Retail’s Flywheel Business Model

Note: The views and opinions expressed here are those of the author(s) and contributor(s) and do not necessarily reflect those of the publisher and editors of WholeFoods Magazine.

 

A flywheel is a remarkable physics experiment but an even more remarkable business model. It’s one of the best kept secrets of Amazon’s success and other leading and disruptive companies are also using the concept. This article looks at ways to understand and adapt the flywheel business model to natural products retailers.

A flywheel is defined by Merriam-Webster as:

  • a heavy wheel for opposing and moderating by its inertia any fluctuation of speed in the machinery with which it revolves
  • a similar wheel used for storing kinetic energy (as for motive power)

While offering this “official” definition similar to that provided by most English dictionaries, the business model definition adopted by Amazon’s Jeff Bezos was attributed to Jim Collins in Good to Great:

Picture a huge, heavy flywheel — a massive metal disk mounted horizontally on an axle, about 30 feet in diameter, 2 feet thick, and weighing about 5,000 pounds. Now imagine your task is to get the flywheel rotating on the axle as fast and long as possible.

Pushing with great effort, you get the flywheel to inch forward, moving almost imperceptibly at first. You keep pushing and, after two or three hours of persistent effort, you get the flywheel to complete one entire turn.

In summary, Jim Collins proposed that not one single great action creates success, but many small consistent actions result in one great success. Let’s go back to Amazon….

When you travel to Seattle to meet with key influencers at Amazon, you park in the parking garage and one of the first things you notice is the ubiquitous Amazon flywheel. Growth sits in the center, but it’s driven by cost, selection, sellers, and customer experience.

This flywheel depiction is omnipresent both inside and outside the Amazon offices. The significance of message is so important to the company that this message cannot be ignored.

Other organizations have developed their own flywheel using a similar diagram. Take Uber for example, whose flywheel includes lower prices, faster pickups, more demand, more drivers, and more geographic saturation.

The short takeaway is a simple and obvious conclusion that is routinely missed: No single action can be pointed to as the specific reason for success. Was it the first push on the massive wheel that created the movement that provided momentum? Hardly. In reality, it was the combined effort of the first, fourth, tenth, hundredth, etc. effort that created the momentum.

The Amazon and Uber examples also suggest the concept that not just one step or interaction should be viewed as a path to success. Lower prices and more drivers alone would not have created the success achieved by either Amazon or Uber. The greater number of happier customers/consumers gained reflecting the core strengths of the company, the more success continues.

In short, the definition of the business model flywheel can be: Success begets success. Effort must be consistent and centric in purpose.

Too frequently, discussions with retailers suggest that e-commerce is the enemy because of the pricing offered. The Amazon flywheel suggests that only one aspect of the business model relies upon pricing and the reality is, it is not the only determinant of  a consumer’s desire to use Amazon.

A recent Epsilon survey of 3,975 shoppers who had purchased from Amazon in the past 6 months was published on marketingcharts.com. The survey indicated that people were motivated to shop on Amazon to achieve the many benefits the platform offers as opposed to a singular benefit of price advantage: the top two reasons were free shipping and price, but other top reasons–two-day shipping, ease of buying, and one-stop-shopping were not far behind, and the return policy and product selection garnered heavy support. 

The flywheel and benefits survey indicate people want to align with winners and are open to the important benefits provided inside or outside the Amazon platform. The benefits survey chart indicates that there are many aspects of the buying decision which become important to the consumer. So, how can we apply the flywheel directly and specifically to the natural retail and retailer business environment?

Ninety percent of all global purchases still occur at brick and mortar locations. Considering the reasons why people buy at Amazon, one should note that it does not recognize important factors that cannot be attained by e-commerce such as: personal attention and education provided in store, the community opportunity offered in store, the ability to physically see and feel the product, immediate, personal and tangible delivery process, and hoping that the package won’t be lost or stolen and more.

One of the most important factors missing from the Amazon flywheel but necessary in developing a natural products retailer flywheel is the trust factor. The Epsilon study revealed that 73% of shoppers trusted stores more than online sites for safe and secure shopping. More than half (53%) of consumers prefer to shop in stores with the age group of 45+ having the greatest preference for brick and mortar (75%).

