Monday, August 13, 2012

Convenience (and Diaper Stench): Amazon v. Walmart

This is the first post in a series about deconstructing Amazon's Feedback Loop in an attempt to understand both how its components work as individual units and together as a collective system. 


We’ll begin deconstructing the Amazon Feedback Loop by focusing on the Convenience Growth Lever.

When retailers invest in the Convenience Growth Lever, we’re talking about the infrastructure that makes the shopping experience as quick, simple, and hassle-free as possible for customers. The better job you do taking away the headaches of shopping, goes the logic, the more consumers will want to spend money with you. And you grow. 

The convenience infrastructure for traditional retailers revolves around placing stores as near as possible to the greatest mass of shoppers and then supporting those stores with staff, stock, and maintenance to keep them in good working order. It’s largely steeped in real-estate, an asset that tends to get costlier with time. 

For web-based retailers, it’s a different set of variables based largely on technology and the ability to deliver goods to customers as quickly as possible. Technology tends to cost less through its cycles of innovation, allowing users to do more with it at a cheaper price as time marches on. 

Let’s start the convenience discussion with a contemplation of diaper stench. 


Walmart vs. Amazon: A Case Study in Convenience and Diaper Stench


It’s Monday afternoon and my wife informs me that we’re running low on those special fresh-scented garbage bags that line the sides of the diaper-genie device in the baby’s nursery. Given that we’ve recently introduced our seven-month old daughter to the pleasure of solid foods, that they often don’t agree with her little system and therefore wreak havoc on her little outputs, we’re going through a lot of diapers. And keeping those liners in stock is of some importance to our family’s collective olfactory wellbeing. 
Stench Defenders
Walmart is only a ten minute drive away. But I severely dislike going to Walmart. I can only tolerate it if I know we’re going to fill the cart to its brim and thereby not have to go back for several more weeks. But to buy just one item? This could put me in an ill mood for hours. 

So I grab the Kindle Fire, do a quick product search, and buy exactly what we need from Amazon. For a reasonable premium, I get it delivered the next day. The stench crisis is averted. The nursery shall remain an inviting environment for all. 

Herein lies a crucial tension between web and physical retailers when it comes to convenience. I prefer not to step foot in a store at all. And though my wife doesn’t fully concur, she’s quickly learning the advantages of an Amazon Prime membership. Where we find common ground is in some rough calculus of how many items we need at the moment, multiplied by the number of miles we must drive to get to the shopping outlet, times the traffic at the moment, raised to the power of the number of different stores we’ll have to visit to check all the items off our list. 

The bigger the number, the more likely we are to just buy what we need online. 

Convenience for traditional retailers is largely a function of proximity to their shoppers (and number of parking spaces available immediately next to the door). For traditional retailers to grow, gaining access to more customers, they must invest in more and better locations. It is indeed about location, location, location. 

Of course there is a limited supply of good places to build stores, so that real estate becomes a hot commodity, appreciating in value in direct proportion to the number of companies bidding on the spot. 

And stores are costly to staff with workers, stock with inventory, and maintain to reasonable aesthetic and hygienic standards. 

It’s different on the web. Consider these major drivers that define convenience for shopping on the web (and contrast it with the alternative of having to go to Walmart) in context of my own experience buying diaper bin liners for my daughter’s nursery: 

1. Convenience in accessing Amazon’s web site. 

I picked up the Kindle Fire, turned on the screen, and was shopping. Convenience in this sense is a function of proximity to an internet-connected device. I used the Kindle, but I could have just as easily used the iPhone with its Amazon app, my wife’s iTouch, or my laptop. We have an abundance of options for connecting to the web in my house, and that’s a characteristic shared by more and more shoppers. 

Contrast this to the alternative of getting in the car, driving ten miles, parking, walking from the car to the front door, traversing the aisles in search of a specific product, waiting in line at checkout, walking back to the car, and driving home. 

Even if Walmart decided to be more convenient to me specifically, building a full-service store only a mile from my house, I would still have to go through all these steps. My drive would be shorter, but it hardly reduces the overall effort. 

2. Convenience in finding the liners with ease. 

In the search field of the Amazon shopping app on the Kindle, I typed in the name of the liners. In less than a second I saw the specific product I needed along with several alternatives for my consideration. 

Contrast this with the alternative experience at Walmart. I must navigate the store by department, understanding from experience (this is my second child after all) that diaper bin liners are NOT with regular trash bags, they’re with the baby things. Walk to the back corner of the store to find that department, then walk up and down its six aisles until I spot the specific item. It’s not there. There seems to be a generic alternative. Will that work? I better ask a worker. But none are close. Ah, there’s one! She says she has no idea. Great. Guess I better buy it, try it, and if it doesn’t work I’ll return it (another trip to Walmart). 

Amazon seems to know that you buy diaper liners on a repeat basis. While its awareness of my purchase needs can be a little creepy, it’s also convenient that Amazon reminds me of these liners a few months later, right when it’s time to stock back up. This makes the search process even more convenient by eliminating it altogether. 

3. Convenience of my speedy purchase transaction. 

My Kindle Fire came pre-loaded with my Amazon account information, its direct link to my credit card, and the shipping address for getting the order to me. So when I bought the liners, I clicked one button to complete the transaction. The whole thing, from turning on the Kindle to searching for the product to receiving confirmation that my order was received took maybe three minutes. Had I gone through my laptop, it might have taken an additional moment or two. 

If there are more than two people in front of me in a Walmart check-out queue (and there always are more), I’m anxiously scanning all the other lines in search of a faster path to buy my stuff and get out of the store. My blood pressure remains elevated for hours after waiting in those lines. 

4. Convenience of how quickly the liners are delivered. 

I placed the order on Monday, paid a few extra bucks, and had it delivered to my front door by the end of day Tuesday. 

Walmart is open early in the morning, late at night, and all times in between. Had I needed those liners any more quickly, Walmart would have won the convenience battle and earned my business. For customers that need (or want) immediate gratification – and there are many – Amazon and web retailers will never satisfy that need. Indeed, our family shopping trips to Walmart are defined more and more by our own procrastination, putting off buying something until it’s urgent and requires that inconvenient trip. 

Here the point goes to Walmart and store-based retailers in general. They have been protected from web shops taking over more of the turf by what we’ll call the Convenience Barrier: I need those liners, I drive to Walmart, I buy them, and I walk out the door with liners in hand. No delay. Instant gratification. 

Only a few years ago, Amazon would have required three to five days to get the liners to me. Now I can get them next day, and there are reports of people placing orders early in the morning and having the stuff delivered by the time they get home from work. (See a story about that here.) Amazon and its web-based compatriots are clearly making progress here. Though they’ll never provide the instant gratification of store-based retailers (unless they begin to offer that option, too…of opening physical stores), it’s clear they’re working hard to get orders processed and delivered as quickly as possible. 


Conclusions 


So, Walmart’s convenience is driven largely by real estate and location and it must therefore invest in more stores to increase the convenience factor and grow. (And even then, there are pretty much the same steps required to get to the store one mile away as to get to the one ten miles away. The convenience is enhanced over other store-based retailers that are farther away, but building a store nearer to me has only marginal additional convenience when I’m comparing it to a web-based shopping experience.) 

Three of the convenience factors listed above for Amazon are driven by technology (access to its website, ease of searching for products, and speed of transaction). The fourth – how quickly the product is delivered to you – is largely a function of real estate in that Amazon can improve delivery speed by building fulfillment centers nearer to its customers. 

In the next couple of articles we’ll dig deeper into Amazon’s convenience factors by breaking them down between technology and the speed with which it delivers orders to your doorstep.