Amazon's Data-Led Renaissance
Live from TMRE Conference, Orlando FL
At the annual TMRE conference Matt talked about the growing importance of 1st party data for a CPG industry threatened by Amazon increased penetration in new categories.
I'm gonna try and give you guys some energy. I've been to all different types of conferences over the last month, and I feel like this one's in need of a little fucking energy. I want to try and give you guys some, get you guys going, add a little EQ to this IQ.
I used to think that when I had a millennial in the audience, I'd say, "wow, you're millennial, you're super young," but the reality is that millennials really aren't that young anymore. In fact, the youngest millennials are 21 years old. As we phase out from the millennial generation, and we move into the Gen Zs, it's time to take a step back and take a look back at the millennial generation in terms of what are the lasting legacies of this generation? Because they become the hallmarks of what Gen Z will be built on.
I get asked all the time by companies, "why are millennials such a big deal? Why are there so many books on millennials, so many millennial gurus? Why is every brand so obsessed with millennials?"
And my answer's pretty simple. Millennials were the first generation that grew up with the internet in the household. If you think about it, I didn't grow up with the internet in the household. I just missed that millennial generation. I try to act like a millennial, but the truth is I'm really not. I'm a Gen Xer, and I grew up with Encyclopedia Britannica, and I grew up having to actually call my friends, and I didn't have IM, and I had to go to library.
If you think about it, my brain is wired completely different than a millennial's brain. Somebody's brain who actually grew up with all these technologies, and what really fascinates me is that the C-suites of big companies right now are not filled with millennials yet. They're filled with Gen X, they're filled with boomers, many large organizations are made up of boards of old white men who aren't diverse, don't reflect the generation that they're going after.
I always say I love old white men because my dad's an old white man, so if you're an old white man in the building, no disrespect, but the fact is that brands need to diversify, not just in terms of socio-economic board bases, but also gender, obviously, and also age, because the fact is that a lot of these companies that will become the next CircuitCitys, that will become the next Kodaks, become those things because the people who run it didn't grow up with the internet in the household. They're not trying to bring their company down. Blockbuster didn't try to bring their company down, the people there just didn't understand a world would ever be where you wouldn't actually go on a Friday night and pick up that DVD. When that shift happens, when millennials enter the C-suite, a lot what I'm talking about is gonna happen real quickly, because the rate of change is gonna accelerate faster and faster and faster.
If you think about 12 years ago, there was no Netflix, there was no YouTube, there was no Facebook, there was barely Google. 12 years ago. Where are we gonna be 12 years from now?
Some of the things I'm gonna talk to you guys about today, you're gonna say "you're crazy," because I'm gonna talk about where things are headed, but if I told you 12 years ago that I could push a button and talk to somebody in Ghana in high-def for free right now from a device in my hand not connected to any wires, you'd say I was crazy, too.
I think the rate of change is gonna accelerate so much more quickly, and it's really gonna drive us all nuts, and it also creates a lot of opportunity. If you haven't noticed by now, I talk pretty fast, which is cool. If you guys need to take notes, you need me to slow down, just go like this. My Twitter handle's @MattyB, it's on every single slide. If you have any questions, if you have any comments, any compliments I could always use, hit me up @MattyB, and I'm gonna jump into it.
Today I'm here to talk about Amazon, because I thought about market research when I flew down here from Philadelphia this morning where I went to see my Eagles kick some butt last night on Monday Night Football, and I flew down this morning, I thought about market research in terms of, what's the big change in market research?
To me the big change is Amazon, and there's a lot of reasons why, but Amazon now means data is more important than ever before. It means knowing your customers is more important than ever before. That's why I'm centering around Amazon, not because it's the next hot best thing, but because I think every market researcher, anybody who's in insights, anybody who's in data, needs to reverse engineer their thinking about Amazon.
As I mentioned earlier, it's been a long time since the Encyclopedia. It's funny, I work on a charity called Pencils of Promise, which builds schools in underprivileged areas around the world. I was in Lao in southeast Asia in a town with no running water, no electricity, and I showed a young child my phone with a camera inverse so he could see his own face, and his older brother told me it was the first time he'd ever seen his face, because they actually don't have mirrors there, and I'm thinking about that as a polar opposite of America, where when kids come out of their mothers' wombs, sometimes they don't see their mom's smiling face for the first time, they're staring at themselves on the phone. From the second they're born, seconds old, they're already seeing a phone. They're already understanding the power of this machine, and by age three or four they're already learning to become Brooklyn hipsters. Dressed up this way, on their phones, kids are going up to TVs and actually starting to swipe them, and by age 10 they're forming group committees using their iPads, using big, fancy corporate terms like, "I'll circle back with you later," at age 10.
