One of the current news topics that we’ve been following with a longer story arc is the impact that Amazon has had on inflation in the short-term, as well as the broader consequences on the future of the U.S. economy. First, let’s review some of the seminal news stories about this topic that have been published over the last year or so. At the end of last year, Bloomerg News was among the first to substantiate the notion that Amazon’s immense market power was putting so much pressure on other retailers to lower prices that this single point of influence was having a measurable impact on the economy’s overall rate of inflation. Mark Whitehouse points out, “Economists at Goldman Sachs Group Inc., for example, estimate that pressure from online retail may be subtracting about 0.1 percentage point from the Fed’s preferred measure of inflation.”
A few months later, The Atlantic had an interesting piece about Amazon/Whole Foods gearing up to offer two-hour food delivery service. Titled The Amazonification of Whole Foods, the article makes clear that the development is about more than just making grocery shopping more convenient. “Enriching Prime is arguably Amazon’s most important goal, given the lifetime value of a Prime subscriber. What’s more, as Amazon becomes the top-of-mind destination for not only books but also toiletries, medicine, and chicken breasts, it becomes the first-stop destination for all of its customers’ searches.”
We’ve also noticed a corresponding shift in the marketing industry and the dominant strategies for marketing in the retail space as well as other sectors of the economy. rDialogue has made Amazonification the cornerstone of their loyalty marketing philosophy, which boils down what has made Amazon so successful into three parts:
1. Make customer-centricity an explicit and consistent business strategy.
2. Use data aggressively to deliver relevance.
3. Recognize that customer loyalty drivers are much more than just financial. They are experiential.
The marketing agency also noted that several companies have tried, but failed, to emulate Amazon’s approach. From retail to groceries to other consumer commodities, it’s unclear how broad this Amazonification of the economy might eventually become. It’s also unclear whether other companies will be able to capture customer loyalty in a way that competes with Amazon’s influence, even within their own industries and segments of the economy. What happens if Amazon’s dominance turns away all competitors? We noticed, for example, in planning to raise membership costs that Amazon Prime itself isn’t immune from inflationary pressures. And this brings us full circle to the question of inflation and what lies ahead when the process of Amazonification is complete. It’s a question for which nobody seems to have a satisfying answer.