Instructor: David Schuff, Section 003

Amazon’s Latest Announcement: Just Another Example of Systems Thinking

Amazon recently announced that it will now be offering free 2 hour Whole Foods delivery to prime members in select states. This announcement is not very surprising, ever since Amazon acquired Whole Foods last summer people have been expecting some sort of service connecting amazon’s distribution expertise and Whole Food’s products. This also is not even an innovative service, the grocery delivery market is already a very competitive space with many other companies likely to join in as well. So it would appear that Amazon has an uphill battle ahead of them in order to be market leaders here, but is that the only way they would consider this service a success?

When looking at this from a systems thinking perspective getting involved in this market is likely only a positive for them. By providing this service they continue to give people more and more reasons to do all of their shopping from home. Groceries are an essential for everyone and for those who have not already switched to grocery delivery this Amazon/Whole Foods deal might change that (especially if they are loyal Whole Foods customers or already Amazon Prime members). So with customers no longer leaving their house to shop for their groceries many will decide to also buy other supplies online that they would typically get on the same trip and amazon has those supplies. Also by adding this service they gain more customer data which can enhance their advertising and algorithms on their customer’s interests (which is already a strength for them). Even if Amazon gets stuck in the pack of many companies providing grocery delivery services, the continued push towards complete online shopping that this move represents is a positive for them. As more customers get used to never leaving the house for shopping, Amazon will have more potential customers in the market they already dominate, online retail.



4 Responses to Amazon’s Latest Announcement: Just Another Example of Systems Thinking

  • Amazon has great potential to increase its revenue through the grocery delivery market. An article posted by CNBC stated that online grocery shopping could grow five-fold over the next 10 years, with American consumers spending upwards of $100 billion on food-at-home items by 2025. Therefore, Amazon should establish its presence in this market as soon as possible. Its large and established presence in the online retail business should help it capture a large market segment. However, starting a grocery delivery service is a complicated task. There are many challenges that come with delivering groceries including storage and delivery costs, low profit margins, inefficient delivery and consumer habits. I have attached an article from Fatbit technologies that discusses these challenges and offers solutions to online grocery stores.

  • Amazon getting into the grocery delivery market should further enhance their extreme bank of data on online consumer purchasing behavior. Adding another line of revenue should help grow their bottom line along with gathering consumer data to enhance their other services. Amazon uses that data to build a recommender system that suggests products to their customers. They can do this because they use all the data they have collected from their customers to continuously improve the relationship with customers. Since they recently acquired Whole Food’s, and will most likely get more customer data from adding grocery delivery, I think Amazon will continue to improve their customer relationships across all services they provide.

  • The grocery delivery service is also another way to add value to their Prime membership program. If you think about grocery store customer loyalty plans almost everyone I know has at least one or two. Without it you miss out on many discounts and promotions the store is offering plus additional benefits like gas perks in some cases. The features for Whole Foods will likely all be bundled with an Amazon Prime membership. This will give people even more of a reason to join Prime and create a larger cost to leave as people will become dependent on the benefits. The company did something similar when they bought, a streaming website. On the site you can have a Twitch Prime membership which is free to anyone who already has an Amazon Prime account, you simply have to link the two accounts. This is another way they can gain data on consumers and relate it back to their spending habits.

  • Christian,

    I agree with you that Amazon’s entry into the grocery delivery market will have positive outcomes for Amazon. There are already so many Prime members (approx. 80 million), and many other consumers are adopting the convenience of shopping for groceries online and having them delivered than the convenience of taking a short drive or walk to the local grocery store. Because online grocery sales are forecasted to be a $100 billion market by 2025, I think Amazon has made the right move to adjust to changing consumer demands. I have attached an interesting article about the opportunities and challenges that Amazon will face with this movement.

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