Amazon Gets an 'A' for Innovation

by Steve McKee

Amazon PrimeRetail sales are projected to decline this holiday season for the second year in a row, an occurrence unprecedented in the entire history of the federal government keeping statistics on such things. Online retailers will continue to face stiff pricing pressure, as they have for more than a year. Free shipping has become almost the ante in such a competitive environment.

That’s why Amazon’s shipping program, Amazon Prime, is so impressive. For a company that ships 100 percent of its products, finding a way to neutralize pressure on shipping costs is no small thing–especially when it’s competing with Walmart, which offers its online customers 97 cent shipping on many products, or the option to pick up their orders at a nearby store for free.

Two million people have become members of Amazon Prime, paying $79 for automatic two-day shipping on all of their purchases. Not surprisingly, they tend to be Amazon’s most frequent customers, which means they’re still getting a pretty good deal. But the program helps ensure they’ll turn to Amazon first when they have a new purchase occasion, and the numbers indicate they increase their spending with the company some 20 percent after signing up.

Just goes to show you that innovation isn’t the exclusive purview of the R&D department. While many online retailers have thrown in the towel on shipping charges, Amazon found a way offset them while increasing order flow. The company took one of its biggest lemons and turned it into a refreshing beverage.

Makes me wonder about the bitter aspects of my industry and how how my company might do something to sweeten them up. What about yours?


Steve McKeeSteve McKee is a BusinessWeek.com columnist, marketing consultant, and author of “When Growth Stalls: How it Happens, Why You’re Stuck, and What To Do About It.” Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.

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