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Banking Needs An ‘Amazon Prime’ Marketing Strategy

Amazon Prime is considered one of the most successful loyalty programs in retail history. While many believe the success of Amazon Prime revolves around free shipping, it is really the removal of friction and focus on experience that sets it apart. Banking can learn from Amazon Prime.

Subscribe TodayThere is no denying the explosive growth and competitive impact of Amazon to the retail industry. For their retail business, the foundation of this success is named Amazon Prime. Amazon’s Prime membership program has 80 million members in the US according to recent estimates from (CIRP), up from 58 million at the end of Q1 2016. That means 60% of Amazon’s US customers now have Prime memberships.

According to another survey of 2,500 US consumers by financial services firm Cowen & Co. cited by , Amazon’s Prime membership program now counts 54.2 million members in the US, with nearly half (49%) of US households include at least one Prime member. This second study also shows Prime membership rising fast — with US Prime members up 17% from 46.3 million at this time last year.

Whichever study you want to cite, it is clear that Amazon Prime is a marketing and loyalty success.

While Amazon Prime customers have to pay $99 a year, there are no additional stipulation such as signing up for a credit card or buying a specific amount of merchandise. Prime customers get far more than just free shipping or fast shipping. They also get streaming of video and music, discounts on merchandise and several additional benefits.

In return, Prime members show their loyalty by spending an average of $1,300 per year, compared to $700 for non-Prime members. This higher spend helps Amazon offset some of the program costs, including advertising, shipping and the other Prime perks.

Loyalty Based on Reduced Friction

While most casual observers would think that the increased loyalty is about free shipping, it is really about changing consumer behavior through reduced friction. “Fast shipping is a tactic that enables the strategy of offering the best customer experience, which gets customers to default to Amazon. Fast shipping is not the strategy itself. Customers shop at Amazon because it’s the best experience, and Prime led the way on this front,” states retail consultant Richie Siegel.

“It was never about the seventy-nine dollars. It was really about changing people’s mentality so they wouldn’t shop anywhere else” states Vijay Ravindran, the director of Amazon’s ordering systems. Prime was intended to impact purchasing behavior, not just offer faster shipping. They were the first to realize the increased importance of saving time.

Reducing friction to radically alter behavior is what was behind 1-click ordering, Super Saver Shipping, (encouraging customers to fill their shopping cart) and the entire family of Alexa devices (using voice commands to simplify ordering).

Reducing friction and improving the consumer experience is also what is behind the recent decision to acquire Whole Foods. Through the years, Amazon has collected massive amounts of insights on their Prime customers and they know that the Amazon Prime customer wants to simplify their daily life by having groceries delivered to their house. They also know their customers want an improved in-store experience, with no traditional checkout lanes.

Unprecedented knowledge about their customer drives all investment decisions at Amazon. With a demographic profile that is the envy of almost any business, the combination of a single-stop shopping experience and digital simplicity continues to be a home run for Amazon.

Changing Behavior Takes Time

An unwavering attention to improving the customer experience at Amazon goes beyond the enthusiastic words of founder Jeff Bezos. It extends to the way Amazon handles returns and the exceptional pre- and post-sale customer service.

Amazon is notorious for allowing short-term financials to suffer, as they did with Prime, to support the long term behavioral impact of becoming the go-to preference of shoppers. The changing of shopping behavior is so powerful that Amazon will be cashing in on this behavioral modification for decades. Amazon uses the same perspective regarding innovation … willing to take moderate risks for longer-term benefit to the customer and company.

“Companies that don’t embrace failure and continue to experiment eventually get in the desperate position where the only thing they can do is make a Hail Mary bet at the end of their corporate existence.” – Jeff Bezos

Core to the Amazon strategy is the company’s infamous Flywheel, pictured below. The Flywheel, dubbed as “The Virtuous Cycle,”was created before Amazon added business segments in addition to its retail marketplace such as Amazon Web Services (AWS).

Looking at the original flywheel, it’s evident that all the pieces revolve around a continuous improvement of the customer experience. A strong customer experience will lead to more shoppers, which will in turn bring more sellers. More sellers will lower costs and prices through competition while bolstering selection for customers. Lower prices and more selection will bring in more customers and the cycle repeats itself.

As the Flywheel increases momentum, there is massive amount of customer insight being collected, analyzed and acted upon for improved recommendations and behavior modification. Instead of collecting data for great internal reports, Amazon applies all of the learning (in real time) to enhance the customer experience and increase loyalty.

Due to the breadth of the flywheel effect across the business, they realize an additional advantage. They can make lots of small bets at the fringe of the flywheel. Meanwhile, the core business continues to be healthy.

