of common sense. The challenge then is to dig sufficiently deeply to understand and articulate the trigger/response mechanism in the minds of those we most want to influence.

It sounds a bit creepy, but is just the way we respond to our environment.

 

 

 

 

Your network is the second most valuable asset you have

Your network is the second most valuable asset you have

Jan 17, 2018 | Collaboration, Marketing

Networking in this modern age has been digitised, so it is made easier, but is it more effective?

Probably not, when most of the time the so called Networking’ is little more than an opportunity for a sales pitch.

Over my time, the most value that has evolved has come not from those I know well, but from those I know not so well, or at all, but who are in the networks of those in my networks.

When I first left corporate, one morning after another barney with the MD (never a career enhancing move) 23 years ago, the first thing I did the following morning, after processing the fact that I had a young family, with heavy commitments, and suddenly no income, was to write down the name of everyone I knew  with the intention of ringing each of them to let them know I was now looking for a job.

The really surprising fact was that the greatest level of support came from those I did not know well, but with whom I had interacted in some way. They not only offered me the support I had assumed would come from my closest connections, but they were the most valuable source of new connections. With hindsight, it is obvious, those I knew well were less likely to be able to offer valuable new connections, as I already knew them all.

The networks of your networks are of enormous value, if you treat them with respect. The weak ties they deliver are more likely to create the unexpected than those you know well.

Over the years I have discovered a few things about networking, which is the source of 100% of my activity, as it has always been  since the first consulting gig came 22 years ago. This came from a vague acquaintance to whom I had offered some insights in the course of a general conversation I did not remember,  but he did.

It is not about selling, it is about trust.

When an approach is with the objective of selling, most can smell it a mile way, and run for the hills, we hate to be sold to. Networking is about being valuable to others, which builds trust, which eventually leads to a transaction, in a tiny percentage of cases. You always need to give a bit before you can expect to get anything of value back.

Networking is highly personal.

Human beings are social animals, but having said that, we like to be social with others who are ‘like us’. There has to be some human connection before we will allow somebody new into our personal circles. This is where most of the digital platforms fall down. A ‘Like’ on Facebook is utterly meaningless, except to Facebook as a track along which to send more ads. A generic ‘let’s connect’ message on LinkedIn is much less likely to attract a positive response than one that is personalised, and the more personalised the better. After all you are more likely to trust someone who has taken the trouble to do some basic research and sent a personalised note, than a random generic connection request which you know in most  cases will be followed by a sales pitch.

Networker or connector?

Being a networker implies that it is all about you, who you know, and what you can make happen as a result. A better outcome is to be a connector, someone who ‘knows who knows,’ and in this way can add value to two other parties, which will build trust, and the likelihood that both of the connected parties will remember and return the favour, usually in spades.

Networks work as clusters.

Because we are pack animals, who tend to stick together, once we are in a cluster, we can ‘work’ the cluster, but there are always a few who have connections beyond the cluster, the ‘connectors’ referred to above.  Being the connector between these tight clusters is a position of great influence. The more diverse the connections you have access to, the greater the potential for that the one piece that completes the puzzle is likely to be in there somewhere.

And, your most valuable asset: your health of course.

11 trends that will influence success in 2018

11 trends that will influence success in 2018

Jan 15, 2018 | Governance, Leadership, Strategy

This is not really a set of predictions, those are around at this time of the year aplenty. Rather it is a mix of the things I am thinking about, the trends I see underlaying the performance of both the public and private sectors, and the performance of marketing and strategy in these changing contexts.

It is pretty easy to make predictions, get a few right, and you become seen as a ‘guru’ but few remember the many you got wrong, so I am not going to try this year.

Are monopolies OK?

Facebook and Google between them control 75% of the global digital ad spend, not a monopoly, but certainly a global duopoly.  Currently around 40% of advertising spending is digital,(depending on whose numbers you use)  and the lack of transparency and accountability is huge. The rock was kicked over by Procter & Gambles  Mark Pritchard in a presentation to the IAB in January 2017, and the roaches are still scuttling from the light. There has been movement for the better as Colgate, and several other major advertisers followed the lead of P&G and slashed their digital ad budgets until their suppliers could/would supply data that supported their claims. However, advertising is only a slice of the cake.

Facebook as a ‘community’ holds unprecedented power, with the attendant opportunity for morally challenging situations to arise, something Mark Zuckerberg  acknowledged in his 2018 letter, and  needs to be addressed.

Amazon continues its march to world retail dominance, (so long as you ignore Ali Baba which is more an exchange platform rather than a retailer) and the retailers we are all familiar with are racing to the wall. Amazon bought Whole Foods for $13.7billion, cash, on August 28  and the next day, the Amazon share price jumped $15.6 billion. In other words, Amazon got paid $1.9 billion to buy Whole Foods and got a distribution base into the bargain as well as a whole swag of quality relationships with produce suppliers, and a great brand. At the same time, the share prices of Walmart, Target and other major retailers took a bath in the wake of the purchase.  On top of Amazon as a retailer, we have Amazon providing an unprecedented breadth of services from Amazon Web Services, to a vast array of web tools, to space exploration, to demonstrating newspapers can still work with the turnaround of the Washington Post. 

