Amazon (NASDAQ:AMZN) has long prided itself on "customer obsession" above all else.
The company likes to say that it puts the customer first and then thinks backwards. Its mission statement is "to be Earth's most customer-centric company," a statement that notably leaves out any specific business focus.
However, after years of dominating customer satisfaction surveys, at least one recent poll shows cracks emerging in the company's customer-first foundation. A survey conducted in May by RBC Capital Markets showed that just 64% of respondents were "extremely satisfied" or "very satisfied" with Amazon. That's compared with 73% a year ago and 87% back in 2015.
The pandemic could be one reason for the sharp drop-off this year. The company had to delay Prime shipping speeds and prioritize essential products to accommodate the surge of orders it received when the shutdowns began -- but that doesn't fully explain the decline.
Is Amazon really losing customer satisfaction? Here are a few factors that could be impacting the company.
Prime isn't so special anymore
Amazon still dominates e-commerce, with close to 50% market share. But its Prime loyalty program, the lynchpin of its e-commerce business, is not as unique as it once was. Prime offers customers free one-day shipping, among other benefits, for $119 a year. But competitors have caught up to this crowd-pleaser.
Walmart (NYSE:WMT) introduced free next-day delivery last May, soon after Amazon announced that Prime would accelerate its standard shipping speed to one day. Unlike Amazon, Walmart doesn't charge a membership fee for the service and only requires an order minimum of $35. Walmart says it has 220,000 of its most frequently purchased items available for one-day delivery, meaning its product range is smaller than Amazon's. Still, the lack of a membership fee is a clear benefit.
Target (NYSE:TGT) has invested aggressively in same-day fulfillment services -- and to a big payoff. These offerings include in-store pickup, drive up, and same-day delivery with Shipt, the delivery company Target acquired in 2017. Through its Restock program, Target also offers free one-day delivery for free to its credit card holders, and a $2.99 fee for everyone else on 35,000 essential items.
Finally, even Costco (NASDAQ:COST) has stepped up its efforts in e-commerce, making same-day delivery on perishables available through Instacart and offering two-day delivery on non-perishables with a $75 order minimum. While Costco may not offer the speed and product range of Amazon, its bargain prices are difficult to beat.
A shift in focus
As my colleague Brian Stoffel has argued, Amazon seems to have drifted away from its customer-focused mission in recent years. The company has ramped up its advertising business, which has clogged its listing pages and essentially monetized customers' eyeballs for the sake of its bottom line. While advertising has become a good business for Amazon and advertisers are eager to promote their wares, it's hard to claim that advertising is "customer-centric."
The company has also become increasingly reliant on third-party sellers, many of whom are not trustworthy or reliable. In my own personal experience, I ordered a reusable coffee filter from Amazon that turned out to be dysfunctional. I realized the brand I had received was not the one I ordered and complained to Amazon. They told me to contact the third-party seller, who had already deleted the listing and appeared to be doing business under a different name. There was no easy way for me to resolve the issue, as I was dealing with a shadow seller. By opening up its marketplace to third-party sellers, Amazon has expanded its product selection, but without proper accountability it risks leaving its customers shortchanged by bad actors, which takes away credibility from the whole e-commerce business.
Customer reviews have also been a pain point. It's hard to know if what you're reading are genuine reviews or fakes written to boost sales.
While its business success is undisputed, Amazon has become something of a corporate bogeyman in recent years. The company has been vilified by politicians like U.S. Sens. Bernie Sanders and Elizabeth Warren, and its image as a respected corporate citizen, and even a desirable employer, was shattered when a groundswell of protest forced the company to abandon its plans to open a new headquarters in New York City. Amazon also hasn't been shy to use strong-arm tactics over taxes in its home in Seattle, or years ago in a feud over collecting sales taxes from customers. That the company paid no federal income taxes in 2017 or 2018, despite being worth around $1 trillion, has also been a sticking point for detractors.
A company the size of Amazon is going to find itself in the spotlight, but the tech giant seems to receive more criticism than its peers. Just weeks ago, the company sparked controversy for terminating a warehouse worker who organized a walkout to protest unsafe conditions because of COVID-19. The firing and the company's general labor practices prompted corporate employees to stage an "online walkout" of their own weeks later. It also brought criticism from various corners of the media and interest groups.
In the aftermath, Amazon has launched a national ad campaign featuring warehouse workers who say they love their jobs, but it's clear the company is on the defensive. So many stories about its poor work environment are bound to bother at least some percentage of its customers.
Is a backlash brewing?
Amazon is an essential service for millions of Americans and the company has succeeded in dominating mindshare in online shopping. Whether you need a box of granola bars, a lamp, or some diapers, you think of Amazon. As long as the pandemic is an issue, the company's sales growth is likely to be strong as consumers are depending on it.
However, the RBC survey points to a potential long-term problem for the company. It's hard to know at this point if customer satisfaction has permanently eroded or if this is a function of the demand-related challenges during the lockdowns, but it's an issue Amazon investors shouldn't ignore. Keep an eye out for further customer satisfaction reports that could confirm or deny RBC's findings, as well as other news revealing changes in customer sentiment.