business news in context, analysis with attitude

Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.

And now, the Conversation continues...

KC: I must say that I felt a little vindicated last week when Amazon announced that it is tripling the number of brands involved in its Dash Button program. (For the uninitiated, Dash Buttons are available to Prime members for $4.99 each, and they're essentially free - with the first order through a Dash Button, members receive a $4.99 credit to their Amazon account. They put the button in a convenient and relevant place, and when running low on an everyday essential, they can press the Dash Button to automatically reorder the item at the same prices they would have paid if they were sitting at a computer, with two-day Prime shipping.) After all, I said at the end of 2015 that the Dash Buttons represented the disruptive technology that I thought was not just as a game changer, but also indicative of broader opportunities and possibilities down the line.

What did you think about Amazon’s Dash Button expansion?

Tom Furphy:
I wasn’t the least bit surprised by the announcement. Given how far Amazon is ahead of the industry in “helping people buy things” it’s not surprising that brands are lining up to work with them. Starting with Subscribe & Save, all the way through to the Echo, we know that Amazon is well down the road innovating replenishment via the IoT. Introducing the Dash Buttons accomplishes two things – it creates a go-to-market engagement model for brands and it trains shoppers to generate an order precisely at the moment of demand.

Brand engagement is incredibly strong in these models. We saw it with Subscribe & Save at Amazon. Once shoppers subscribed to a branded product, they virtually never strayed away from the brand. Just this week I saw some research from Slice Intelligence that said, for the laundry category, consumers that are using Dash buttons buy just about 100% of their requirements in that category from Amazon. They don’t go back to their prior retailer. It also showed that once shoppers start using a button, they make an average of 90% of their purchases for the given category from the button’s sponsoring brand. Once customers choose a brand, they stick with it. So while the buttons are far from perfect and may even be a little kitschy, they clearly work. And they also enable a clear and logical element of direct-to-consumer engagement for brands. A consumer literally “touches” the brand to generate the order. That is a very intimate connection. And Amazon acts as an important supporting agent in that transaction.

KC: I'm not sure that traditional retailers understand the implications of these replenishment-based technologies. It isn't complicated - customers get locked into the retailer that is offering them, and the brands that are being offered, and they do it without going to a store, and in doing so they have no reason to ever go to a store for these items again. That's huge.

As more and more Dash buttons are placed throughout homes, and as more shoppers become used to ordering by voice on Echo or Tap (Amazon’s smaller, more portable device that was released last week), they gradually become used to, then come to expect the notion of shopping without the store. They begin to realize that they can rely on the world around them to take care of them. They don’t need to make a physical trip to shop. As IoT expands, this will become further cemented. Dash and Echo aren’t perfect. But they are significant step toward low-touch shopping.

KC: Is there a way in which you think competitive retailers and brands should react?

Brands and retailers cannot afford to wait any longer. They need to start making strides toward their long-term automated shopping and replenishment strategies. Amazon is out well in front of them and they are innovating like crazy. The lead is only widening. Keep in mind that Amazon’s innovation cycle is aggressive and is years in advance of the market. The Dash strategy was born back when I was at Amazon, and I left in 2009. So you can be sure that Amazon already is working on the next generation of this strategy, and probably the generation after that. By the time brands or retailers are able to measure the impact of Amazon taking share, it may be too late to respond.

For manufacturers, it is an expensive program. Brands are paying significant trade and marketing dollars to participate in the program. Upfront and ongoing costs are much higher than traditional spending. Brands’ willingness to pay this is an indication of the importance of the “lock-in” strategy. It will become costly to support over time, but they have to play or risk losing customers to brands that do participate. I do think they have to be careful not to over-rely on Amazon, a problem they can mitigate by partnering with other retailers as well.

KC: Of course, that means other retailers actually have to have a replenishment strategy.

They MUST have one. It can be fulfilled through e-commerce delivery, click and collect or both. But they must have it. Operators of great stores will still be able to attract many shoppers to the stores for the experience. The sensory experience of a great store will continue to be a draw. But it will become less and less important for folks to walk up and down aisles of branded and private label packaged products. Shoppers will come to expect that portion of the trip to be automated.

We saw this trend coming years ago and are addressing the opportunity through a company we call Replenium. Through a first-of-a-kind technology platform, we are developing what we are coining Replenishment as a Service. We are not yet to the point of fully disclosing the concept publicly and the website is deliberately opaque. However, I am happy to share with the MNB community that we are deeply engaged with some of the most forward-thinking retail and CPG companies in this effort. We are bringing to market a set “replenishment shopping” capabilities that can be used by any brand or any retailer.

But it isn't merely about catching up with or mitigating Amazon. It is about starting with a clean slate and developing capabilities that enable brands and stores to serve the changing shopper in ways that make sense, and in ways that technology and machine learning enable. In ways that these stores and brands uniquely can, given their understanding of their categories, their existing customer relationships, store locations and shopper databases. These forward-thinking retailers and brands are not willing to sit back and watch. I don’t think any retailer or brand should be willing to sit back.

Remember, it was just 10 years ago that we started the CPG business at Amazon. As much as that work has impacted CPG and retail in the last 10 years, the innovation that will occur over the next 10 years will be far more significant and far-reaching.

And the Innovation Conversation will continue...

KC's View: