Amid the big news that Amazon acquired upscale grocer Whole Foods, many were left either scratching their heads or engaging in wild speculation about why the massive online retailer would be buying the struggling chain, and at $13.7 billion to boot. Is it part of a grand plan to peddle more Amazon Prime memberships? Is it all about trying to get a better hold on the grocery delivery business? Or is it really because Amazon is working hard to make sure our devices soon become our robot-like kitchen minders?
I don’t think any of these theories really get to the heart of what Jeff Bezos was thinking when he clicked “buy” on Whole Foods. The strongest theory, in my opinion, instead frames the acquisition as a massive marketing win for Amazon.
Consider this: Amazon has built a corporate behemoth with massive reach on its prowess as a customer relationship management (CRM) company. In other words, Amazon’s executives understand that their success is dependent on how well they’re able to cultivate strong relationships with their customers, so that those individuals will keep coming back again and again. As a professor of a Customer Equity Management course in the University of Maryland’s Marketing Department, I pay special attention to the strategies that Amazon uses to increase the value of its customer base. It offers über-convenience and low prices—even though it means little, if any, profit—in order to keep these customer relationships tight. The other important customer-strengthening services they offer are customization and recommendations.
Owning Whole Foods will add another engine to Amazon’s already-formidable CRM machine. Importantly, the formerly separate companies share an overlap in customers in the upscale market. Now, Amazon will be able to collect data on these customers’ online and offline purchases to create a larger buying profile. There are many things this can help enable: better recommendations from Amazon, coupons for either retailer, cross promotion, and surely much more.
One reason the acquisition is striking fear in other grocery store chains is because their capacities to collect data to market to the individual are woefully underdeveloped. Now that Amazon will be able to send personalized marketing to Whole Foods customers, other major grocers are likely to jump to become much more customer-centric. For the customer, this will likely be a good thing; the industry is ripe for this type of change. Grocery stores will need to work to understand their customers better—even offline.
Online technology can be used offline to offer some of the same customization, and chip-enabled frequent shopper cards can be used more actively to keep track of data and give shoppers special promotions based on what they already buy. Though many stores do this already, they will need to step up their game. The challenge in all this is that grocery stores already operate at a hair-thin margin, running themselves as efficiently as possible, which doesn’t leave a lot of room to invest much time or money into more complicated marketing endeavors.
The fact is that traditional brick-and-mortar grocers will need to find a way—or several—to respond to this recent news. They will likely start by coming to grips with Amazon’s strategic reasoning, and then considering ways in which their own marketing strategies might be brought more fully into the 21st Century. Whatever happens next, Amazon’s big purchase is likely to change the way we shop and what stores know about us over the next few years—no matter which grocery store we frequent.