Google copped a €2.4 Billion fine in June 2017 for anti-competitive behaviour as it used its dominant position in search to give itself the edge in price comparisons, from which it may take a cut when the product has been advertised  using AdWords. While Google is disputing the ruling, the evidence seems pretty clear, and in any event, the fine is only a few weeks profit, so is easily afforded.

As a new year resolution, Mark Zuckerberg has pledged to clean up Facebook. This guy is really smart, he has built the biggest communication platform in history, and in the process made billions for himself and a relatively few others, but I cannot help wondering if the juggernaut can be turned around by anything other than regulatory intervention, without which there is  no incentive to turn the tap off. History would suggest differently, and perhaps the impending IPO of Snapchat will put a dent in the flow of Facebooks  ‘automatic’ ad revenue. By automatic I mean hands off, they give you the tools to micro focus on segments, a great capability easily manipulated as demonstrated by both the Trump campaign and the Russians.

The apparent lack of ‘moral governance’, of the new digital behemoths that are now 5 of the 10 biggest companies in the world, Google, Facebook, Amazon, Tencent (still unknown to many) and Alibaba, all of which were just start-ups in 2000, will encourage regulators to try and throw a rope around their activities. However, if history repeats itself, they will be replaced at the top of the pile by companies we have not yet heard of inside 25 years. The corporate life of a major enterprise seems to be reversing Moore’s law, and increasingly diminishing every couple of years. This reality creates great challenges, as well as opportunities.

 

We will figure out how to use data

We are awash with data, the vast majority of it currently unused. Consider the opportunities to use the data currently around, in all sorts of applications from SME’s collecting and leveraging data on their customers to Governments digitising medical records, activity, and diagnoses to improve the productivity of the investments they are making by reducing waste, and improving the  delivery of health outcomes for patients. On top of that we have the emergence of ‘Blockchain’ technologies, with the attendant hype and bubble. However, it seems to me that the applications of this technology are both wide and deep, but require a wholesale change in the manner in which our private and public institutions work, and that will not happen in a hurry. Or will it?

There are some pretty scary implications in all this, as well as the benefits to be gained.

 

The final frontier: Attention.

The greatest challenge in marketing is the fight for attention, and it is becoming a more challenging, expensive, and bitter fight by the day.

The so called panacea, ‘Inbound marketing’ can and does work, but needs to be built on a solid foundation of marketing strategies directed at specific customers who will value what you have to offer above all else. Otherwise, the leads you to spend money to generate via inbound campaigns are going to be largely useless, as the conversion rate will be low. The name of the game is to get to those whose attention is valuable to you, and generally, these people at the top of the corporate food chain are very selective about to whom and when they give their attention. I think we are almost at a tipping point  where the personal contacts of yesteryear are becoming as important as any inbound activity, with the caveat that the digital stuff out there offers fantastic resources to do research to select out those who may be of value to you and then find them in a highly personalised way, if not in person.

Account based blather.

So called ‘Account Based Marketing’ became a buzzword over the last year or two, with all sorts of automated solutions vendors breathlessly declaring it the saviour. This will become recognised as the bullshit that it is, a tactic to flog software, not a solution to the basic challenge of marketing, to find, engage, service and retain customers.  It is not new, it is as old as selling, but those with a ‘shiny new tool’ to sell act as if they had discovered the holy grail. Define your target customer as closely as possible, ensure the exact alignment with your value proposition, research their company as well as the individuals as much as possible, and turn the on-paper prospect into a warm lead. It has always been so, and slowly marketers will come to realise that software is no substitute for creative and informed thinking and strategy development.

Brand building will again be seen as the key to sustainable success.

In a commoditised and connected world where information is freely available, brands are struggling to maintain their role as an assurance of value, just as consumers need it the most.

Building a brand has always been challenging, time consuming, risky, and expensive, but the return was there when  successful. In a world of sameness, the return is still there when successful, but the task of building a brand has become geometrically harder. This will not go away, but  there is light in the tunnel. The tools available enable very tight marketing, customer and value source definition to be done, enabling brands to be built that are relevant to a very specific group of people, and  therefore able to deliver value to them that is sufficiently unique to act as insulation from the general competitive milieu. Niche brands will become the go. In truth they always were, even the biggest brands occupied some sort of segment rather than the whole breadth of any market.  Even Microsoft, as the US Department of Justice was seeking to break it up to destroy the ‘Monopoly’ position it was seen to hold, was not the only option at the time.

The brand building skills of the ‘old guard’ will come back into fashion, simply because they are more relevant and effective than ever when armed with the digital tools. The generations of so called marketers who can use only the tools without understanding the principals behind their use, will struggle.

Given brands can be targeted, the message must necessarily be unambiguous and specifically relevant to the receiver. It makes it necessary for marketers to make very clear choices about who they will target, and with what, as generic offers have no weight. The greater the degree of personalisation and specification the more likely it will be received favourably, by the few who really want it.