This is the future. This is your future customer. For them, not being on Amazon is just not even something that will ever cross their mind. Not buying directly from a brand is something that's not gonna cross their mind, but if I asked how many companies, how many brand marketers are here, even know who their customer is, because they've been selling so long to big retailers, they've never had to figure out their customer. It's really mind-blowing.
This is the shift that we're gonna talk about, and when the millennials fill the C-suite, I think we're gonna see that shift really accelerate.
Another thing that's a byproduct of a millennial generation is the version of the American dream has really taken a U-turn here in the United States. When we were growing up, the version of the American dream was this beautiful house with a white picket fence, two-car garage, 1.7 children, maybe a dog. This is the version of the American dream, and you'd graduate college, you'd meet somebody, you'd move out to the suburbs, and you'd actually start a family, and that's what people thought you would do. You'd live in a cul-de-sac, you'd have a nice little SUV, maybe a Toyota Highlander, you'd bump some Shania Twain heading into the cul-de-sac, and that was the American dream. That's what people thought you would grow up to aspire to be. But the reality is, this millennial generation, their view of the American dream has taken a U-turn. The city is now the life that they imagine for themselves. The version of new American dream isn't the white picket fence, isn't the two-car garage, it's actually having an apartment in the city. This generation - the millennials, Gen Z, every generation after it - is looking to be a generation that will sacrifice space and privacy for the proximity and connectivity of cities, and in doing so it's gonna change how they look at brands, and the inverse is gonna change the way that brands need to look at consumers.
Another major factor that's happening in the United States is the notion of the barbell economy, which I something that I think a lot of brands need to pay a better attention to. For the first time since the 20s, .1% of the population controls nearly 20% of the wealth, and globally the 12 richest people control nearly 25% of the wealth around the world. What's happening is the middle class, especially here in America, is eroding. We all know that. Jobs are getting off-shored, and outsourced, and companies that are in the middle, like the Gap, that closed 40% of their stores, they're gonna lose because the fact of the matter is, the value side of the equation wants to buy Lee jeans from Walmart for $20, and the luxury side wants to buy Citizens brand jeans for $200, and in the world where the middle class is eroding, there's not really a lot in between.
Another hallmark of this millennial generation, it's the erosion of the middle class, and that brands really need to pick a side of being a luxury brand or a value brand, but if you find yourself in the middle, if you find yourself in a place where you're not VIZIO for $199 flat screens, or Dollar Tree, Dollar Store, Dollar General on that side, or Apple, who's selling the iPhone X for $1000. If you're not one side of the other, you're really gonna find yourself in a really hard time connecting with this generation.
We talked about urbanization a lot. Another thing that really fascinates me is what it's doing to the landscapes, be the socio-economic landscape of this country. This is Washington DC, for example. Areas in the purple are the creative class. Those are people who are going deep into an art, whether you're in advertising, you're creative, you're a writer, you're a designer. The middle's the service class, who's really the link between the creative class and the working class, and the blue is the working class, and if you look at this you don't really see a lot of light blue here, in Washington DC.
What's happening is the working class is actually getting pushed out, because real estate and prices continue to go up as level of boundaries get pushed outwards, and millennials don't wanna leave the city, and what happens is the notion of the inner-city blue-collar worker is now actually moving to the suburbs. When we grew up it was the rough inner city, now that inner city's actually pushed into the suburbs. It just shows you how the priorities have changed for this generation, and they're really staying in cities, and since they're staying in cities, it's pushing the working class out, which changes the whole value side of the equation in terms of, maybe malls will survive. Maybe the value side will survive. Maybe it makes sense that Walmart and Costco are out are, because the reality is that the working class is being pushed out to the suburbs anyway.
Urbanization has forever marginalized retail. You talk about home growth, and the trends that we're talking about in terms of millennials wanting to stay in cities, it's shown in this graph how the growth in urban areas is now, for the first time, really starting to pace and create distance between the growth and suburban areas. In was inverse 10, 15 years ago, now you're actually seeing another thing driving it, there's a very strong strength of the Chinese currency against the dollar, so you're getting a ton of overseas investments as well, that's propping up real estate prices.
