Amazon (NASDAQ:AMZN) does business in many different categories. What started as an online book retailer is now also selling more than books. One of the big reasons for their success is their willingness to experiment. CEO Jeff Bezos said in Amazon’s 2015 Letter to Shareholders, «To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there. Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right… Big winners pay for so many experiments.»
Amazon first introduced the Dash program in April 2014 with the Amazon Dash Barcode Scanner. It was available for free to a limited number of AmazonFresh users. The company expanded the Dash program in March 2015 with its Dash Buttons and Dash Replenishment Service. The main theme of the Dash program is to make ordering as easy as possible for customers.
The cost to purchase each Dash Button is $4.99, but after your first order Amazon credits your account $4.99. Essentially the buttons are free for customers in exchange for the purchase of the product. If Amazon was just giving away each button for free, they would be taking a loss for each button.
But Amazon is not losing money on hardware in hopes of making it easier to purchase products from them. Instead of having to choose between the two, Amazon is both making money with the Dash Buttons and making it easier to purchase products from them. Amazon is paid $15 by participating companies for each button sold. They also receive 15% of each Dash product sale, which is on top of the normal 8-15% commission. When the Dash buttons were first introduced there was a $200,000 buy-in fee for the program. It has been reported that at sometime in 2016, this buy-in fee has been dropped to help grow the program by removing a barricade to entry for some companies.
The Dash Buttons fit into Amazon’s strategy of making shopping as easy as possible. They want to give their Prime members more reasons not to go their competitors stores. From a financial side, it makes so much sense for Amazon. On top of the normal commission they would usually receive from a sale, they get to add another 15% to that. They also are expecting that by making it easier and more convenient for their customers to make the purchase, their will be more repeat sales. Because of this, Amazon is anticipating that the Dash Buttons will increase their sales volume.
For Amazon’s partner companies, the Dash program also is beneficial. First, they lock in their customers to their products. Though the Dash program, customers do not have to go to the store to replenish their supply of product they are running low on. This means that they do not see the offerings of their competitors and do not see any possible alternatives. Second, the companies view the Dash buttons as a targeted advertisement to a customer that had purchased one of their product in the past. Seeing your Tide Dash button when walking your washing machine is the reason why the Dash program make sense for Procter & Gamble (NYSE:PG). Third, it is reported that another reason that many companies are participating is to «maintain close ties to Amazon.»
I believe that for participating companies, the Dash program is not only about revenue. Obviously, money is an important consideration in any business decision, but the real value for these companies is the analytics they receive. This is the most valuable part of the Dash program for the partner companies. When a company sells their products through department or grocery stores, they usually do not receive much information other than whether the product is selling or not. Through a traditional subscription plan on Amazon, the brands receive much more data, including demographic information. By participating in the Dash program, companies receive information about the frequency of orders. With all the information available to the participating companies, they can tailor their advertising to better target their customers.
Looking to the future, Amazon could have a lot of plans for the analytics receive from the Dash Buttons. Fast Company has a few interesting possibilities on how Amazon could use this data.
Amazon could build buttons into the product packaging itself. Each button would work once and would be discarded along with the package. Data from Dash Buttons would help Amazon and product makers understand what products and package sizes to offer, as an integrated button would make the packaging pricier.
An evolved version of Amazon’s Subscribe & Save service could offer more flexible delivery timing, with Amazon’s mobile apps and Alexa assistant checking in to make sure you’re well-stocked. To make this work, Amazon would need data to understand how purchasing patterns vary for each product, and how those purchases change over time.
Amazon’s app and Alexa could offer to add new items to your shopping list based on past behavior, along with competing products and other items bought by similar shoppers. Dash Button data would help Amazon figure out the right products and package sizes to recommend.
These future possibilities for the Dash program highlight the opportunities that it has. They make ordering easier for the customers and they provide better data for Amazon and its partner companies.
Considering that currently the Dash program is just a small part of Amazon’s business, how profitable it is will not matter to much to the company as a whole. The real value of the Dash program is analytics. The program looks to be a benefit for Amazon in the future. The program is designed to make purchasing on Amazon easier while providing Amazon with more information. Another positive for Amazon is that the partnering companies are covering any costs from the hardware. In a few years, we will look at the Dash program as one of Amazon’s successful experiments.
Fuente: Seeking Alpha
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