How Sears Failed and Amazon Succeeded

Here’s the TLDR version: Amazon succeeded, and Sears failed because Amazon valued consumer insights that had the potential to change strategy. And Sears didn’t.

This week, I start by covering why it’s crucial to have consumer insights that affect strategy. Then, I use Sears and Amazon as a case study to show how this plays out in the real world. And, finally, I give you two critical questions you must ask to use consumer insights to stay ahead of the competition.

Are Your Consumer Insights Actually Insightful?

Companies spend millions of dollars on consumer insights.

But most don’t value true insights. Insights should tell you something new. They should change the way you think.

Yet, the “insights” that most companies reward are predictable results instead of game changers.

They value “insights” that confirm what they’re already doing. At best, they want “insights” that only slightly modify what they’re already doing.

But are these “insights” really insightful?

In a predictability-driven world, companies value numbers over understanding. As long as customers behave in a way that the companies can calculate, companies put little value on why customers behave that way. And companies behave this way even if understanding why would open up game-changing opportunities.

Models of behavior that are good enough trump models that have the potential to radically alter the business.

The uncertainty of profound change lacks the value of slight improvements.

True insights only arise out of environments that encourage them. If they’re not encouraged, you naturally ignore them because of the way you’re wired as a human.

Your brains are wired to make conclusions as fast as possible: if something didn’t hurt you in the past and it continues to produce results, you view new information as a confirmation of how you’re already behaving. Scientists call this tendency confirmation bias. In other words, you seek and interpret information in ways that support existing beliefs.

Confirmation bias is rooted in an evolutionary advantage: responding to dangers is much quicker and more efficient when you interpret it in the context of something that you already know works.

Confirmation biases minimize errors when you need to make quick decisions. However, confirmation bias can cause you to ignore valuable information that would help you reach a deeper understanding.

As a result, the natural tendency towards confirmation bias reinforces the predictability companies value. It causes you to block information that would lead to true insights.

True insights are not the natural tendency of organizations: they value the predictable over the game-changing.

True insights are not your natural tendency as a human because of the way you default to processing information, especially when pressed for time.

And when your competitors are also engaged in business as usual, there’s even less incentive to create radical change.

But here’s the problem: in today’s complex, fast-paced environment, a competitor that starts with a game-changing idea can overtake you before you realize it’s too late.

Think about how the once-dominant Sears failed because it didn’t adapt to customers’ needs in the face of the changing business environment. Or how Uber came out of left field and disrupted the stable taxi business that was over a hundred years old.

Next time you engage in a consumer insights initiative, ask, “Are we really trying to learn something new?”

If you’re not, you’re better off saving your research money. You’ll need extra capital to survive in the face of a competitor with a radical understanding of your category.

And that’s bound to happen.

How Sears Failed and Amazon Succeeded

Every year, as Christmas approached, I’d check the mailbox every day, waiting for something wonderful to arrive.

The Sears Wishbook.

Oh, the wonders that were inside! The Wishbook made Sears seem like a better version of Santa. It was capable of fulfilling all my dreams.

With the ability to capture the imagination of children across the United States, it’s not surprising that Sears was once the largest retailer in the United States.

At its height, Sears seemed to have an endless ability to innovate.

Viewed from this golden age, it’s hard to envision Sears going from 3500 stores to filing bankruptcy to be unrecognizable, with only 13 stores remaining today.

How did Sears get here?

As Sears declined, many analysts pointed to the power of Amazon, as if it had some magical quality that Sears didn’t have.

But, there’s nothing magical about Amazon. It just did one thing that Sears and other retailers failed to do.

While Sears focused on satisfying the customers of today, Amazon focused on wowing the customers of tomorrow.

Looking to the future instead of the present is at the heart of innovation. And, Sears stopped innovating.

Compete for the Customer of Today, Get Left Behind Tomorrow

Ask any market researcher: one of the biggest retail trends over the last fifteen years is the demand for more convenience.