You're probably asking me, why am I talking about real estate? We're in a market research conference. But there's a reason why we're talking about real estate and how it actually impacts this industry, which is as prices go up on Main Street, retailers can no longer afford to stay in business. As millennials stay in cities, retailers can no longer stay in business, and retailers mean everything for most brands, because that used to be their channel. What percentage of brands really have gone direct? If you look at the Fortune 500, the most prolific brands, so many of them sold through these very retailers that are going out of business because of the urbanization trend, and now the new version of the American dream is people living 1200 or maybe 800 square foot studios which cost $3000 a month in New York or San Francisco, and when they have these apartments, they actually no longer even have the space to go to Target and fill up their shopping carts with tons and tons of stuff.
Yes, buildings are stacking up Amazon boxes as high as the doorman can see right now, but the reality is that although these boxes might look like they're shopping just as much as they used to, the boxes usually only have one or two products in it. One of those huge boxes might only have toothbrush in it. Consumers are not buying as much anymore, and they don't have space to house as much stuff. They don't have the big car to throw their stuff in from Target, they don't have the space in homes, because of it they're actually buying less stuff, they're being more choiceful, and they are choosing Amazon.
V-commerce, which I don't know if it's an industry term yet, but if not I want to patent it, which is voice-commerce. I think it's gonna further pressurize brand equities.
Obviously we all know, more and more consumers are ordering from mobile devices. We all know more and more consumers are buying vie e-commerce, but one thing that's really gonna accelerate quicker than anybody else in this room probably thinks is the growth of consumers buying products over voice-based devices.
How many people in the room has an Amazon Echo device in their home?
For those of you who don't, if I can give you one takeaway from this, one piece of homework, spend $50, buy an Amazon Echo dot, and bring it back to your house, and actually try out all the different skills and things it can do, and it has over 10000 skills. The way that you actually interact it, the way that over time maybe your kids will start to interact with intuitively, and you're actually gonna start to see why Amazon through Alexa, and why Google through Home, and why Microsoft through Cortana, and why Apple through Siri, are investing billions and trillions of dollars, literally, in voice technology. Because at the end of the day, anything that saves consumers time, where they can actually order from sitting on their couch without actually having to get up and actually type into a keyboard, they'll gravitate towards, because time is the one thing we can't create more of.
What's really fascinating about Amazon Alexa device, that if you say, "Alexa, buy batteries," Amazon Alexa will say, "I will get you Amazon Basic batteries."
And if you say, "no, Amazon, I want Duracell batteries."
Alexa will say, "I will sell you Amazon Basic batteries."
What Alexa is doing, what Jeff Bezos is doing, is they're making a bet that the ease and ubiquity of Alexa will outpace the value of billions of dollars of brand equity in a brand like Duracell, and it's batteries, and it's toothbrushes and toothpaste tomorrow, and they'll start in the low-involvement categories, and they're actually gonna work their way up, because Amazon knows the form factor of buying is more important than the brand of buying, and in a world where experience is the new social currency, not brands, I believe that brands matter less than ever before, or will for this generation, and I think Amazon's proving it. They're putting their money where their mouth is.
Imagine Walmart not selling - Walmart has private label, but they certainly sell Duracell and Energizer batteries, right, but the reason why is they don't offer different levels of convenience for the consumer, but what Amazon's saying is, "we're gonna make your life so easy, and the exchange? We're gonna sell you our products. They're just as good anyway."
Think about what that means for a brand that has focused on building consumer insights on the why consumer buys, and what are the brand equity pillars that are around so much, billions and billions of dollars of research, when all that can be thrown out by having a device that makes it easier for the consumer to buy. How's that for an insight? Where does that come up in market research, and how does that change the way that brand marketers have to look at actually building their business moving forward?
I actually think it's just the beginning of voice. I think the future of the phone, and this is another controversial point that many of may disagree with, but I actually think the future of the phone in probably as soon as five years is gonna look like that. I think the AirPods are actually the start of what the phone is going to look like, because the reality is most things that a consumer needs to do on a device they can actually do via voice, whether it's sending an email, whether it's actually searching for the nearest pizza place, whether it's actually texting somebody, most use cases for the phone on everyday basis, you actually don't need a screen for, and Apple's already betting on that with the AirPods.
What about visual? What about the ability to see things? I think believe in augmented reality is another thing that's gonna be coming a little bit closer than what people think, especially because Apple's building the augmented reality kit in their new iOS 11, and in that world, for those of you who don't know what augmented reality is, I don't know where my phone is, but you can hold your phone up at a Walmart, and you can see how much everything costs over the product itself, or I could be at a conference and be like, "where's that person that works for Coca-Cola?" And I could actually look, and I could actually see an overlay of their brand.
