Amazon’s New AI Check-out System
Over the past year, Amazon’s stock price has escalated by about 65%, establishing the company’s absolute dominance in the ecommerce industry. Its business practices have proven to be detriments to traditional brick and mortar corporations. Many of these conventional retail companies are then forced to either adapt to this new online trend or face failure and bankruptcy. Millions of Americans are subscribed to Amazon’s prime services, furthering the companies recognized revenues. Even more consumers have personal Amazon accounts and routinely purchase goods and use the ecommerce giant’s services.
Even with this established success and power, Jeff Bezos and Amazon continue to innovate and introduce new strategies to win more customers and accelerate the involvement of both millennials and baby boomers. Recently, the company opened its first “Amazon Go” store. This new data driven concept uses artificial intelligence to do without a typical brick and mortar checkout line and collects data on consumer tendencies in hopes of bettering its business. As brick and mortar stores are on the decline, this tactic provides a very interesting approach to retail in the technology centered modern landscape.
Within the Amazon Go store, consumers sign in to their Amazon accounts on their phones and are tracked throughout the building. Artificial intelligence makes note of how the customers walk around, if they pick up a product and place it back down, and the speed of their decisions. As customers head out the door, there are no cashiers to check out with, just a sensor that reads what products are bagged. This strategy finds a happy medium between physical shopping and ecommerce by allowing customers to see products but also “do away with the most inconvenient part of the convenience store experience: waiting in the checkout line.” In this beginning stage, this robot oriented approach is certain to experience some conflict. To combat this possibility, a handful of employees are stationed around the store at the customer’s aid.
Amazon continues to pioneer the retail industry. Moving from solely selling books, to universal consumer goods, and now opening a brick and mortar store with its own twist, the company achieves a significant competitive advantage over other retailers. Brick and mortar retailers overall have experienced depressed revenues due to this “Amazon Effect”. With the introduction of the Amazon Go strategy, these same retailers face another competitive challenge caused by Amazon. It will be interesting to see whether these retailers such as Target and Walmart will adapt and utilize a similar high-tech approach in their stores or maintain their current strategies.
Furthermore, Amazon recently acquired Whole Foods and hopes to refine the grocery’s stores business to realize even more revenues. This Amazon Go store strategy could potentially be used in Whole Foods markets. Customers would be able to physically see the fresh produce they are buying, benefit from lower prices of high quality food, and also enjoy a feasible checkout system. Additionally, AI would accumulate massive amounts of data to help better the grocery shopping process. It will be fascinating to see how other grocery chains react if Amazon implements this tactic. Could the “Amazon Effect” not only hinder traditional retail companies but also prove to be a threat to grocery stores nationwide?
As you mentioned, the decision of existing brick-and-mortar operations will be a key element to watch now that Amazon has introduced a new-age form of retail shopping. Although the technology is theirs now, it is not hard to imagine other companies acquiring or imitating it for their own use. Should this happen, Amazon could find itself at a disadvantage. While a large investment, it would be far less expensive for companies like Target and Walmart to implement AI checkout systems that it would be for Amazon to build brick-and-mortar operations to their scale. With only one Amazon Go store currently operating, they are far from the scale of their presumed competitors. Amazon has most likely considered this conflict, which suggests that their true plan for the future may be different than we realize. Their recent acquisition of Whole Foods suggests their willingness to purchase existing firms and by proxy their infrastructure. While an acquisition of Target or Walmart would be highly unlikely, it is not hard to imagine Amazon finding a way to enter brick-and-mortar without having to do it themselves from the ground up. Another interesting aspect of this move is that it may not have been all that difficult to implement. Amazon’s supply chain is renowned for its technological abilities, so transferring those abilities from warehouses to new-age stores might have been relatively obvious to Amazon’s decision makers. Even more, this synchronization of both their supply chain and their customer interaction may be beneficial to the company’s operations on the whole.
