Robert Ramsey has over thirty years of experience working in the retail industry. As Chief Operating Officer, he managed the pricing strategy and operations at Bailey’s, an internet retailer based in Woodland, CA that specializes in a unique assortment of professional outdoor work gear and equipment. While Bailey’s competed with Amazon, they also generated significant revenue in partnership with them. Before Bailey’s, Ramsey was Sr. Director of Merchandising Services at Raley’s Stores for more than nine years.
Marielle Fong, Director of Marketing at Engage3, sat down with Bob Ramsey to discuss his candid and unusual perspective on Amazon’s strategy.
Amazon’s Long-Term Strategy
Marielle Fong: Given the expansion of Amazon into more brick-and-mortar, what do you think their long-term strategy is?
Bob Ramsey: Amazon’s long-term strategy is to “sell everything to everyone.” That’s everything from prescriptions, to pineapples, to pajamas.
Their brick and mortar channel will grow over time and then begin to shrink as the shoppers who are used to shopping “brick and mortar” die off. At that point, Amazon’s presence in that channel of trade will begin to decline as it will no longer serve the purpose of crippling the existing chains.
Having said that it will decline, it will not go down as fast as the Kroger’s, CVS, and Rite Aid footprints as they are dependent on a “brick and mortar” customer whereas Amazon is not. As Amazon links their physical footprint to their delivery system more and more, “Order Delivery” will be done to their physical stores. Amazon is positioning for the passing of the generation(s) of people who prefer “Brick and Mortar.” Prolonging an Amazon store’s life well beyond what the CVS’s, Rite Aids’ and Raleys’ of the world can survive. Note that I left out Wal-Mart because when “elephants battle, the fleas are the losers.”
Always Ahead of the Curve
Marielle Fong: What do you most admire about Amazon?
Bob Ramsey: They never miss a beat, they are always one step ahead of the curve. Both their pricing and assortment practices are ultra-aggressive and the market accepts their activities. They continually manage to position themselves ahead of the rest of the Retail Industry for both thought and practice.
Anyone who thinks that Amazon does not study the results from people who sell on Amazon is just fooling themselves. So essentially they have learned to influence the distribution, pricing, and assortment practices of the entire market. It is a thing of beauty if you are Amazon.
Distribution Control is Key
Marielle Fong: If you were the head of Amazon’s partnership program/3rd-party seller program, is there anything you would do differently?
Bob Ramsey: I’d accelerate the Amazon practice of controlling distribution of products such that only Amazon is allowed to sell them on Amazon or any other “Marketplace.” They are on the right track that getting control of Distribution also eliminates competition, giving them control of the “Price,” and thus the margin. Control of Distribution is the ultimate beneficial position for Amazon.
Marielle Fong: To what extent did you see dynamic pricing being used by Amazon, and what do you think has driven that?
Bob Ramsey: The “Price” is becoming less and less important on Amazon and thus the fluctuations (dynamic pricing) and “Buy Box” concepts are becoming less and less important as well. Amazon has done an incredible job transforming the “Price” to the “Amazon Experience.” In other words, the products they support and the use of their web site as the go-to marketplace are less and less based on “Price” or “Cost” to the consumer; it has now positioned itself to be the Seller that will give you the best experience. Amazon has done an excellent job convincing people that if you are on Amazon, then you are buying at the best possible price, which is not always true.
Go Buy This on Amazon
Marielle Fong: The largest retailers are sticking to their online and offline pricing (Walmart employs a unified price, while others like Costco and Kroger let their customers carry the burden of the shipping and handling charges). How do you think this is going to play out for the next couple of years?
Bob Ramsey: This might sound like a dark prediction, but at some point, I wouldn’t be surprised when Amazon sends all of its 3rd party sellers a note that says….. “In order to provide the best possible Customer Experience, you are all going to ship for free. Thank you for your support.” Amazon understands the declining importance of “Price” and the increasing importance of “Speed,” “Shipping Cost,” and “Returns.” Those retailers who will still charge shipping might as well hand their customers a note that says “Go buy this on Amazon.”
Marielle Fong: Do you see any retailers that the largest players should be looking out for? If there are any, why would they have that chance to compete with the big retailers?
Bob Ramsey: Amazon. End of Story. None of the smaller retailers are going to be able to afford the technology that is now required to take on the Kroger’s, Wal-Mart’s and Amazon, eBay’s of the world. It is too big of a leap.
Chain and E-Commerce Pricing
Marielle Fong: You were in charge of pricing at a regional grocery chain and then with an e-commerce-first retailer. What are the biggest differences in pricing strategy between the two?
Bob Ramsey: They live in different worlds and there is never going to be a 1:1 comparison any more than politics and religion are ever going to merge.
The strategy online is/was “dynamic” in as much as I changed pricing on Amazon 12-15 times per day and my own website daily. A brick and mortar Retailer can’t possibly do that because the pure cost of that activity in Labor makes it prohibitive. Even with electronic shelf tags, you are limited to changing a “Retail” when there is no one shopping in your Store. You can decrease the price as people shop, but you can’t increase it while they’re there.
Brick and Mortar Strategy
The strategy in Brick and Mortar has been and continues to be “Am I competitive?” The fallacy here continues to be that the Consumer can tell who is cheapest. While 1-2% margin is huge to a Retailer, you are still talking about $1 – $2 on a basket of $100 in Groceries. Being competitive is still a key to survival, thus making the monitoring of your market a requirement. But “competitive” has many meanings.
Marielle Fong: You are one of the pioneers in the practice of strategic pricing in retail. Looking back, what do you know now that you wish you knew then? Are there any developments that are surprising to you?
Bob Ramsey: The most interesting things I have seen are the increased prevalence of Minimum Advertised Pricing (MAP) and Amazon’s ability to get away with controlling the distribution of entire lines of products. Dickies, Carhartt, and all the way down to Insect Sprays.
Amazon’s push to MAP Pricing has spawned an entire industry of companies doing work similar to “Comp Checks,” but instead of performing the function of monitoring all of the competitive Retails, it has become a function of reporting on people not selling at the Manufacturers MSRP, or selling product on “Marketplaces” they are not supposed to be selling on.
Selling Strategic Pricing
With regards to the evolution of “Strategic Pricing” in Retail, what I wish I knew then vs. what I know now is how difficult it is to get pricing people to change their approach. Strategic pricing was too difficult a concept to sell when someone just says: “The guy down the street sells this for $0.99.” Humans are less sophisticated than my PC.
Overall, 100 years ago in the industry, a wagon pulled up to the back. I took the can out of the box and put it on the shelf so people could buy smaller quantities. Value Added. People wandered in, left me money and loaded the can onto their mule and took it home. Not much really changed—until Amazon came along.