Forbes.

com

With the news last week that U.S. regulators plan to take more time to
review Amazon’s $13.7 billion acquisition of Whole Foods, industry analysts can now
take more time to speculate on the strategic implications of one of the biggest retail
mergers in years. What is Amazon really up to?

Some have interpreted Amazon’s move as a signal that the online giant is finally
giving in and investing big into brick-and-mortar retail. Digging deeper, though, it’s
clear that Amazon’s real interest is in two things: first, the treasure trove of consumer
data that comes with this acquisition; and second, Whole Foods’ private brand
product.

Let’s start with the data. What exactly is in the Whole Foods data that Amazon would
want? Answer: Grocery buying habits and patterns. Preferences. Correlations
between purchases of different products and even different categories.

Jeremy Stanley, vice president of data science for Instacart, one of Amazon’s
competitors in the grocery space, recently told CNBC: "One of the wonderful things
about groceries is that compared to other e-commerce purchases, groceries are
habitual and frequent. People need groceries every week.”

With massive amounts of data from Whole Foods shoppers, Amazon will ultimately
be able to tailor the grocery shopping experience to the individual. Amazon has
already mastered the process of upselling, i.e. offering additional items that go with
the items the consumer is looking to buy. With consumables like groceries, Amazon
will know when you run out of cereal and will present you with the offer to buy more
at precisely the right time. Alternatively, the new box of cereal may just show up at
your door at the moment you take that last bite.

If it’s about the data, why would Amazon acquire Whole Foods instead of
another large grocery chain such as Aldi or Kroger?

First, the data from Whole Foods customers is literally “rich”. This data is from
affluent shoppers who represent high margin upsell opportunities for Amazon.
Business Insider states that the typical Whole Foods customer has over $1000 per
month in disposable income.

Second, and more interestingly, is that Whole Foods has a strong private label
business with its 365 brand. Why is this important to Amazon? In case you haven’t
noticed, Amazon is becoming more and more vertically integrated. It now runs eight
private brand lines of fashion apparel, including Lark & Ro, Ella Moon and Mae, and
this business has been growing rapidly. The online giant also offers private brand
products for everything from batteries to baby wipes and diapers. Amazon is even
developing its own content. Its “Manchester by the Sea” film was produced
completely by Amazon and was a blockbuster hit last year.
The typical argument for vertical integration is that private brand product is higher
margin than third-party branded product. That is true and is an important part of
Amazon’s strategy. But even more important is the fact that private brand product
represents differentiation. In a retail market where there is a “sea of sameness” and
national brands can be found through nearly every channel, private and exclusive
brands create a reason for the consumer to buy through Amazon as opposed to going
elsewhere. If Amazon has the best shopping experience, the fastest delivery, the best
prices, and now unique products, why would you shop anywhere else?

Amazon has a better understanding of the customer than any other retailer. The
Motley Fool estimates that over 80 million people are Amazon Prime members. With
this data, it is capable of building analytic models which can predict what these
consumers will want, how much they will want, and when they will want it.

That’s great if you are Amazon. But if you are not Amazon, what do you
do?

To compete with Amazon, retailers need to develop their own differentiated product.
Department stores are realizing this. Kohl’s private brand products now account for
nearly 50% of total sales. In a Fortune article, Michelle Gass, Kohl's Chief
Merchandising and Customer Officer, said: “The health of our private brands is
critical to our success." Bon-Ton Stores has stated that it wants to grow its private
brand business from 19% of total sales to 25%. Dick’s Sporting Goods also recently
stated that is will be reducing its exposure to national brands in favor of giving its
private brands more floor space. These products cannot be found on Amazon, nor
can they be found in any other department store. They give consumers a reason to
shop at Kohl’s or Bon-Ton or Dick’s.

While Amazon's purchase of Whole Foods enables them to add a tremendous

amount of data to their coffers, the true differentiator lies in the company's mastery
of using data to better understand their customer’s needs, predict shopping behavior
and generate longevity with its loyal customer base.

As Amazon's reach extends into other sectors, it's anyone's guess what they will do
next. It is critical that retailers and brands learn to not only gather the right kind of
data that helps them to understand their customer, but harness its power to ensure
their products and pricing are in line with expectations and keep customers coming
back.

EXPLANATION
In one fast-moving day on Wednesday, Whole Foods shareholders approved its
merger with Amazon and the Federal Trade Commission gave the merger its stamp of
approval. Amazon then announced on Thursday that the merger would close on Monday,
August 28, 2017. This company merger deals with the theory of Partnerships and global
networks. From our book we know that the associated question for the individual company is
how to increase competitiveness from collaboration with others. Openness to the outside,
prominently partners and a network of global outposts, is part of the organization’s ability to
learn (De Meyer, 1999). This truly mirrors the desicion not only for amazon to buy
wholefoods, but also wholefoods to accept the offer.

From the article we can see that both company wants to increase competitiveness,
strengthen and make their company more prominent in the market. Doz and Hamel (1998)
describe that long-lasting partnerships between companies usually are not only concerned
with short-term benefits (such as cost reduction, or access to a specific technology or market),
but have at their core learning and a mutual and mutually beneficial ‘journey’ of co-
development, which is not defined at the outset.

From amazons side we can see that Amazon’s real interest is in two things, the
consumer data and Whole Foods’ private brand product. From the data obtained from
wholefoods amazon would know grocery buying habits and patterns, Preferences and
correlations between purchases of different products and even different categories. With
massive amounts of data from Whole Foods shoppers, Amazon will ultimately be able to
tailor the grocery shopping experience to the individual.

Second, and more interestingly, is that Whole Foods has a strong private label
business with its 365 brand. In a retail market where there are millions of similar brands and
national brands can be found through nearly every channel, private and exclusive brands
create a reason for the consumer to buy through Amazon as opposed to going elsewhere. If
Amazon has the best shopping experience, the fastest delivery, the best prices, and now
unique products, why would you shop anywhere else? From those reasons we can say that the
amazon and wholefoods merge will benefit both companies.
Manajemen Pengembangan Produk

Disusun oleh :

Gema Akbar Ramadhani (I0314041)

JURUSAN TEKNIK INDUSTRI FAKULTAS TEKNIK

UNIVERSITAS SEBELAS MARET

SURAKARTA

2015