With Amazon purchasing Whole Foods for nearly $14 billion, the grocery world felt the direct consequences of an industry takeover by the juggernaut. In this byline for PaymentsSource, Clarus Commerce CEO Tom Caporaso goes into what this deal could mean for the industry and the future of the grocery sector.
As originally published on www.paymentssource.com.
When Black Friday sales began to become popular in the 1950s, people flocked to stores, starting the tradition of standing in line for big savings after eating a large Thanksgiving dinner. For over 60 years, that day, which unofficially kicks off the holiday shopping season, has been a staple for retailers, who often rely on spending during that weekend to push them into the black (aka make them profitable). But a subtle shift started developing over a decade ago, which saw consumers buying their holiday gifts earlier and earlier, caused by the growing competition of online retail and its advantage of price comparison. That’s why in 2015, Amazon (AMZN) introduced Prime Day, which it claimed would have sales that rivaled Black Friday, but with one catch—to take advantage, you had to be an Amazon Prime customer.
With tons of hype around that first Prime Day, sales surged, and while that one day never reached the billions of dollars in sales that Black Friday 2015 brought in for retailers, Amazon saw its biggest sales day in history, with customer purchasing 398 items per second. Last year’s sale saw success as well, with an estimated $500-$600 million in sales revenue generated that day.
But Amazon has always had an ulterior motive for putting on Prime Day.
While the added sales are nice for Amazon, its solid foundation thus far has never been built on short-term profits or gimmicks; the true aim of Prime Day is centered on celebrating its current customers and recruiting new Prime customers. That also matches up with the long-term strategy for Amazon as well, which has always included the goal of building a customer base that sees Amazon as the one and only shopping destination all year, not just on one day.
And it has worked tremendously.
With only 13.5% of all active Amazon customers shopping (all Prime customers) on Prime Day 2016, the $500-600 million in sales shows a larger trend which has made the Prime program extremely valuable to Amazon, which is that Prime customers, on average, spend 5 times more their non-Prime counterparts throughout the year. So, while it’s crazy for a retailer to close off a massive sale to only a small percentage of its active customer base, Amazon made a shrewd bet that their customers would react in a big way—and they were right on the money.
Which is why making Prime customers feel special and creating a great first impression for net-new customers is crucial for Amazon. That’s also why the continuation of Prime Day is important, because Prime customers, and their retention and acquisition, are at the center of Amazon’s growth. While there might have been some chatter about the absurdity of some of the lightning deals, Prime customers overall appreciated the time, effort and care Amazon showed towards them.
The success of Prime and Prime Day also shows why creating a premium loyalty program like Prime is so important and why Amazon devotes a lot of time and energy towards growing its member base. Because as long as Prime customers continue to pay dividends to Amazon’s bottom line, the goal of Prime Day will always be to celebrate their loyal Prime members—and sales will just be the icing on the cake.