How Amazon uses big data has helped the brand evolve into a giant among online retail stores. However, what the company knows about you may feel a bit like stalking.
Amazon.com, Inc. (AMZN) is a leader in collecting, storing, processing, and analyzing personal information from you and every other customer as a means of determining how customers are spending their money. The company uses predictive analytics for targeted marketing to increase customer satisfaction and build company loyalty. On the other hand, some customers may find that how much the retailer knows about them simply by the products they purchase makes them more than a little uncomfortable. What does Amazon know, and how does it know it?
1. Alexa Voice Recordings
Thanks to virtual assistants such as the Echo and Echo Show, which includes a camera as well as a speaker, getting the weather forecast or ordering more shampoo are a simple voice command away. What customers may not realize, however, is that their audio recordings may be uploaded to Amazon’s servers.
The company suggests that these voice files help make the Alexa experience better, enabling more accurate speech recognition by learning to process messages from a diverse group of customers. However, for some users the knowledge that their voice is being stored isn’t exactly reassuring. Those privacy concerns are only growing, thanks to Amazon’s introduction of wearable devices such as Echo Frames, its Alexa-powered eyeglasses, and Echo Loop, a “smart” ring that you wear on your finger.
If you’re not comfortable with voice recordings from your account being stored in the cloud, you can delete them one by one or by data range, using your Alexa-enabled assistant. Conversely, you can visit Settings > Alexa Privacy in the Alexa app to manage existing files. The downside: Eliminating those files could inhibit some of Alexa’s functionality.
2. Ring Video Footage
Amazon became a major player in the growing home security market when it purchased Ring in 2018. However, the company raised eyebrows among privacy advocates by partnering with hundreds of law enforcement agencies across the country, often supplying surveillance footage from customers without their consent. Many police departments have also developed voluntary camera registries where homeowners can submit footage on their own.
Ring has tried to assuage those fears by adding new privacy features, such as the Home Mode setting that lets you turn off the audio and visual feeds from cameras on your premises and create privacy zones in your home where cameras cannot record.
3. Personalized Recommendation System
Amazon is a leader in using a comprehensive, collaborative filtering engine (CFE). It analyzes the items you purchased previously, what is in your online shopping cart or on your wish list, which products you reviewed and rated, and what items you search for most. This information is used to recommend additional products that other customers purchased when buying those same items.
For example, when you add a DVD to your online shopping cart, similar movies purchased by other customers are also recommended for you to purchase. In this way Amazon's big data uses the power of suggestion to encourage you to buy on impulse as a means of further satisfying your shopping experience and spending more money. This method generates 35% of the company’s sales annually.
4. Book Recommendations From Kindle Highlighting
After acquiring Goodreads in 2013, Amazon integrated the social networking service of approximately 25 million users into some Kindle functions. As a result, Kindle readers can highlight words and notes and share them with others as a means of discussing a book. Amazon regularly reviews words highlighted in your Kindle to determine what you are interested in learning about. The company may then send you additional e-book recommendations.
5. One-Click Ordering
Because big data shows that you shop elsewhere unless your products are delivered quickly, Amazon created One-Click ordering. One-Click is a patented feature automatically enabled when you place your first order and enter a shipping address and payment method. When choosing One-Click ordering, you have 30 minutes in which you may change your mind about the purchase. After that, the product is automatically charged via your payment method and shipped to your address.
6. Anticipatory Shipping Model
Amazon’s patented anticipatory shipping model also uses big data for predicting the products you are likely to purchase, when you may buy them, and where you might need the products. The items are sent to a local distribution center or warehouse so they will be ready for shipping once you order them. Amazon uses predictive analytics to increase its product sales and profit margins while decreasing its delivery time and overall expenses.
...And Other Customer-Research Tactics
They’re not individualized, but these big-data marketing techniques also help Amazon stay ahead of competitors,
Supply Chain Optimization
Because Amazon wants to fulfill your orders quickly, the company links with manufacturers and tracks their inventory. Amazon’s big-data systems choose the warehouse closest to the vendor and/or you, the customer, to reduce shipping costs by more than 50%. Additionally, graph theory helps decide the best delivery schedule, route, and product groupings to reduce shipping expenses further.
Big data is also used for managing Amazon’s prices to attract more customers and increase net income (net profit) by an annual average of 143% between 2016 and 2019. Prices are set according to your activity on the website, competitors’ pricing, product availability, item preferences, order history, expected profit margin, and other factors. Product prices generally change every 10 minutes as big data is updated and analyzed. As a result, Amazon typically offers discounts on best-selling items and earns larger profits on less-popular items. For example, the cost of a novel on the New York Times Best Sellers list may be 25% less than the retail price, while a novel not on the list could cost 10% more than the same book sold by a competitor.
Amazon Web Services
Through Amazon Web Services (AWS), Amazon’s cloud computing service introduced in 2006, companies can create scalable big-data applications and secure them without using hardware or maintaining infrastructure. Big-data applications such as clickstream analytics, data warehousing, recommendation engines, fraud detection, event-driven ETL, and Internet-of-Things (IoT) processing are executed through cloud-based computing. Other companies may benefit from Amazon Web Services by using them to analyze customer demographics, spending habits, and other pertinent information to more effectively cross-sell company products in ways similar to Amazon. In other words, it’s not just Amazon that can stalk you. These retailers can, too.