How to Apply the 8 Lessons of Amazon Operations to Your Retail Strategy
DynamicAction’s Co-founder and Chief Data Scientist recently penned How Amazon Does Data—And What you Can Learn From It—a retail strategy white paper containing 8 tactical lessons from Amazon’s playbook. It provides expert insights on Amazon’s approach to data, customer experience and long-term profit, with advice on how to replicate these strategies within your own operations.
For many retailers and brands aiming to compete with and beat Amazon, the race to innovate and drive truly unique selling propositions through constant, detailed customer understanding requires radical new operating strategies. DynamicAction has developed the most advanced retail analytics solution that provides Amazon-level capabilities to empower retail teams with customer understanding across every channel.
Let’s take a look at how leading retailers like Mulberry, Cole Haan, Eddie Bauer, and more we can’t publish (ask us in person) leverage DynamicAction to apply these lessons to their operations to grow more profitably with the depth and agility of their competitors, including Amazon.
Lesson #1: Form a complete view of the customer experience
Amazon’s operating model is centered on the customer. Leveraging customer data, they are able to achieve one view of the the customer to identify buying habits, purchase history, purchase frequency and spend—and then turn that data into a customized shopping experience that pleases the consumer and fortifies a lasting customer relationship.
DynamicAction enables retailers to replicate Amazon-level customer understanding by seamlessly connecting consumer data across all the shopping channels to give a holistic view of the customer. Retailers can examine customers across recency, frequency, monetary segments and product returns, and gain additional insight on promotional usage and profitability to include or exclude certain customer groups from messaging.
Lesson #2: Automation + Human Insight = Success
Amazon has dominated the game of calculating massive, messy data sets to arrive at its strategy. Both the landscape and their approach are constantly evolving. And all of this is happening across thousands of transactions per minute. How do they do it? By mastering the art of knowing what to automate and what to leave to human judgement and reasoning.
Are you often stuck trying to decide what to do with the information you have? DynamicAction automates decision-making by going beyond standard reporting and data visualizations that leave executives still searching for the right questions to ask and actions to take.
Leveraging over 600 proprietary algorithms co-developed by the former Chief Scientist of Amazon and a former retail CEO, DynamicAction clients are alerted to the opportunities that will drive the most profitable impact on their business and the right to actions to take, faster. Rather than spending days collecting information and trying to understand what happened last week, DynamicAction offers an immediate and comprehensive summary so that digital, omnichannel and store retail teams can materially impact the business by taking confident, connected actions faster. Additionally, our clients’ systems operate and optimize with less human intervention. DynamicAction saves time and resources, all while optimizing your existing systems to earn you more profit.
Lesson #3: Focus on actions and measures
Amazon only measures what can be acted on. If it is not actionable, it is ignored. By the same token, actions in DynamicAction are driven by measures, not the other way around.
Are you still looking at in-stock rates by category to measure product availability for your customers? Instead, use the Views Availability metric found in DynamicAction to get an idea of your in-stock levels for the products potential customers are actually viewing online—so you can ensure appropriate stock levels for those items.
Lesson #4: Make iterative improvements
Amazon views failures as the way towards improvement and seeks it in pursuit of success. Algorithms, workflows and processes are continually observed and refinedned in order to fine-tune their performance.
Globally renowned luxury brand, Mulberry, is recognized for their exceptional customer service, which has rendered lasting customer loyalty. This success is centered on continual refinement. Mulberry teams constantly fine-tune the customer journey. Leveraging DynamicAction, they are able to identify improvement opportunities and take immediate action to seamlessly deliver the very best to their customer.
Lesson #5: Forget average, focus on weird
Amazon recognizes that managing AI and automation is about anecdotes and outliers, not averages. The unexpected events that sit outside the curve are the ones that hold the promise of improvement.
Let’s face it: the “detail in retail” is often associated with a KPI that includes the word “average.” Think average order value, average conversion rate, average time on site, average selling price, average margin, average lifetime value, average product cost, average review rating or average days to ship. As time and data grow, one should worry whether the “average” gives the retail decision-maker sufficient information about what is really happening with critical factors in the business. The outliers are often where there is room for improvement.
DynamicAction Distribution Charts reveal the composition of products behind a metric’s average and quickly drill into product sets requiring attention. This is just one of a number of data visualizations found in DynamicAction that enable retailers like Men’s Wearhouse, Destination XL, Long Tall Sally, and many more to navigate the numbers behind the averages, drive their merchants to action faster and make smarter decisions to improve both sales and profit.
Lesson #6: Make marginal gains
Amazon exerts control at an incredibly granular level to constantly manipulate prices and promotion of each SKU to get the right trade-off between price competitiveness and profitability.
“It’s impossible to manage the business down at the product level.” This is a statement we heard last year from the head merchant of a retailer who is now in Chapter 11. Amazon has proven that they not only manage close to 500 million products at a discrete level, but they are rumored to manage up to 500 associated attributes, per product. Understanding and managing at a product and attribute level is impossible with strictly human efforts—but is very possible with DynamicAction. DynamicAction identifies areas of improvement at the product level to move the needle on sales and profit for the total business.
Lesson #7: Capitalize on bricks-and-mortar in your retail strategy
As Amazon begins to dip its toes in brick and mortar, they are already demonstrating their intent to reinvent physical retail as they did online commerce. Leveraging automation and data-mining technologies borrowed from their ecommerce operations, they are ambitiously pursuing omnichannel perfection to best serve consumers whenever and wherever they are and fortify the already ironclad loyalty of their customers, all while lowering operating costs.
DyanamicAction interlinks digital and data-driven thinking with the physical store’s operation, to deliver seamless customer experiences across all channels, while maximizing operational efficiencies and cost savings. Intimately connecting all online and in-store data, DynamicAction gives decision-makers one view of customer, products, SKUs, channels and profit. It then arms the decision-maker with prescribed actions to take on inventory, pricing, promotions, customers and profit opportunities across your omnichannel operations. Each prescribed action is ranked by the estimated profit value—so decision-makers know exactly how to leverage their physical stores with the highest profitability.
Lesson #8: Look at the long-term profit horizon
Amazon sets its sights on long-term figures and an upward trending profit line, not short-term fluctuations or losses.
Wall Street has made its case this year that retail executives must look to profit as the more valuable measure for the long-term health and success of their businesses. And while many retailers have focused on whatever it takes to keep marketshare and drive topline sales, retailers who surviving and thriving in Amazonian retail are those who are seeking new metrics, strategies and innovative investments to drive long-term profitability.
DynamicAction users can quickly break down profit contribution across the business using a data visualization referred to as Profit Trees. These Profit Trees, which can be viewed at the product, order or customer level, effectively deconstruct retailing profit across all of the components that are contributing, allowing users to visually determine where exactly profit is being gained or lost. This is an example of a new visualization that DynamicAction customers are responding to because it gives retail organizations an ability to quickly identify (perhaps for the first time) where there is opportunity to improve profitability across the enterprise.
Ready to see how DynamicAction can help your organization apply these 8 practices within your retail operations? Let us demonstrate why leading retailers like Cole Haan, Wehkamp, Destination XL, and more (ask us), selected DynamicAction to help expand their businesses with the depth and agility of their competitors, including Amazon. Book a demo, or download our comparison brochure.