To capitalize on this trend, in the late 2000s, Sears and most retailers repeated what made them successful in the past:

• Open more stores so customers would have to drive shorter distances.

• Put more stuff in the stores so customers would be more likely to find what they sought.

Fixing their user-unfriendly web pages and eCommerce business models was a second thought because their perceived competitors weren’t doing any better. And, investment in mobile was almost nonexistent despite obvious signs that it would be an essential channel in the future.

These retailers missed three key pieces:

1. The desire for convenience wasn’t anything new — marketing scholar Eugene J. Kelley wrote about it in 1958.

2. The way customers want a desire to be satisfied changes over time.

3. Technology changes the ways retailers can satisfy the desire.

People didn’t suddenly want convenience. And, they didn’t want more of the type of convenience that satisfied them in the past.

They wanted convenience that matched their modern lives.

To outpace the competition, you have to think not only about where your customers are today but also about where your customers will likely be in five or ten years.

Understanding that requires understanding your customers’ needs and what satisfying those needs will look like in the future.

The Customer Needs of Yesterday Are Not the Customer Needs of Tomorrow

A major driver for desiring convenience is the widespread feelings of what researcher Leslie A Perlow calls a time famine.

According to Perlow, a time famine is the “feeling of having too much to do and not enough time to do it.”

Sticking more stuff in a store like Sears did would seem to help solve this problem: If there’s more stuff in the location, customers will be more likely to find what they need. So, you’ll save them time.

The problem with this approach is one simple fact: people don’t have less time now than they did decades ago. They only feel like they do.

Feeling like there is a lack of time is partly due to how people place value on time. Higher incomes today than decades ago make time more valuable — every minute is just worth more.⁷ And, our obsession with busyness as a sign of success compounds how we value time by making us believe every second counts.

Customers feeling like they don’t have enough time creates a very different problem to solve than an actual lack of time.

Putting more stuff in a store solved customers’ convenience problem in the past, which was an actual lack of time due to needing to go to multiple stores to get what they wanted.

Putting more stuff in a store did not solve the convenience problem that would dominate customers’ future tensions, which was purely perceptual.

To understand why putting more stuff in a store doesn’t solve the perceptual problem, we have to turn to what happens to people when they volunteer.

Researchers Cassie Mogilner, Zoë Chance, and Michael I. Norton studied how volunteers perceive time. They concluded, “We found that giving time increases perceptions of having time — in both the present and the future — by increasing feelings of self-efficacy.”

When people volunteer, they experience the opposite of what they experience during the rest of their lives.

They experience a time affluence.

The key to understanding why this matters for the perception of convenience is that feelings of self-efficacy create the feeling of time affluence. In other words, if someone feels like they can accomplish something of value, they feel like they have more time.

When Sears put more stuff in a store, it was harder to find anything. What a customer wanted might be in the store, but finding it took a lot of effort.

And, when customers don’t find something, they don’t feel like they’re making valuable use of their time.

They don’t feel a sense of self-efficacy.

They don’t feel like they accomplished anything.

When that happens, the perception of having a time famine increases.

In trying to be convenient, many stores were doing the opposite.

Compete for the Customer of Tomorrow, Win the Customer of Today

These retailers thought they were doing well. Sales were up.

If they weren’t satisfying the need, why were customers buying more?

Because, none of their competitors were doing any better.

If nobody meets unmet needs, nobody has a competitive advantage.

But, as soon as a competitor meets the actual customer needs, that competitive advantage can skyrocket them to success.

Amazon likely saw this need, understood it, and looked to the future to meet it in ways and places companies with an almost myopic focus on brick-and-mortar and past performance never could.

Amazon made it easy to find — without exhausting searches — and delivered it fast.

It delivered the convenience of the future to its customers today.

Two Critical Consumer Insights Questions

Convenience isn’t the only need your customers have.

So, ask yourself two questions:

1. What needs do your customers have related to your industry?

2. Are you meeting your customers where they’ll be in five years?

It’s never too early to start planning for tomorrow.

See you in the future.