Amazon Dash: Riding the Data Wave
Amazon: now offering instant product ordering in exchange for detailed consumer data
Introduction
Technology and the internet of things has revolutionized the retail market. Consumers can now shop on-the-go, order from home, and automate the ordering and delivery process. Before e-commerce, purchasing data gathered from brick-and-mortar stores was several steps removed from actual consumer actions. Today, value is being created by capturing and reliably associating purchasing data to unique consumers.[1] Companies need this data to harness the true power of predictive analytics. But are customers ready to ride the data wave?
Amazon.com
In 2015, Amazon surpassed Walmart as the most valuable retailer in the United States by market capitalization.[2] Since 1994, the company has thrived under a standard online retail business model, leveraging its buying power and financial resources to control the marketplace.[3] Amazon has been successful because price, selection, and convenience have been at the core of their value proposition. Together with their easy-to-use, self-service platform and expertise in logistics, Amazon has managed to change the face of retail.
The Cost of Variability
Amazon’s current online retail model requires that customers place orders online or thru their smartphone. After an order is placed, products sitting in warehouses are mobilized and packaged for shipment. From purchase to delivery, customers can track their order status. Unfortunately, customers have become accustomed to placing small orders. As a result, Amazon’s logistics costs have skyrocketed.[4] Several steps have been taken to control these costs. In 2007, Amazon introduced a subscription program to minimize variability and to aggregate orders into monthly shipments. Called “Subscribe and Save,” the program offered consumers a 5-15% discount to opt into automatic reordering of items.[5] The problem with this model was that it required a customer to guess the frequency at which they needed products replaced. Unsurprisingly, customers experienced periods of product starvation and overstock due to inaccurate demand forecasting. In response, Amazon has chosen to improve its own forecasting models.
Mastering the Recurrent Purchase
Enter the Amazon Dash Button. Each Dash Button is linked to a specifc product, e.g. Tide detergent, and a customer’s Amazon account. The customer first places the Button next to the appropriate product and presses it when they run out. Pressing the button automatically reorders the product.[6] The power of the Dash Button lies not in sales, thought it does remove friction in the shopping experience, but in the data it collects.[7] The Dash Button is unique in that it creates value by extracting an individual consumer’s shopping habits. Amazon is using this information to optimize demand prediction algorithms to better forecast upcoming purchases.[8] This widget brings Amazon one step closer to their patented vision of “anticipatory shipping,” where products are delivered to customers before they even place an order.[9]
Challenges and Opportunities
Enhanced demand prediction will certainly help Amazon deliver on its customer promise by reducing logistics costs and increasing the convenience factor. However, not all customers are ready for change. Some worry about privacy and the threat of hackers. What if your neighbor stops your Quilted Northern Ultra Plush toilet paper order? Or what if a hacker unlinks your Tide Dash and you instead get 100% Pure Wolf Urine? Yes – Amazon does sell bottles of 100% Pure Wolf Urine.[10] Others fear automation. Some may think the Dash Button is simply a forcing mechanism to pressure customers into buying high margin, Amazon-approved brands. These are valid concerns and something for Amazon to think about as they develop next-generation Dash technologies.
Big data and machine learning is driving innovation in all industries and the Dash Button is a colorful view of our inevitable automated future. I anticipate that we’ll soon see single-use, built-in order buttons on all consumer products. Gone will be the days of 1-click Ordering. Soon, common household items will replenish themselves seemingly out of thin air. Hello future world.