Marketing in the boardroom

Increasingly marketing will be seen as a profession, requiring not just the creative and collaborative skills of the past, but also deep  technical and management skills.

Investment in marketing technology is accelerating at a huge rate, driven by the competitive pressures that come from the increasing productivity coming from marketing automation. Therefore the marketing personnel will increasingly be responsible for huge IT investments that determine the effectiveness of the strategic choices that are made. Marketers need to be qualified to make those choices, and more importantly, need to have the credibility in the boardroom necessary to gain the support for the allocation of the limited resources available, and to prepare the business case underpinning the choices. Those businesses without marketing in the boardroom will fall progressively behind their competitors.

The time for marketers to step into the top jobs has never been better, the ability to focus an enterprise on customer outcomes which are then reflected in the financial results will become the mark of successful leaders who shape enterprises for commercial sustainability.

Time frames will continue to compress.

Time frames for everything from long term R&D as in the pharma industry to the local start-up and political actions are being radically compressed, and this will not change, just get faster. If you are unable to keep up by changing at least as quickly as a those around you, the abyss is just down the road.

20th Century institutions are not able to cope.

Anyone can now start a business with a laptop and a few dollars, and physical location is becoming increasingly irrelevant. This is leading to a whole new structure of internationalised competition and governance,  self and part time employment, multiple jobs and career paths. Our institutions were simply not designed to accommodate the pace and breadth of change, no matter how much we may not like that reality.

The future of creativity in an increasingly automated world

What is the future of creativity, which takes time, energy, imagination, and does cost, in an increasingly automated and short term world?  Does the volume of ordinary ideas required to keep the ‘content machines’  turning outweigh the few big ideas? This is not just marketing, our lives are increasingly programmed, often without us realising, e.g. the Facebook algorithms that deliver to our feeds the ads, and stuff that the algorithms ‘think’ we might respond to, this is just telling us more of what we already think, removing the need and urge to think, to make leaps of logic, and see a different perspective.

It seems to me that we are pretty good at seeing what is coming from within our narrow domain, but very poor at seeing what is coming from outside, which is where most change comes from, and where creativity has the opportunity to deliver real leverage. Most of the great blunders thrown around reflect this reality, while the companies concerned continued to be successful within their own boundaries. Edison’s failure to recognise the benefits of AC over his baby of DC, Thomas Watsons declaration that there is a market for only 5 computers, Bill Gates initially missing the internet (then, remarkably turning Microsoft on a dime) Steve Ballmer dismissing the first iPhone, IBM missing the shift to personal computers, Xerox not commercialising any of the stuff they invented in PARC, (except laser printers which were right in their playground of document reproduction), that now underpin much of the tech we use every day, and many others. These are obvious with hindsight, but when you think about the context of the missed opportunities, each came from outside the essential expertise that had delivered initial success. The lesson is that creativity is more essential than ever, it is the source of innovation and change but usually only obvious with the benefit of hindsight.

The public vs private world

We are demanding more of our public sector, schools, hospitals, teachers, and all the services we take for granted, but we are also demanding we pay less. Partly this is a response to the waste we all see in the public sector, but there is a longer term trend at play that will focus attention on the really challenging problems associated with the revenue side of public budgets, rather than just the expenditure. Large corporations with an international footprint can select their tax domicile to minimise tax, and the releases of the ‘Panama Papers‘ and the more recent Paradise Papers have at least lifted the rock a bit so we can see a few of the roaches running for cover, but it is the tip of the iceberg.  With the US corporate tax rate dropping to 21%, we (in Australia) will have to adjust to changed flows of US capital, one of the underpinnings of the Australian economy, potentially drying up while politicians argue about our corporate tax rates, and how reducing them is giving back to the rich at the expense of the poor. The reality is that the pie is getting smaller. Then we have the movement in the economy from  PAYE employees to contractors and small businesses with the attendant tax benefits. The  impacts of all this will be an increase in the heat of the political debate, with a geometric increase in the bullshit that  gets served up, when what we really need is some genuine leadership that is prepared and able  to articulate the core issues driving these trends, and execute sensible strategies to start the process of addressing them.

Are we at the tipping point?

To end with, this is a question that will continue to bother me, as the implications to the management of both private and public institutions, and the rules to which they are supposedly accountable, are profound:

Are we reaching a tipping point in a range of tech enabled areas? Artificial intelligence, Augmented Reality, Virtual Reality, Autonomous everything,  new generations of quantum and neuromorphic computing, and most particularly renewable energy.  All are being rapidly developed, or already being incorporated into our daily lives without us really seeing it, after 100 years of science fiction. It seems to me that the revolution that took place 100 years ago as electricity revolutionised our lives, is about to be repeated, but from a different direction. we will be confronted by the change from disruption to collaboration,  and I do not think most of us are ready for it.

Ray Kurzweils observation (I think it was Ray) that ‘The future comes very slowly, then all at once‘, seems to be coming true.

What do you think?