I have seen a few ads for the Amazon Go stores and I am very curious to see how successful they are. There seems to be a lot of excitement around the stores, the other day I saw a picture of a ton of people waiting outside one of the stores and it looked like a BestBuy on Black Friday. It was ironic to see a line that long for a store where the main advertised idea of the store is to eliminate lines. I am curious to see if these stores are successful, and if they are, will Amazon convert some Whole Foods stores into Amazon Go stores. Since everyone knows that Whole Foods and Amazon are connected I would be curious to see what criteria the Amazon Go stores use to evaluate their operations management. It would be very easy for Amazon to align with Whole Foods and focus on the “Quality-top quality” criterion for their stores. However, early on it would seem as if Amazon is focusing heavily on the “Time-Delivery Speed” criterion. This can be seen through their many advertisements that include people shopping and not needing to wait in lines at the grocery stores, where Amazon shows off its AI. These decisions, while they may seem trivial can have a major impact on customers decisions. These decisions may change how a customer views their store and may have an impact on a customer’s preference matrix, whether internal or they actually write it out, when they are deciding whether or not to shop at Amazon go.
I think Amazon’s new check out system demonstrates how Amazon stays ahead of the curve, which is why it has been so successful. First, Amazon dominated the internet market, making online shopping the new way to buy things. Amazon anticipated customers’ demand for quick deliveries and a variety of products at cheap prices. As a result, other retailers suffered because their brick and mortar stores could not provide for the customers as well as Amazon could. However, these retailers have not been able to develop their online shopping experiences to compete with Amazon, putting them at a loss. Yet, even Amazon has realized the value in face-to-face experiences and the novelty of actually going to a store to buy things. Developing the new check out stores allowed Amazon to capitalize on its existing strengths (speedy checkout, good prices, etc.), and add even more benefits for the consumer through it’s more “front office” approach to shopping. Just as Amazon’s online shopping made trouble for traditional retailers, I think its new brick and mortar stores will cause even more trouble because it will be hard for other companies to compete with the way Amazon is able to anticipate the needs and wants of the consumer, and develop a process to make providing for these needs a reality.
I completely agree with what Jordan has to say. Amazon is becoming more and more powerful within the retail and internet space, and they will continue to “take over the world” as I like to say if they proceed to think about their customers first. The future is bright for all online retail, and Amazon happens to be leading the charge.
When first introduced to the idea of the Amazon Go store, I have to admit I was extremely intrigued. However, I found an article attached at the bottom detailing the long lines that customers were forced to wait in to enter this new store. As the article discusses, there is a great irony in customers waiting in line for a store whose whole mission is to eliminate customers having to wait in line. One problem this opens the Amazon stores up to is inefficiency. While you sometimes have to wait in checkout lines in normal grocery stores, you never have to wait to get in the store themselves. Additionally, many stores have self checkout or express lanes that expedite the checkout line process. By putting a limit on how many customers can enter the store at once, you risk driving away business. Additionally, the customer involvement in these stores is completely diminished. At a regular grocery store, there’s usually a greater, people walking around and your cashier. Through all of these interactions, the customer is highly involved in their shopping experience. Through these new Amazon stores, the customer is moved from a front office model to a back office model. However, this change may not necessarily be a bad thing. Through these stores, Amazon is implementing the time strategy. With all these prepackaged, ready to go meals, they are expediting busy consumers’ everyday lives but in the process. Through this, Amazon is sacrificing some of their customization that their customers have come to expect through their online services.
Article: http://www.businessinsider.com/amazon-go-opening-day-long-lines-2018-1?r=UK&IR=T
With the push for automation and non-human operated systems, technology has revolutionized fields that highly value great customer service. However, Amazon has continually strived to break status quo and even social norms, such as standing in line at the grocery store, by offering a vastly different time strategy in decreasing time spent shopping. In class, we discussed the customer-contact matrix and how Amazon could be either the front office or back office, depending on if you looked at the highly customized service (front office) or that it is online retail (back office). With Amazon grocery stores, I would say that it has another branch that is back office in customer contact, due to the limited or zero number of interactions customers have with employees or the traditional grocery clerk or cashier. This made me think of “smart mirrors,” that some retail stores use to create a more customized style experience for customers in store, and delivers whatever clothing items they wish to buy to the customers’ home. This eliminates interaction with cashiers, decreases time spent trying on clothes, and alleviates the burden of carrying shopping bags, especially in busy cities with crowded public transportation. I wonder, how much is too much automation–will human interaction in consumerism be a rarity in the future?
