CX Spotlight by Fifth Quadrant

Why It’s Still Day 1 for Amazon in Australia

It's no secret that Amazon's much-lauded launch in Australia last November was a little underwhelming. In the weeks leading up to the launch, local media outlets feverishly covered Amazon's arrival, creating a hype that the online retailing giant could never hope to live up to.

Hype and inevitable backlash

On the one hand, there was a lot of excitement from consumers. Due to Australia's location, consumers have been faced with higher prices and longer shipping times for many years. The promise of Amazon was simple: finally, we'd get things cheaply and quickly.

But on the other hand, some negative sentiment was brewing.

In November 2016 an Amazon official was quoted as saying that it would "destroy the retail environment" in Australia. The quote was quickly shared across Australian media and amplified by local retailers that started to call attention to the tax-avoiding, job-killing aspects of Amazon.

The launch itself wasn't so smooth either. It was delayed several times, and there was a false start in December, which left many baffled.

With negativity brewing and the inevitable disappointment that comes as result of over-hype, a small backlash formed. The Australia media started to criticise Amazon, first focusing on the prices; which weren't as low as expected, and then on shipping; after it was reported that many present-shaped holes had appeared under Aussie Christmas trees due to Amazon delays.

Lost in Retail Jungle Source: News Corp

Are Aussie retailers doing just fine?

One of the most outspoken critics of Amazon's entry into Australia is Gerry Harvey, co-founder and executive chairman of Australian retailer Harvey Norman.

To say Harvey comes from a different era is an understatement. The 78-year old businessman started his career as a door-to-door vacuum cleaner salesman and opened his first store in 1961. Unsurprisingly, he thinks Amazon is full of it.

In December, he described Amazon as a "lame duck" that "has never turned a profit in retail." When asked by ABC Radio what he thought of Amazon's legendary obsession with customer experience (CX) and leveraging of big data, Harvey said it was "baloney."

Harvey happily told ABC Radio that his company's shares were up 6% the month following Amazon's launch but this is because, like many, he thought that Amazon would appear and immediately wipe the floor with Aussie retailers. Clearly, this is not the case.


Also Check Out: Amazon - Threat or Opportunity for Australian Manufacturers


 

JB Hi-Fi, another retailer in Amazon's firing line, also seems to be doing just fine. In February, following positive half year results in which profits increased 37.4% CEO Richard Murray told investors that he was happy to welcome all new competitors and believes that JB Hi-Fi can compete effectively.

Suddenly, Amazon wasn't going to take over Australia. To further back this idea up, people raised the example of Canada, which has been described as a comparable market due to geography, retail environment, and spending habits.

Famously, Amazon Canada hasn't been doing so great, with a market share that's reportedly five times smaller than in the US. Amazon won't deny this, but their response would be something along the lines of "Sure, we aren't doing well in Canada or Australia...yet".

What Harvey Norman and JB Hi-Fi have in common is that they may be underestimating something: Amazon's Day 1 mentality.

What is Day 1?

Amazon's Day 1 ethos goes back to a letter to shareholders written by CEO and founder Jeff Bezos in 1997.

Bezos started by telling shareholders that it is "Day 1" for the internet and  Amazon.com. He then outlined Amazon's long term thinking and how it is driven by "relentlessly" focusing on customers and making investment decisions that aren't concerned with short-term profitability.

In his 2016 letter, Bezos introduced the idea of Day 2 after an employee asked him what Day 2 looks like. Here was Bezos' response:

 

 

 

Bezos used Day 2 to further elaborate on Day 1 in the letter.

"Staying in Day 1 requires you to experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight," Bezos wrote. "A customer-obsessed culture best creates the conditions where all of that can happen."

He also warned about "resisting proxies" - for example allowing market research to become a proxy for customers - and advised companies to make decisions quickly and embrace external trends.

"The outside world can push you into Day 2 if you won’t or can’t embrace powerful trends quickly. If you fight them, you’re probably fighting the future. Embrace them and you have a tailwind," Bezos wrote.

Day 1 is risen to almost mythic stature within Amazon. Bezos now attaches the original 1997 letter for every subsequent letter and Day 1 is the name of the official Amazon blog.

Day 1 in Australia

Keeping Amazon's Day 1 philosophy in mind, it's clear that the company's sluggish entry into Australia is by design. Rather than jump in and immediately try to take over, Amazon has come, modestly set up shop with one fulfillment centre, and will now proceed to dominate the market in slow motion.

This was pretty much confirmed by Amazon during this month's AWS Summit in Sydney, which I attended recently (10 April 2018).

"There's no question being misunderstood is something we do often," Amazon senior vice-president of international consumer Russ Grandinetti said. "We have at Amazon a willingness to think over longer timeframes than most people are used to,"

Amazon-Day-1 Russ Grandinetti

Grandinetti said one of Amazon's key competitive advantages is that it's willing to plan over five-to-seven-year time frames for the "big things" it wants to do.

"People laughed at many of the big things that are now part of our business, they didn't understand it, and you need to be really comfortable with that," he said.

Next steps

Amazon's slow and steady progress is continuing in Australia.

In February, Amazon Australia rolled out Fulfilment by Amazon (FBA), a service which allows retailers to send their products to Amazon's warehouse for storage and shipping.

At the summit, Grandinetti said that the number one request from customers was regarding the launch of Amazon Prime.

"We are going to launch Prime," he said. "I don't have any news to report about it other than we are working hard on it, it will come soon and I can also say it won't cost you a kidney."

Prime, which costs $99 a year in the US and offers free two-day shipping, same-day delivery to certain post codes and access to Amazon's media services, is considered the holy grail of online shopping.

As reported by Business Insider, recent research by Morgan Stanley also suggests that Amazon has been gradually winning the price war with Aussie retailers in every category except groceries.

According to Morgan Stanley, the increase in this spread combined with the arrival of Prime will result in local retailers stepping up their game to compete.

Amazon Price Differences - Australia Source: Morgan Stanley

Amazon's launch in Australia may not have been as smooth or impactful as many expected. But if we look it in within the wider context of their Day 1 philosophy, it's clear that they are playing a long game.

In other words, this is chess, not checkers. And, as always, it remains Day 1 for Amazon.

 Ready to talk CX?

Brad Arsenault

Written by Brad Arsenault

Brad is the Head of Marketing at Fifth Quadrant. For over 16 years he's worked across digital marketing and content production. He actively publishes content on LinkedIn and Medium.

Topics: retail insights CX Articles & Insights

You might also enjoy reading...