Knowing your customer too well has risks for Bezos; Amazon’s venture into ‘anticipatory shipping’ is pushing the concept of service too far

January 24, 2014 7:08 pm

Knowing your customer too well has risks for Bezos

By Christopher Caldwell

Amazon’s venture into ‘anticipatory shipping’ is pushing the concept of service too far

Like a rollercoaster, the information economy can thrill you and make you queasy at the same time. US retailer Target’s discovery that women often buy unscented lotion and then mineral supplements early in their pregnancies is a masterpiece of marketing analytics. It is also intrusive and creepy. The news that Amazon obtained a USpatent for “anticipatory shipping” last month has evoked the usual mixed feelings about companies that try to know what we want before we ourselves do. Imagine some garrulous delivery worker waving a just-released blue movie at you and announcing to the neighbourhood that, since you liked all the others in the series, you are bound to like this one.

Anticipatory shipping has been overhyped. It is a breakthrough not so much in customer psychology as in inventory and warehousing. But it still tells us a lot about the ratio of thrills to queasiness that will determine Amazon’s future.

The vaguely worded patent describes shipments to a “destination geographical area” and a computer system for filling out detailed addresses en route. Amazon does not assume that, having just read the essays of WH Auden, you will pay for the radio plays of Louis MacNeice when they show up unordered on your doorstep. But the process could streamline a traditional distribution strategy – the idea that, say, given the historic demand for Ian Rankin novels around Belsize Park, it would save time and money to have a couple of hundred copies circulating around north London on publication day.

Amazon has such vast amounts of data from its customer base that whatever computer system results from this patent will probably be powerful. But the general concept is scarcely more sophisticated than “anticipating” that the 85,000 people who attend the Super Bowl at MetLife Stadium in New Jersey next weekend will probably want a certain amount of beer. Although people still associate Amazon primarily with books and music, it delivers everything from appliances to (in Seattle and Los Angeles) groceries. It also has a “Subscribe and Save” feature that allows people to place standing orders for household staples.

The positioning of inventory has always been an obsession of Jeff Bezos, Amazon founder and chief executive. The company has big warehouses throughout the world. But what is special about online retail is the way the line blurs between warehouse and shop, wholesale and retail, storing and selling. Now there seems to be a blurring of the line between storage and transit. It is as if Amazon has stopped thinking of inventory in terms of physical plants and begun thinking of it as a set of geolocational co-ordinates. On the public roads of some cities, the company’s trucks will be like little orbiting entrepots.

Amazon has a reputation for extraordinary efficiency and customer-friendliness – at a steep price to its rivals. It was long exempt from charging sales tax in most US states, giving it an outrageous pricing advantage over far smaller competitors. Courts have lately ruled against that exemption in a number of high-profile US cases. Amazon faces labour unrest in Germany and elsewhere. Yet the company is viewed ever more fondly by consumers. Last year the annual Harris poll’s “Reputation Quotient” ranked it the most trusted US company. Maybe Amazon has dispelled people’s misgivings. Or maybe it has simply crushed their resistance. In his recent biography of Mr Bezos, The Everything Store , tech writer Brad Stone summed up America’s ambivalence about Amazon: “We want things cheap, but we don’t really want anyone undercutting the mom-and-pop store down the street.” In many US towns, there is no longer any mom-and-pop store down the street, and retail options have shrunk to two: a well-functioning Amazon versus a malfunctioning Amazon. The prospect that people will avoid the internet giant in order to save beloved retail institutions has probably passed, along with the institutions themselves.

Longer-term problems may come from what is best about Amazon’s business model. The more efficient a service, the better. But predictability is just as important. People will sacrifice a little in average quality of service to avoid volatility. If Amazon could, through an “anticipatory” message to a truck already on the road, fill a customer’s next-day order in two hours, would it be wise to? Not necessarily. The next time that customer made a next-day order, he might consider a mere on-time delivery a disappointment. Marriages, not love affairs, are the model for most good retail relationships. A retailer ought to care about customers but without ever importuning or disorienting them. That may sometimes be hard to remember in a company where the adjective “disruptive” is thought a high compliment.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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