Or "how much is that overpriced apartment in San Francisco?" Because I might actually have an augmented reality app that allows me to overlay.
The recent example's Pokemon Go, which had people walking around like zombies in Central Park, searching for imaginary figures. People didn't know what was going on, it exploded.
Augmented reality I think's gonna be in the form of contact lenses that consumer's are gonna have very soon, and when they put them on their eyes, they'll actually have a mixed reality or augmented reality where they'll actually overlay things. Does it mean we're all gonna become robots soon? Probably, but I think you have a little bit of time for that, but I think augmented reality is closer, because Apple's building it into the form factor of the devices. Think about it.
We're in a world where we're not staring at a phone screen anymore. We're in a world where asking Siri to deliver search results for us, and when we're asking Siri to deliver search results for us, Apple doesn't even necessarily have to deliver it from Google anymore, because they have the hardware, and to me the last mile and hardware is gonna trump everything, because they actually can drive the consumer convenience, and because of that, they're gonna have a lot more power, which is why Amazon doesn't have Alexa, they're actually investing in a television screen in the home as well, so they can actually have the last mile.
I think the last mile's gonna matter, but the last mile in a voice-driven world, brand is unseen. Design is unseen. The insights between actually having a consumer order from your pizza store or somebody else's can't stick out the same way it used to, because consumers are gonna look at it anymore, they're just gonna talk as they're going on their way, and if you haven't seen the movie Her, I would definitely check it out, because I think it's the best movie that shows this nearby future where a guy actually falls in love with his phone, but his phone is actually a voice. It happens to be Scarlett Johansson's voice, which makes it more understandable, but that's actually who he's talking to when he falls in love with his phone, or a notion of an operating system, and I think it's the best, most entertaining way to showcase where things are really headed.
Next. Gen Y economics have changed our legacy approach to selling stuff. This is where all the real estate facts, this is where everything we're talking about and terms of urbanization and change in consumer is really the rubber meets the road for packaged goods manufacturers, or really anybody who sells anything to a consumer directly.
This used to be the game. You'd fly the Bentonville, Arkansas, and a relatively uneducated buyer sometimes, I hope I didn't just lose Walmart as a client, will basically buy a product, and they'll put something in the end cap, and then you're good to go. You'll leave, and you'll know that you're gonna have a good year, because that's where consumer's shopped, and you'd go to Minneapolis, and you'd do the same thing at Target. You'd go to retailer after retailer, and as long as the retail buyer, who had their own set of data, which a lot of the time the merchants didn't have access to, would buy it, your product would actually move, and it would move and move.
But there's a couple things happening. A, as we talked about, this new generation, they're not buying at Target and Walmart as much anymore. They don't have the cars to drive to the places to throw the stuff in the back of the car, and drive and unpack it. That world's over with, and another change is, the retailers themselves are starting to see it, and they're really stepping on the gas of private label, because they're saying, "you know what? We have all this customer data, what are we gonna do with it?"
What are the retailers gonna do with it? And what they're gonna do with it is they're gonna sell higher margin private-label products like they do right here with mustard, and they're essentially making the same bet in a slightly different way to Amazon's making. That a consumer would rather buy this great value, which they're putting value actually in the name, mustard versus French's or a brand-name mustard brand that you've known forever, and they're doing this in almost every low-involvement category right now.
I talk to a lot of retailers all the time. They're like, "we're scared of going direct. We don't wanna piss off the big retailers."
Look what the big retailers are actually doing to the brands. In the end of the day, everybody needs to go for the last mile, everybody needs the consumer data, the retailers have the consumer data right now, the manufacturers don't, which is why they're at such a disadvantage, and need to really innovate the way that they actually got of market for the consumer moving forward, and think about the brands we're talking about. Almost every single brand on this screen has barely any information on any of the consumers.
Some of you guys might sell them really expensive market research reports and things like that, which is totally cool, but they don't have email addresses of everyone who's bought a Dr. Pepper in the last two years, do they? They have no idea. I've spoken to brands that are massive, that really don't know why consumers buy their products. They come up with insights for advertising that they run TV spots on, but in terms of really understanding the who? The who to them in the past was just moving the needle and getting a couple of extra inches of shelf space at Walmart or Target. Now the who is completely different. Now the who is, where does my brand fit into a world of a consumer who's swiping 24/7? How do I make my brand design for the flick? What time does my consumer wanna actually buy my product? What time of day does mom most likely to buy mustard? Does the weather impact the way that mom buys mustard? Because, you know what? It actually may. Are there certain areas of the country where mustard is bought from a seasonality standpoint?
