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Dash Buttons Have Caught on with Consumers Who Are Placing DASH BUTTONS: Orders at a Run Rate of More Than a Million Per Year

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Dash Buttons Have Caught on with Consumers Who Are Placing DASH BUTTONS: Orders at a Run Rate of More Than a Million Per Year SEPTEMBER 27, 2016 1) Initially derided as an April Fool’s joke, Amazon’s Dash buttons have caught on with consumers who are placing DASH BUTTONS: orders at a run rate of more than a million per year. 2) Amazon has dramatically expanded the number of buttons Sprinting to available from the initial 10 to the current 150. Consumers can purchase household products, health and beauty products, snacks, pet food—even macaroni and cheese— Success with the push of a Dash button. 3) The buttons serve exclusively Amazon Prime members; they give members more value and entice non-members to sign up. 4) The devices provide significant benefits to Amazon including endearing and locking customers into Amazon’s infrastructure, likely beneficial wholesale prices and help with logistics. Also, only Amazon receives the data collected from Dash purchases. 5) Dash buttons are just one appliance connected to Amazon’s Dash Replenishment System, which also provides consumables for connected washing machines, vacuum cleaners, pet feeders and many other appliances. DEBORAH WEINSWIG Managing Director, Fung Global Retail & Technology [email protected] US: 646.839.7017 HK: 852.6119.1779 CN: 86.186.1420.3016 DEBORAH WEINSWIG, MANAGING DIRECTOR, FUNG GLOBAL RETAIL & TECHNOLOGY 1 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved. SEPTEMBER 27, 2016 EXECUTIVE SUMMARY Initially considered an April Fool’s joke due to its simplistic nature and pundits’ miscalculation of human laziness, Amazon’s Dash button has surpassed all expectations. Estimates are half a million of the devices have shipped. Moreover, the Dash order rate recently doubled to more than two button presses per minute, or a run rate of more than a million orders a year. The initial buttons offered everyday items such as detergent, diapers, and razor blades. But now, Amazon has exploded its catalog to encompass 150 buttons for such unusual items as Nerf darts, guitar strings, soup, macaroni and cheese and pet treats. Although the buttons cater to our inner laziness and desire to not waste time shopping for mundane, everyday consumables, there is more to Dash buttons than meets the eye. First, they are only for Amazon Prime subscribers; it is an exclusive service just for them. This is also an enticement for non-members to sign up. And, the buttons are only one component in Amazon’s Dash Replenishment Service, which accommodates a large number of other connected devices that use consumables such as water pitchers, dishwashers, robotic vacuums and garbage cans. Finally, the digital nature and connection with Amazon’s databases and fulfilment network provides a wealth of data for Amazon to analyze and determine optimal product assortment, pricing and shipping methods. These optimizations are all likely favorable to Amazon and its margins. Source: Amazon.com It turns out Dash buttons are no joke. Rather, they are a simple, elegant Internet of Things (IoT) appliance that enables busy consumers to avoid the tedium of standing in line at a store or even having to pick up their smartphones to reorder everyday consumables. They are also an innovative demonstration of the benefits the Internet of Things can bring to our everyday lives. DEBORAH WEINSWIG, MANAGING DIRECTOR, FUNG GLOBAL RETAIL & TECHNOLOGY 2 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved. SEPTEMBER 27, 2016 WHY DASH IS IMPORTANT Fung Global Retail & Technology considers the Dash significant for several key reasons: 1. The buttons are basically free to consumers. 2. The device offers convenience for the consumer. 3. The device further cements the bond between Amazon and its customers. 4. The device can provide superior margins for Amazon. 5. Dash is a technology platform that leverages the Internet of Things. 6. The device represents another benefit exclusive to Prime members. 7. It promotes Dash Replenishment Service. 8. The technology provides a source of data to Amazon. “Free” Buttons Amazon’s Dash buttons are priced at $4.99, essentially at zero gross margin, and they come with a $4.99 credit awarded after the first use. This makes the button free to consumers. Consumer Convenience With the Dash button, the consumer no longer has to pick up his or her smartphone or log on to Amazon’s internet site to place a routine order for a consumable item. Moreover, the customer can logically place the detergent Dash button on the washing machine so he or she does not forget to reorder detergent, and Amazon can more quickly receive the order. Customer Relationships Amazon’s Dash is yet another service that is designed to endear and entrench itself with its Prime customers. This offering represents a virtual circle for Amazon: the more services it offers Prime customers, the more likely they are to renew their membership, which makes it more convenient to order from Amazon. MarGin Boost Prime members likely seek to, “get their money’s worth,” from their membership fees, and are less likely to compare prices and spend the time and trouble of shopping elsewhere just to achieve small savings. This enhances Amazon’s margins. Although there is not necessarily a causal relationship, Figure 1 shows Amazon’s operating margins improved as the number of Prime members increased. DEBORAH WEINSWIG, MANAGING DIRECTOR, FUNG GLOBAL RETAIL & TECHNOLOGY 3 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved. SEPTEMBER 27, 2016 Figure 1. Amazon MarGins vs. Number of Prime Members 70 7% 63 6% 60 54 5% OperaQnG MarGin 50 44 40 4% 40 3% 28 30 25 2% Number of Members 20 1% 10 0% 0 -1% Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Source: Company reports/Consumer Intelligence Research Partners Technology Platform While the dominant application for the button today is the replenishment of household consumables, Amazon’s Dash is a low-cost device for connecting to the Internet of Things. It contains all the components of a portable/wearable IoT device: a processor, wireless communications, an output device (LED) and a sensor, the switch. The button could be expanded to incorporate other sensors and output devices. Amazon sells a generic dash button to developers for connection to various web services (including AWS IoT1, AWS Lambda2, Amazon DynamoDB3, Amazon SNS4) for $19.99. Hackers have also reprogrammed the Dash button to perform additional tasks, such as order pizza, beer, Uber cars, keep grocery lists, track habits and music practice, act as a silent doorbell and control household electronics devices, among many others. An Exclusive, Prime-Only Benefit Although it seems any Amazon customer could benefit from the device, Dash buttons are available exclusively to Prime members, likely because they also qualify for free, two-day shipping. Prime-only services include, free two-day shipping, media, such as video and music, offerings, and Amazon Prime Now one- or two-hour shipping. Dash Replenishment Service Dash Replenishment Service (DRS) is Amazon’s infrastructure behind its Dash buttons and other connected devices that access Amazon’s retail 1 A managed, cloud-based platform for connecting to IoT devices. 2 Provides a personal computer (PC) that enables customers to run programs without provisioning or managing servers, and customers pay for the computer time. 3 A cloud database service. 4 Simple Notification Service—a managed push-notification service that sends individual messages or broadcasts messages to large numbers of recipients. DEBORAH WEINSWIG, MANAGING DIRECTOR, FUNG GLOBAL RETAIL & TECHNOLOGY 4 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved. SEPTEMBER 27, 2016 platform to build automatic reordering experiences for their customers. Selected connected DRS devices include: • Aesop Works’ iUSHU, a smart device that tracks medicines and food use and provides statistics on the phone; it ensures patients take their medicine and keeps it away from children. • Brita Infinity Smart Water Pitcher monitors the status of the filter and when a new one is needed, places an order via the user’s wi-fi network to Amazon Dash replacement. • GE Appliances’ wi-fi connected dryers and dishwashers interact with the Amazon Echo intelligent appliance and will soon support automated reordering of dryer fabric softener sheets and dishwasher detergent packs. Other appliance and device makers that use DRS include: AESOP-Works (medicine and vitamins consumption tracking), August (smart locks) Behmor (coffee brewing system), CleverPet (pet food monitoring), Gmate (diabetes management systems), GOJO/Purell (hand sanitizers), Hershey (candy), JPO Certified (industrial controls), Neato Robotics (vacuums), Obe (pets’ foot/water consumption), Oster (smart pet feeders), Perfect Company (appliances), Petnet (smart pet feeders), Samsung (laser printers), Sealed Air (soap dispensers), simplehuman (garbage cans), SmartThings (home automation), Thync (wearable energy strips) and Whirlpool (washers, dryers and smart dishwashers) and Vivint (home security). Source of Data The Dash is by definition a device that is richly connected to Amazon’s commerce and replenishment system. It provides data on the time, frequency and location of orders, for every Dash button in a consumer’s home. The device is a proprietary source of information for Amazon which it can use to optimize product assortment, shipping methods and to maximize the profitability of each Dash item or set of items. Source: Shutterstock DEBORAH WEINSWIG, MANAGING DIRECTOR, FUNG GLOBAL RETAIL & TECHNOLOGY 5 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved. SEPTEMBER 27, 2016 DASH OPERATION The Dash is a simple, one-button device that bears the logo of a particular product stuck to the surface via an adhesive strip.
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