There are five suggested key components for a natural products retail store flywheel:

  • Product Quality
  • Trusted Seller
  • Customer Satisfaction/Reviews
  • Education
  • Community / Individuality (Personalization)

Product Quality

This attribute will most likely go in the “goes without saying category,” but reality confirms that retail stores have both a higher ability and expectation to achieve this. Products curated and vetted in natural product stores, specifically for quality, are vastly different from an online process that provides products first and measures quality second, if at all. In addition to the quality of the physical products, a retailer has the ability to provide a superior quality to the consumer.

Put it into practice: Natural product retails can highlight their product curation process and the measures they take to ensure every product on their shelves is high quality.

Trusted Seller:

Face to Face conversation results in the ability to determine body language and tone of sincerity improving the likelihood of long-term trust. Repeated analysis indicates the impact of trust on Customer Lifetime Value. Capitalizing and focusing on trust engagement is exponentially valuable to gaining momentum for your flywheel.

Put it into practice: Natural product retail staff serve as the direct connection to consumers. Build those relationships to stand out.

Customer Satisfaction/Reviews:

Yelp, Google and other review sites have greatly changed the customer experience. The 2018 Bright Star Local Shopper Review revealed 86% of consumers recently read reviews of local businesses, including 95% of people aged 18-34. Consumers require an average of 40 reviews before believing a business’s star rating is accurate. It is important to encourage, monitor and respond to these reviews.

Put it into practice: Make reviews and customer satisfaction a priority and transparency. Solicit feedback creatively and consistently. Monitor and measure the feedback and consistently respond to both positive and negative feedback to demonstrate a commitment to superior customer service. Say thank you to in-store customers as many times as possible.

Education:

One of the most impactful differentiators in the retail flywheel is the ability to effectively educate the consumer. Becoming an education resource for the consumer community results in long term loyalty and value. Ironically, technology can be an important element to competing with the technology environment utilized by e-commerce providers.

Put it into practice: Ensure employees are educated on the products carried in store and provide access to reputable online resources such as the Natural Products Field Manual so they can quickly access information to answer consumer questions in real time.

Community/Individuality (personalization): 

Creating an expertise of shared experiences by consumers can result in a greater feeling of community for your customers. According to a Nielsen report, 92% of global consumers say they trust recommendations and information from family and friends above any other form of advertising. According to Boston Retail Partners (BRP) 2018 Digital Commerce Survey, 75% of consumers use digital tools prior to their in-store visit and shoppers use mobile devices in 46% of in-store shopping experiences, so natural product retailers with an online presence can take advantage of this.

Put it into practice: Through word of mouth marketing stores can encourage, or incentivize, customers to find like-minded consumers and serve as ambassadors. Natural product retailers also have an opportunity to get involved in their community by participating in local events and hosting in-store education sessions. Celebrate the uniqueness of your location, culture, products and most importantly, your customers in-store and online. Work to remember names, provide perks, encourage demos, etc. Provide education information online.

The flywheel works as a business concept and model. Natural products retailers should think of their own operation, inputs, interactions and outputs. This article presents some thinking on the unique attributes for the development of any retailer’s flywheel. The reality is that no two flywheels should be the same. The Amazon flywheel is the cornerstone of the Amazon effect. A retailer’s success can be optimized and guaranteed by the creation and implementation of a custom retail flywheel to serve as the engine of the business.

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Scott Steinford, Founder, Trust Transparency Center
Scott Steinford has built a career of leading, learning and mentoring. Through immersion in many aspects of the supplement and pharmaceutical industry Scott has worked to redefine and improve business practices within the healthcare industry with an emphasis on transparency. His experience ranges from entry level to CEO and positions include organizations representing ingredient supplier, ingredient manufacturer, retail brand, private equity, M&A due diligence expert and trade organizations. Scott has a Pre-Law Bachelor’s Degree from the University of Texas at Arlington and a Master’s of Science Degree in Law from Champlain College. Scott currently is Executive Director for the CoQ10 Association and President of the Natural Algae Astaxanthin Association (NAXA) and Managing Partner of Trust Transparency Center; a boutique consulting organization dedicated to assisting companies seeking to improve both their internal and external trust transparency. Scott’s prior experience includes CEO of Doctor’s Best and maintained a pivotal role with a variety of ingredient manufacturers including Eisai, Kaneka and was a founder of ZMC-USA.

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