( Read More: How Financial Institutions Can Benefit From the Data Flywheel Effect )

The Alexa Revolution

With a focus on changing consumer behavior through simplicity and the removal of friction, Amazon launched the Echo with its AI – Alexa, in 2014. The Echo combines the core components of AI and eCommerce in an innovation that delivers an all-encompassing consumer experience.

At last count, Alexa had 15,000 skills (double the number at the beginning of 2017), allowing the interaction with the device to become ‘smarter’ at a faster pace than any of its competitors. Alexa’s lead is important, as consumers are quickly adopting speaker-based voice assistants.

According to , shipments of Amazon Echo and Google Home speakers are expected to grow more than threefold to 24.5 million in 2017. And the Echo is projected to control roughly 70% of this market in 2017. “Although Google’s and Microsoft’s respective AI-infused voice assistants are more technologically advanced, Alexa’s developing technology and capabilities position it well to overtake competitors,” states BI.

Amazon’s positioning of Alexa as a shopping device is clear with the recent introductions of the updated Amazon Wand (with QR Code reader) and Amazon Show (with a display screen). Being cloud-based, the Echo Show is pre-configured to a customer’s Amazon account right out of the box. Immediately after plugging the device in, Alexa will know who the customer is, and have all custom “skills” enabled, including key contact information, preferred music, favorite sports teams, and upcoming appointments.

Oh yeah, and it can use either voice commands or view a product to simplify shopping (the Amazon Show has a camera to identify product labels). In other words, the Amazon Show (and all Alexa devices) remove friction from the shopping experience … making shopping at home easy … and fun.

Voice-First technologies will soon be part of every successful organization’s customer experience ecosystem. And, while Alexa and other voice devices today are used to answer questions, they will soon be able to provide proactive contextual recommendations … in retail and in banking.

Lessons Amazon Prime Can Teach Banking

Amazon Prime proves that loyalty does not have to be about a point system, coupons, discounts, branded credit cards or any other manufactured definition of loyalty. Instead, loyalty is about changing consumer behavior and consumer perception that will move shopper preferences towards your brand. In an increasingly digital world, where clicks and taps drive purchase decisions, removing friction and simplifying the purchase process will increase loyalty.

Bottom line, Amazon Prime wins by making life easier for its customers. By providing a comprehensive selection of products, accessible with only a few digital clicks and taps, at competitive prices, the brand experience is reinforced. We are already seeing the same impact in banking. The largest banks (Chase, Bank of America, Wells Fargo) are gaining market share by reducing friction over digital channels.

Allowing for the end-to-end digital opening of new accounts using a laptop, tablet or phone removes friction from a previously arduous task. Providing voice access to balances, basic transactions and customer support sets a financial institution like Capital One, USAA and others apart from the competition. Using artificial intelligence (AI) and a customer’s habits and financial activities to predict future behaviors and needs will be the foundation for future banking relationships.

Amazon is setting the bar for customer expectations beyond the retail industry. The banking industry can learn from Amazon Prime. Or, it can allow Amazon and other large tech companies to leverage their exceptional customer experience layer to provide many of the banking services legacy organizations provide today.

Jim MarousJim Marous is co-publisher of The Financial Brand and publisher of the , a subscription-based publication that provides deep insights into the digitization of banking, with over 150 reports in the digital available to rs. You can follow Jim on and , or visit his .

All content © 2017 by The Financial Brand and may not be reproduced by any means without permission.

Comments

  1. Jim, excellent article and you’ve nicely framed the opportunity for banks to improve CX to drive loyalty, and ultimately, profitability.

    There are a couple of enabling elements banks should consider. First, use advanced analytics and machine learning to better understand pain points. Finding and fixing service breaks is the first stage in customer experience transformation.

    Second, banks need to question the tendency of considering this a “something for nothing” exchange. Amazon provided a lot of value “for free.” I think banks have made an artform out of charging fees. That is not a compatible mindset.

    The good news is that CX transformation is possible for banks. It’s just that it requires deep commitment and taking a fresh look at how they do business.

  2. Great article, Jim!

    In addition to removing friction to improve UX for customers, Amazon is also introducing friction for competitors, e.g., securing the patent to block or filter comparison-shopping attempts on WiFi within (their own) stores…now that they’re about acquire a bunch of them through the Whole Foods acquisition. This, from the maker of the ultimate showrooming comparison tool, the Amazon Wand. As Amazon optimizes for purchase volume, the question becomes whether it will introduce friction for any entity (banks or credit unions) that might want to join the Alexa ecosystem to counsel customers NOT to buy in the moment of truth (due to lack of funds or projected cash flow). What’s most concerning about Amazon is not its relentless, devastatingly effective execution, it’s whether this execution ultimately exploits cognitive weakness and addiction to the point of financial pain for many or financial ruin for some.

  3. I couldn’t agree more with this piece. Check out my take on what an Amazon banking service could look like in this article –

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