This is the type of information and data that brands really need to uncover if they're gonna win in this new direct world, and this is gonna drive new buying habits, which is gonna merge new D-to-C model. It's not just the Amazon e-commerce model, which we'll talk about, but there's all these new models coming out.
We all know about the access over ownership trend. The access over ownership trend, I think the biggest place that's really taking part right now with the millennial generation is the place where consumers traditionally spend the most amount of the discretionary expenditures, which is cars and housing.
Cars, you live in cities, the cost of a car combined with gas, tolls, parking, insurance, it makes no sense to buy a car. Ease and ubiquity of Uber or Lyft make it so easy. They're accessing cars over owning them.
Houses, they cannot afford to buy. Most young consumers when they move into cities where they wanna stay, they cannot afford to buy apartments, they certainly can't afford to buy that monstrosity. What they're doing, is they are traveling, a lot of them are seeking more freelance gigs, which is another presentation in its own right, and they're living mobile lifestyles where they're not bound by a mortgage, they're not bound by a car payment, they'll rent out their apartment while they're traveling, they'll rent somebody else's apartment in the new city, so they're no buying houses either. Think about the fundamental rites of passage, which is owning a car or owning a house, really are no longer a part of that American dream because living in cities and renting houses really don't fit into that.
And it's not just cars and houses they're renting. You're gonna see a lot of big ad campaigns coming out next couple of months from a company called Rent the Runway, and they're better on not just cars and houses, but women would rather rent clothing. Instead of spending $1000 on a super expensive dress, you can rent one of these dresses for $75, or $100. Save $900 for a great vacation. Take plenty of Instas with the picture, no one knows that you actually don't even own it, and you'll return it the next day and be incredibly happy.
This is a new model as well in a consumer-direct world, where you're creating marketplaces. Obviously, there are certain categories, like toothbrushes, that no one's gonna wanna use a used toothbrush, but in clothing it's happening. There's a luxury watch company that actually has a rental watch, the name escapes me right now, but they send you a new watch every month, you actually send it back. Rental models, marketplaces, is gonna be a way that brands can actually succeed. Less inventory, much higher margins, really unique model. Think about how much money Rent the Runway actually makes on these dresses if they take of care them the right way, and they rent them over and over and over again. It's actually pretty fascinating.
Think about how the consumer actually wins. They started off being an online-only business, now they're going to brick and mortar as well.
The Uberfication of service industries, there's another reason how businesses are gonna change. I think services is a great way in for a lot of big brands.
This is Glamsquad. You guys hear of Glamsquad? Glamsquad is, think about how expensive it now is on Main Street for a salon to do hair and makeup and give women blowouts and things like that. Glamsquad, you hit a button, you have team of stylists come to your apartment. A bunch of ladies wanna go out for a night out? Glamsquad actually comes and does it for you.
Glamsquad wins, they don't have to pay expensive Main Street real estate costs, and then the consumer wins because they actually don't even have to leave their house. Again, convenience, convenience, convenience.
There's Handy, where you can hit a button and actually have a cleaning service come in. There's Zeal, where you can hit a button and actually get massages in the home.
One thing I've told a lot of companies: if you make laundry detergent, maybe you should start a dry cleaning service, because service could actually be the new way in. In a world where you can't rely on having self-space in a big retailer, maybe actually having that intravenous selling model through, "we're gonna come in, we're gonna clean your apartment, but we're only gonna do so with our products," becomes a new way in.
I think a lot of companies that traditionally have sold packaged goods the regular old-fashioned way are gonna be gobbling up services, and it just actually occurred to me that IKEA bought TaskRabbit, which is a perfect, perfect, perfect example.
TaskRabbit's a company, you hit a button, and somebody would show up at your house and put together those really hard 300 piece dressers that IKEA's. IKEA bought that company. Now they have a service layer on top of their retail layer to actually have a way where they can actually collect more consumer data, and they're actually a retailer already, but that's actually a great example of that happening which just occurred to me.
I think there's a big opportunity for packaged goods companies to get into the hardware game as well. I brought up laundry detergent. If I were a company that sold laundry detergent, I would actually get into the hardware game, because I mentioned earlier, the same way that Apple has leverage with having the iPhone in people's hands, the same way Amazon does with the Alexa in people's houses, I think a company that makes detergent should focus on the big real estate developers in cities, and say, "you know what? We are gonna give away our dish washing machine, or our laundry machine, for free. We're gonna-"