The Retail Revival: Learnings From Amazon and Costco

Connecting with individual shoppers is the mandate for retailers today. Using new technologies, they're capitalizing on internet-connected capabilities, launching new in-store innovations, and more, all to satisfy shifting consumer demands. But it's not enough.

Consumers have moved beyond these shiny “new” technology innovations. They now expect a personalized, convenient and flexible shopping experience, and are seeking out valuable, ongoing services in the form of subscriptions. In fact, 91 percent of customers prefer brands that provide personalized offerings and recommendations.

A New Imperative in the Subscription Economy

The truth is, success isn’t solely measured by products sold anymore. Success comes from providing valuable services and experiences.

Amazon.com isn't successful because it's an e-commerce site. Rather, it's successful because it knows what its customers want: a customized and simple shopping experience. Amazon's loyalty program, Prime, recently surpassed 100 million subscribers in the U.S., with more than 50 percent of U.S. households expected to have a membership in 2019. It’s clear that consumers are happy to pay a fee for access to Prime benefits, including free and fast shipping, exclusive deals, and streaming services.

Even “holidays” like Prime Day deliver upon the promise of exclusivity that members crave. This year’s Prime Day sales outperformed previous Black Friday and Cyber Monday sales combined, earning more member sign ups than any other previous day.

Amazon: Poster Child for Data Utilization

Amazon’s massive growth can be attributed to its use of data. Its platform collects valuable customer data, which is used to predict future demand and further curate products and services.

While Amazon collects incredible amounts of data each day, traditional big-box stores have to go through heroics to get any data about the potentially millions of customers walking through their stores every week — and most of that data is limited to transactions that can take months to process and analyze.

This represents a huge lost opportunity. Once you pass the cash register, you effectively vanish off the radar.

Some big-box stores are making strides to offer personalized services. For example, Walmart launched an e-commerce platform to create more meaningful relationships with customers. However, Amazon, built as an e-commerce platform, is steps ahead, growing its business on the Subscriber ID, a digital identity providing insight into behaviors and preferences of every customer, backed by data.

Costco: An Emphasis on Loyalty

While Costco isn’t generally positioned as a competitor to Amazon, it actually presents a big threat due to the loyalty it has earned through a paid membership model. A retail giant, Costco is catering to roughly 94 million members — trailing Amazon by roughly 6 million members.

Recurring revenue is the backbone of any membership-based company, and Costco touts a record-breaking 91 percent membership renewal rate. How? Simply put, it offers good prices and great customer service. Costco's no-questions asked return policy and famous free samples, for example, add to the overarching customer experience, making the retailer a one-stop shop for those willing to pay $60 per year for a membership.

Costco has also ventured into e-commerce, offering a variety of delivery options and mobile app experiences, even launching a digital membership card for purchases. The company's clear commitment to personalizing and streamlining the shopping experience earned it a top position in online customer satisfaction (ahead of Amazon) in the latest ACSI.

The Real Retail Battle

At the end of the day, it’s not about e-commerce vs. traditional retail; it’s about retailers that build and maintain meaningful customer relationships vs. those that don’t.

Delivering (and innovating upon) a curated, convenient and flexible shopping experience — fueled by data — is the only way to compete in the new age of retail.

Amy Konary is vice president of customer business innovation and chair of The Subscribed Institute at Zuora, the leading subscription economy® evangelist, providing the only SaaS platform that automates all subscription order-to-revenue operations in real time for any business.