Amazon – Should Amazon Open Retail Stores?

Please forgive me on being late on this subject, but I would like to return to some of the rumours that were floating around previously in February (2012).  Namely, Amazon reportedly has plans to open a retail store in Seattle before the end of 2012.  The said store would stock high-margin items such as Kindle e-Readers, Kindle Fire and a plethora of accessories – from cases to lights to screen protectors.  Moreover, as Amazon’s own publishing division grows further and multiple stores are opened, the stores could also stock books.

So is this a good marketing strategy for Amazon?

Before debating if they should open a retail store – with the intention of eventually having national changes across the US – I believe that if they do open a store the firm definitely needs to only stock Kindles and related high-margin products.  Stocking physical books, would incur far too many overheads to be worthwhile and confuse the overall theme of the stores.

There are definitely compelling reasons for Amazon to open stores.  One only has to look towards Apple’s success and their retail store design to see lots of lessons that Amazon can learn from the Apple stores.  Ultimately, I think that there are three marketing benefits that Amazon will gain from having its own stores:

1)  Product  Engagement

Firstly, by having a boutique-styled store Amazon can show case its Kindle products – and potentially a smartphone later this year.  Given one of the challenges for online services is reducing the tangibility of their product offering, if consumers could try-out products in store they would be much more willing to make large purchases.

Further to this,  it would help to speed up the adoption rate of Kindles.  Currently, the firm relies on early adopters spreading word of mouth.  However, by having Kindles on show for prospective customers to try, qualms and worries about reading on a screen that customers may have can be quickly over-come; also, having a physical store would help target older customers.

2) Improve Customer Service

There are a number of benefits that customers would gain from having the store: order products online and collect in-store, customer returns service and even a Genius Bar-inspired customer support desk.  Not only would these facilities allow Amazon to compete in the physical world against Best-Buy, Target and Wal-Mart, these are services that help augment their products with added-value.

This is in-line with CEO Jeff Bezos’ vision of ‘Building premium products at non-premium pricing’.  So in order to compete against Apple – which it is competing more and more directly as it launches its own technology products (See  Cloud below) – they need to offer the same level of service, without the huge price-tag.  Moreover, as Amazon’s own range of electronic devices gains popularity, there will be a greater need for after-sales service.

 

3) Brand Engagement and Publicity

As I mentioned in a previous post about Apple, a lot of their new product success comes down to lavish product launch events that generate lots of free press coverage.  It also lets customers show their devotion towards the Apple brand.  Amazon could potentially use the same strategy, which would work well for future tablet computer – and even smart phone – launches.

But, I can see two potential drawbacks of opening the stores.

Firstly, is copying Apple a good idea?

Of course, Amazon does not have to mimic Apple stores – albeit they probably will – but ever since the rumours emerged the two firms have been up for direct comparison.  Microsoft has launched stores and have been criticised – somewhat fairly – for copying Apple.  Also, Amazon do not have sufficient own-brand hardware to truly fill out a retail outlet.  This could be overcome by stocking other electrical goods – such as laptops, TVs and digital cameras, but it would weaken the differentiation between Amazon stores and general electrical retailers.  This is what Microsoft stores currently suffer from (see video below) by stocking diverse hardware brands.

 

Secondly, will a retail presence damage Amazon’s brand identity?

Amazon currently has the second highest retailer brand value of $28,665m (the firm is behind Wal-Mart who has the highest retailer brand value).  Accordingly, to the world Amazon is known as the world’s largest online retailer.  But what will the company be known as afterwards?  To many outside the US, this brand identity will remain the same; however, opening retail outlets does confuse its brand identity.  By having an online and offline presence, it just becomes more and more similar to its competitors and loses differentiation.  Moreover, as the firm will be in closer competition to other electrical retailers (Bestbuy, Target, Wal-Mart) and any short-comings in its offline service will be scrutinised against them.

What is the overall verdict?

Despite the issues I have just highlighted, I think that, on the whole, it is a good strategy.  Primarily because it supports Amazon’s related diversification strategy and potentially will allow it to offer greater customer service, which will make future technological product’s more likely to be adopted by consumers.

But there is a slight catch-22 dilemma: Amazon does not yet have sufficient own-brand products to open a viable store based on their high-margin and tech products.  But in order to successfully launch such products, such a smartphones later in 2012, they would probably need a physical retail presence.

I will be monitoring Amazon’s diversification plans over the year and another Amazon post will be coming on why cannibalising your own sales might be a good strategy – keep informed by subscribing!

© Josh Blatchford, author of Manifested Marketing, 12/04/2012

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