January 27, 2020

Impact of Amazon on File Power

When I'm told that Amazon is killing a business, I'm usually skeptical about the comment, and for good reason! Amazon might represent between 30% and 40% of all e-commerce (and that's probably not good for those of you reading this) ... but they're likely 5% or 6% of retail in total, and that's not enough to matter (yet).

There is a telltale signature that suggests Amazon "might" have an impact on a business.

Typically, your brand does a reasonable job of holding on to loyal buyers. Those buyers like you for a reason, and while many of them shop elsewhere and switch loyalties at the snap of a finger, you still benefit from their fickle appreciation of your merchandise.

Amazon hurts client File Power in two ways.
  • Prevents new customer acquisition (customer one-clicks a commodity item on Amazon instead of trying your brand out for the first time).
  • Steals low File Power customers, causing a hollowing out of the bottom of your twelve-month buyer file.
The table above illustrates customer counts for a brand I recently analyzed. Red numbers represent declines, green numbers represent customer count increases. I segmented File Power into bands. Low File Power customers are on the left, High File Power customers are on the right.

Notice that File Power > 150 points shows gains, and the gains are biggest among customers with the Highest File Power (i.e. highest value). Low File Power customers are being constantly hollowed out. This brand has the signature of "Amazon Impact". It is constantly shedding Low File Power customers.

In the short-term, this dynamic can be overcome by squeezing as much value as possible out of customers with High File Power.

In the long-term, Low File Power customers become High File Power customers. This brand is doomed long-term because it will eventually be unable to generate High File Power customers because there won't be enough Low File Power customers to migrate to High File Power status.

Make sense?

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