https://nypost.com/2015/05/11/upscale-stores-try-smart-mirrors-to-help-customers-shop/
The investment with Amazon Go definitely stays within their mission and plan to stay as a low cost, consistent quality, and high volume business. They do not have to spend anything whatsoever on labor since all of the groceries are completely artificial intelligence, matching their low cost competitive priority. Furthermore, I agree with you that their acquisition of Whole Foods will have a huge impact on their consistent quality. Whole Foods keeps all of their at high quality, and Amazon implementing their other identities as a brand will have a huge effect on Whole Foods.
What Amazon may want to think about with the introduction of its possible new stores is the inventory intensity. If it does not succeed as an idea through brick and mortar, they will be pressed to get inventory out and fast as they can at the risk they may not get it out and they will accumulate higher inventory costs. However, there could a chance that the demand outweighs the entire supply that Amazon Go may not be comfortable with. The speed and constant turnover of inventory could certainly be a problem for Amazon if the idea has too much demand – in fact, they may not be able to supply the proper amount for the consumer given the demand.
Amazon Go should ultimately launch their product, but they have to be very careful about how the market responds to it. Whole Foods is a high quality food producer, while Amazon is a lower cost/consistent quality online retailer. There are risks involved with having such a contradiction in the “back office” type operations strategy, but I believe Amazon should be able to manage it.
Evolution in business methods is constantly changing the business environment. This new concept being rolled out by Amazon reminds me a lot of the early stages of some products and concepts like that of Spotify and Netflix. The ideas behind Spotify and Netflix were revolutionary and made their predecessors nearly obsolete. Netflix actually began not as a movie streaming service, but actually as a delivery company that would bring the physical copy of a movie to your door. This was already an idea that would prove to be huge competition for stores like Blockbuster that relied on the traditional notions of customers coming to them and browsing through hundreds of movies. All the while, Netflix was pursuing their goal of customers being able to stream movies directly. Once they managed that they never looked back and continue to be a pioneer in the movie streaming industry, and other streaming sights like Hulu and even Amazon have helped make DVDs a thing of the past. Spotify revolutionized an industry that had already very recently been revolutionized by iTunes. iTunes allowed customers to buy single songs immediately instead of buying whole albums and having to burn the CD’s to get them online or simply use a CD player. But the appeal of iTunes was soon overshadowed. For a monthly subscription fee customers could now stream from Spotify’s entire library of songs. This quickly altered the industry and soon after Apple rolled out their own Apple Music streaming service to compliment iTunes and compete with Spotify. In this day and age it seems technology is not just making some businesses more efficient, it is also allowing new market entrants to topple even the market leaders of an industry. It makes sense why companies like Amazon and Netflix are constantly looking forward but also looking over their shoulders to make sure they stay ahead of competitors and don’t let others pass them. Netflix continues to produce their own content, achieving a lot of success and differentiating themselves and others are attempting to follow this success. It seems Amazon is also forging ahead trying to change the business environment for good. I wonder if Amazon will see success going forward and if this successful use of technology will flip the whole retail industry. It will be an interesting case to follow in the near future.
Another important aspect of this development by Amazon is the fact that regardless of additional convenience, consumers still enjoy the process of shopping in a physical store. As we discussed in class on the first day, Alibaba is investing large sums of money into brick-and-mortar stores, claiming actually being present inside the store when shopping is an indispensable part of the experience. That being said, Alibaba also plans to implement new data driven technology, similar to Amazon, using their logistics services and Alipay, their mobile-payment business. However, there is no clear right answer to this dilemma, as we also looked at Walmart, who plans to invest heavily in online retail shopping and move away from brick-and-mortar. Whether either of the companies is making the smart move, I believe we will see one side slowly edge out the other in the coming years. Nonetheless, in the near future, I think we will certainly see more and more retail and grocery companies try and adopt this “hybrid” store model, in which improvements in technology allow for a more convenient shopping experience, without eliminating the shopping process altogether.