This comment from John McSweeney, regarding Amazon’s Grocery service AmazonFresh, set off a spark -
It’s a GREAT idea. Our growing elderly population no longer has the strength to shop at the supermarket. All would welcome a home delivery service that is not currently available at a reasonable cost. Easily buy $300 a month (sometimes in a week).
The question we were focused on in our Amazon Grocery post was – What does Amazon see that no one else sees?
Well, the answer is obvious if you look at all of Amazon’s recent moves.
What’s common to Amazon’s most recent products and initiatives?
Let’s consider the big moves Amazon has been making -
- Kindle that allows instant access to books, large font sizes, Read to Me. Kindle that is much lighter and easier to hold than paperbacks and hardcovers.
- Kindle Fire HD that allows easy and instant access to email, Internet, movies, TV Shows, music. Kindle Fire HD that is much cheaper than a PC and easier to use. It’s cheaper than iPad too (although not as easy to use).
- Expansion of AmazonFresh Grocery delivery service.
- Expansion into selling clothes and shoes. Allows Amazon customers to avoid going to the stores more and more.
- Talk of a Kindle Phone and a Kindle TV. Which would also focus on ease of delivery and on bypassing trips to stores.
There are two themes that stand out -
- These are products focused on making things convenient and easy.
- These are products focused on replacing ‘trips to stores’ and ‘waiting forever for shipped items’ with ‘instant access’.
Yes, this does help everyone. However, what group does this benefit immensely?
In fact, if we dig in deeper, there are lots and lots of moves that seem targeted specifically at Baby Boomers -
- Large Font Sizes in Kindle eBooks make large print books redundant. Not to mention large font sizes turn ANY book into a Large Print Book.
- Read to Me.
- Light weight of the Kindle is great for those with weak hands and/or arthritic hands.
- AmazonFresh Grocery delivery service - No hassle of driving to the store, carrying groceries around, and all the other headaches of a grocery trip. Why would Amazon include delivery from local merchants? John McSweeney is right – Amazon is building up a very cheap delivery service that suits Baby Boomers perfectly.
- Kindle Fire for Movies and TV Shows – No having to go to Blockbuster. No need to buy movie DVDs online and then wait 3-4 days. No having to go to the Theater and all the problems that entails.
Perhaps the Kindle was the first step. Perhaps the success of and market demand for Kindle among Baby Boomers set off a spark.
Whatever it was, it now seems that Amazon is 100% focused on Baby Boomers.
Baby Boomers are the Perfect Customers
Firstly, you can read my Baby Boomer, Kindle eReader post from 2009 to see why Baby Boomers are perfect customers for Kindle. It includes interesting details such as -
- Baby Boomers and ‘Matures’ born prior to 1965 constitute 54% of the population. They account for 67% of ALL book purchases.
- Kindle is the ONLY eReader that actually caters to this group. It can still be improved in many ways. However, other eReader makers are completely ignoring Baby Boomers. Well, it’s not like they buy 67% of all books.
It’s not just books and reading where Baby Boomers are great customers.
We can look at some Baby Boomer Statistics to see just how important they are as customers. Taken from another 2009 post on Baby Boomers & Kindle.
- US News says the 50-plus demographic holds 75% of total financial assets.
U.S. News talks about how only 10% advertising is targeted at the 50 plus demographic (Despite them having 75% of the financial assets) -
As a group, they are the most affluent Americans, with three quarters of the nation’s financial assets and an estimated $1 trillion in disposable income annually. Yet while boomers are hurtling toward their retirement years–the oldest boomers will begin turning 60 next year–Madison Avenue continues to prize youth. Only about 10 percent of advertising is directed specifically at the 50-plus market. “The demographic sweet spot has always been 18 to 49,” says Brent Green, author of Marketing to Leading-Edge Baby Boomers . “Once you turn 50, you fall off the planet.”
- Marketing Sherpa says Baby Boomers hold 70% of US resources although they are just 25% of the population.
78.2 million baby boomers; 50.2% are women (courtesy US census).
They’re 25% of the American population. Marketing Sherpa says they hold 70% of US resources.
Baby Boomers aren’t just an important market segment. They are THE market segment. If a market segment holds 70% to 75% of the assets, then there’s no point going after the coolness factor of teenagers with no money to spend.
People are always talking about how Facebook has all the college kids and how Tumblr has the ‘coolness’ factor.