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[1] Product, R. L. (2016). Retail Data: 100 Stats About Retail, eCommerce & Digital Marketing. Retrieved November 18, 2016, from https://www.nchannel.com/blog/retail-data-ecommerce-statistics/
[2] L, B. (2015, July 23). Amazon passes Wal-Mart as biggest retailer by market value. . Retrieved from https://www.bloomberg.com/news/articles/2015-07-23/amazon-surpasses-wal-mart-as-biggest-retailer-by-market-value
[3] Amazon.com (2016). . In Wikipedia. Retrieved from https://en.wikipedia.org/wiki/Amazon.com
[4] Martyn, P. (2015, June 23). Amazon’s logistics App underscores capacity concerns. Forbes. Retrieved from http://www.forbes.com/sites/paulmartyn/2015/06/23/amazons-logistics-app-underscores-capacity-concerns/#5a897d811488
[5]Chen, B. X. (2016, August 25). Subscribe and save on Amazon? Don’t count on it. Personal Tech. Retrieved from http://www.nytimes.com/2016/08/25/technology/personaltech/subscribe-and-save-on-amazon-dont-count-on-it.html?_r=0
[6] Amazon. (1996). Tide pods and powder dash button. Retrieved November 18, 2016, from Amazon: Dash Buttons, https://www.amazon.com/Tide-Pods-Powder-Dash-
[7] Tuttle, B. (2016, June 27). Why people Aren’t using their Amazon dash buttons to buy stuff. Retrieved November 18, 2016, from http://time.com/money/4383797/amazon-dash-buttons-worth-it-value/
[8] Banker, S. (2013, September 16). Demand forecasting: Going beyond historical shipment data. Forbes. Retrieved from http://www.forbes.com/sites/stevebanker/2013/09/16/demand-forecasting-going-beyond-historical-shipment-data/#3247bacd42cc
[9]Marketing (2014, January 28). Why Amazon’s anticipatory shipping is pure genius. Forbes. Retrieved from http://www.forbes.com/sites/onmarketing/2014/01/28/why-amazons-anticipatory-shipping-is-pure-genius/#7f17b8e82fac
[10] Amazon. (1996). Predator Pee – 100% pure wolf urine – 16oz trigger spray bottle. Retrieved November 18, 2016, from Amazon.com: All, https://www.amazon.com/Predator-Pee-Urine-Trigger-Bottle/dp/B01AL5GZV6/ref=sr_1_1?ie=UTF8&qid=1479503032&sr=8-
Great article and analysis! I too recently saw these dash buttons on Amazon.com that they are heavily advertising on the front page of their website, but I am skeptical about their use and adoption. For all the reasons you mentioned- concerns of hacking, getting wolf urine, skepticism about Amazon forcing sales through any means necessary- it will be interesting to see just how many people adopt the dash button. I am wary that Amazon will begin to update their logistics and operations based on order patterns of the customers who are heavy-users of Tide, Lysol, Pampers, etc and who inherently order a lot because they use a lot. This new logistics system could very well serve the needs and demands of the heavy user who would probably love to see their products ‘replenish themselves out of thin air’, however it is likely to cause build up of inventory or product starvation (and a whole lot of inconvenience) for the customers who would like to order JIT.
It seems that Amazon is taking a big risk in assuming that a majority of their customers would prefer to press a button and wait 1-2 days for their product to arrive. There will be customers however who don’t see the problem in stopping at Target on their way home from work, and buying 1 month’s worth of toilet paper. I would advise Amazon from doing anything rash to their operations.
I understand why customers are concerned about privacy in a variety of industries nowadays. However, in the case of Amazon, I do not quite understand why Amazon Dash increases that concern. In fact, Amazon has been gathering significant information about its customers, and using it to its advantage, in particular trying to market additional products to its customers. Amazon already knows what you are looking at, what you are buying, when you are buying, where you are shipping to, etc. Does the repeated purchase system really increase the risks related to privacy? If you already are an Amazon customer, which most of us are, I don’t think so.
Great write-up. It’s interesting, I never really thought about the additional uses of the Dash buttons aside from consumer convience and increased capture of consumer’s wallet to be spent on Amazon. I guess I shouldn’t be surprised that there are other motives behind the product.
That said, I don’t necessarily agree with all the challenges outlined. As Jruivo pointed out- the same privacy concerns lie with the use of the traditional website/app. As for the forcing function, I’m not overly concerned about it either. It makes sense for Amazon and the consumer opts into it- I’m sure they’re not going to purchase a dash for a product that they do not want.
For me, the bigger concern is waste. I think producing these buttons is a wasteful physical addition to an otherwise more environmentally friendly ecommerce purchasing experience.
Nice post. I see some challenges with Dash in that it would seemingly exacerbate the problem of small order sizes. Having not used Dash, I understand that when I click the widget, Amazon processes an order for that item. Sure, this would lead to finer demand forecasts on a per-item basis, yet it would eliminate the natural batching that I do for Amazon (waiting until enough needs pile up for me to go on Amazon and place an order). If I were the extreme “single-item orderer” that placed an order for every individual item I needed when I needed it, then I would imagine Amazon already has my demand information for that product in similar form to what Dash would provide. In essence, I see them as already have access to this information for users whose purchase behavior mimics that of a Dash user. For users that order less frequently, I think Dash adds finer demand information, but at a cost to Amazon.
Great article! It’s interesting that the predominant reason for Amazon’s introduction of Amazon Dash is for demand planning. I had assumed its main purpose was to get consumers to purchase absolutely everything from Amazon. If I were to run out of laundry detergent, I would make a mental note to go online and order from Amazon later. However, I might forget to do this. Or I might elect to pick something up at my local bodega for immediate gratification. Having a button right next to my laundry detergent would greatly increase my chances of re-ordering from Amazon. My main hesitation to use Amazon Dash would not be hacking or automation, as you mention above. I am simply not committed enough to specific products to get a button for constant replacement of a single product. However, I can see how someone who is strapped for time or mind space – a parent or a CEO – might be inclined to use Amazon Dash. Will be interested to see how this product performs!