- Guess how much those ‘cool’ kids earn Facebook? $5 per year.
- Guess how much all the ‘coolness’ earned Tumbler? Less than $12 million last year.
- Guess how much the average Amazon customer earns Amazon? $200 per year. Note: It’s even higher for Apple.
Would you rather have the cool and penniless kids OR the ’not considered cool/impressionable/influencable by marketers’ rich, older customers?
Money Talks – Baby Boomers will dictate the Market
How could a $399 Kindle be a success when all the experts gave it no chance? When it had zero cool factor?
Simple answer – It got the job done for the REAL Customer Base. People who read books and people who were struggling with small fonts and availability issues and awkward book weights and sizes.
We might very well see the same thing play out with Kindle Phone and AmazonFresh and other Amazon initiatives that, for all practical purposes, are optimized for Baby Boomers -
- Experts don’t ‘get’ them.
- Teenagers don’t think they are cool like sparkly vampires and hybrid WerePandas with big baby eyes.
- The products and devices and services themselves are suited for Baby Boomers. Well, they aren’t perfect – just much better than what other companies are offering.
- Baby Boomers, the demographic that owns 70% to 75% of financial assets, pick Amazon products and devices and services because they are ideally suited for Baby Boomers.
- The devices and services succeed. Surprise! The group with 75% of the Financial Assets chooses them – So coolness doesn’t matter.
It doesn’t matter what the cool kids or the know-it-all tech bloggers think. The battle will be won by the company that best serves customers who have money. That just happens to be Baby Boomers.
Is Amazon aligning itself to serve Baby Boomers?
Firstly, let’s look at this:
Right Now – 78.2 million Baby Boomers.
2030 – In 2030, there are expected to be 57.8 million baby boomers (according to projections); 54.9 percent would be female
Baby Boomers aren’t just the most important customer segment right now. They are probably going to remain the most important customer segment for the next 18-25 years.
Secondly, let’s consider what Amazon is building, in effect:
- A delivery service that will allow it to deliver both groceries and other goods same-day in all the major cities.
- Devices that let it deliver digital content straight to users.
- Subscription services and services like Amazon Prime that gets users to buy everything from Amazon.
- Devices that are optimized for Baby Boomers in multiple ways.
- A network of warehouses around the country that will allow it to step in. Step in if lots of people can’t afford driving to stores. Step in if lots of people don’t want to drive to stores.
- A very high volume business that has low profit margins and is thus hard to compete with. What company wants to compete with Amazon’s $60 billion a year of revenues with a 1.1% profit margin. There are far more interesting targets like Apple’s 37% profit margins and Microsoft’s 70% profit margins.
- A level of scale that allows for numerous efficiencies. Which can then be passed on partially to customers - thus creating even more of a defence against competitors.
Amazon is building the perfect business for a world where large parts of the population give up on stores. This might happen. In fact, it’s likely to happen for a few reasons -
- Convenience of getting things delivered to your home. Same day delivery, if Amazon can pull that off, would totally cement this convenience.
- Baby Boomers not wanting to drive and/or not being able to drive. The amount of effort just isn’t worth it. Why spend 2 to 3 hours every few days just to pick up the exact same groceries?
- Rising price of oil and driving. Note: Oil from fracking is more expensive. So there isn’t really any ‘miracle source of cheap oil’ left.
- A shift away from a driving based economy to a local based economy.
- The gradual death of stores as they fail to compete with online businesses. What’s happening in books and movies might soon spread to other areas.
- People beginning to value their time more and factor in the opportunity cost of driving everywhere to shop. You can already see this happen with book buyers who talk about the 35 minutes trip to a bookstore being too time-consuming.
- Even a few stores closing accelerates the shift to online. If a mall sees a shoe shop and a bookstore close, then all the people who visited primarily for those two stores stop coming. That leads to lost sales for other stores too.
It seems that one or both of the following are true -
- Amazon is aligning itself to serve Baby Boomers.
- Amazon is aligning itself to serve a world where people want things delivered to their homes. Where people don’t want to drive to stores.
In either case, Amazon is building up a line of products and services that serve Baby Boomers very well. Baby Boomers are, based on financial measures, the most important market segment. Amazon is well on its way to locking up a large part of the Baby Boomer segment. Baby Boomers might very well be what drive Amazon to solid profitability.