Wall Mart of the Internet
From “Earth’s Biggest Bookstore” to “everything to everybody” to “Wall Mart of the Internet” to “World’s most customer-centric company”, Amazon has been tagged with these kinds of labels by its customers and followers. The reason for these many labels is because of the Amazon changing business model. Starting from Single-product and an intermediary with little inventory in 1995-1997 to Multi-product, profit-making, customer-oriented, investor, Services provider in 2000 Amazon has been changing its business model according to market conditions.
One indication of a smart company is to continuously change its business model; it is an indication of smart company and ultimately the smart management team. It is also an indication that the company is learning and adopting itself to the external and internal environment. Amazon is the clear market leader for the largest US e-retailing categories of books, CDs and DVD movies. In various consumers’ polls, when respondents are asked for their experiences of e-shopping, Amazon “streaked ahead” of all others as the world’s favorite e-retailer.
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This means that Amazon is the undisputed favorite on considerations such as convenience, reliability and customer service. Amazon has achieved worldwide success and brand recognition due to paying attention to extensive offline advertising, which helped the company to become one of only three dot. com brands in the Interbrand world league table. It is an illustration of the power of branding that Amazon is the world’s top e-retailer. Before the dot. com downturn in the spring of 2000, the word “Internet” keyed into what seemed pervasive optimism for a new century.
It meant youth, new possibilities and an opportunity to break with traditional business and create new rules. However, in 2000 things drastically changed as many e-commerce start-ups failed to return expected profits and went bankrupt. After this came valuable lessons across e-commerce, and evidence for incumbent retailers that factors such as having an established brand provide significant advantages in e-retail and play a part in customer loyalty and increased profit. Analysis of dot.
com failures and comparison with traditional retailers in the same industry, for example eToys, which folded in 2000 and was subsequently bought by an established toy retailer, vs. Toys R Us, which successfully opened an e-retail channel through collaboration with Amazon, has revealed several advantages for the established retailer. Newcomers usually build their initial strategy on attracting new customers through aggressive marketing, brand-building and advertising, which logically lead to massive expenses and cash shortages.
Amazon, however, has an existing customer base and can build on brand values that are already in place. Amazon’s marketing budgets allow the company to attempt new online projects or business lines, unlike many start-ups. Founder of Amazon. com, J. Bezos rejected the traditional model for retailing. Having known that the usage of Internet is increasing every year with gigantic steps, – some resources report about 2000% usage increase annually, – Bezos decided that his retailing model should be intrinsically connected to Internet.
While opening new physical retail outlets can expand the geographical reach of a business and add convenience for consumers, retailing online not only carries these benefits, but also offers further returns that are more specific to online trading. Bezos put books as Amazon’s core product, because they almost ideally correspond for the model of e-retailing. Low unit price, low risk cost, easy to pack and ship, and finally in a high and growing demand, books have become a perfect solution for Amazon’s model. Now books are by far the largest e-retailing category in the US.
Research carried out by many companies illustrates that about 65 per cent of the purchases made by Web shoppers in the US consisted of books. For newly created company, the Internet had global reach and provided the opportunity to trade internationally. For Bezos, Amazon’s broad benefits included the ability to trade 24 hours a day and seven days a week, and operate with lower overheads in terms of staff and space, while more particular advantages included the ability to increase the number of customer “touch points” and build more personalized customer experiences, products and relationships.
However, again for J. Bezos these e-retail advantages did not imply that an online presence is a recipe in itself for success; that kind of thinking was tried and failed with the dot. com boom and bust. Instead, if there was any recipe for successful integration, Bezos found it in variants of established business practices, such as an understanding of the strengths and weaknesses of the business, for example in relation to technology awareness, which is a good indicator of e-commerce success.
Amazon’s mission and strategy is quite simply “to offer Earth’s Biggest Selection and to be Earth’s most customer-centric company, where customers can find and discover anything they may want to buy online and [we] endeavor to offer our customers the lowest possible price. ” The company accomplishes this by operating six global internet sites: www. amazon. com, www. amazon. ca, www. amazon. de, www. amazon. jp, www. amazon. co. fr and www. amazon. co. uk.
Through their zShops, auctions, affiliate program, [email protected] and Amazon Marketplace programs, Amazon, and their sellers and partners, offer new and used collectibles and products in categories such as apparel and accessories, DVDs, electronics, computers, books, music, videos, cell phones, tools and hardware, the list is almost endless. In order to maintain quality, the company packages and ships all of its merchandise. They also continue to negotiate volume deals with suppliers to meet their goal of lowering prices.
Additionally, Amazon has formed partnerships and alliances with publishers, other on-line retailers, technology providers, either handling their web site operations or linking them to its virtual portal. As part of their diversification strategy, Amazon recently acquired Internet Movie Database www. imdb. com (IMDb), which is an authoritative source of information on movie and entertainment (Dennis et al, 2004). This acquisition is one of many Amazon is making expand its product and service offerings.
The company is also preparing to sell internet domain names and already has received the Internet Corporation for Assigned Names and Numbers (ICANN) approval. In order to improve customer service the company is investing in operational facilities, like its multi-lingual customer service support center in the Netherlands, to meet its rapid growth, increase selection and meet future operational needs while building efficiencies. This strategy helps Amazon increase its low profit margin, decrease its operational cost, increase customer response and order processing services and pass that savings on to the customer.
Amazon strives to provide customers with the best possible online shopping experience by leveraging their powerful and innovative technologies. Part of the company’s competitiveness lies in their proprietary technology, which is licensed to companies like Target to run their e-commerce site. Its patented portal technology allows the customer to customize their on-line experience with personalized home page, product recommendations, email notifications on orders and new products, the ability to post reviews, 1-click ordering, search functions, up selling, and secure shopping cart functions, to name a few.
Furthermore, they use technology to drive customer relationships. As an example, the company uses pop up daughter windows to quiz customers about Amazon. These pop up windows survey the customer about Amazon related facts and in return the customer can get up to . 25 cents a day put in their account for answering questions. Building on this use of technology the company recently received patent approval and plans to add a chat function to enhance the customer experience and help consumers find products through each other.
Through its Web Services development and affiliate program it encourages web site owners and developers to create applications capable of interacting with Amazon’s catalog, search engine, shopping cart and merchandising tools. In an effort to remain competitive and preempt new technology Amazon has an ongoing program to develop, update and add software and hardware including partnerships like it’s recently inked deal with Google. com. This will allow them to avoid service disruptions; slow response times, poor levels of customer service, and delays in information delivery.
Amazon uses its proprietary technology to transform the online purchasing experience into the easiest and most enjoyable shopping experience online. The site communicates to the customer a visual feel of being in a one stop shop where they can find and purchase virtually anything they want. The site loads quickly, is easily navigated, allows the customer to instantly see an array of products, and provides a host of other customer driven enhancements designed to drive customer satisfaction. Amazon’s site conveys to the customers they can have it their way, all day.
And by placing its image on everything it touches Amazon continually reinforces its brand, making it one of the most recognized customer-centric brands in the world. For the first time in year 2000, Amazon management has set its focus on making profit. Again, it is an indication of nothing but smart, opportunistic management that utilized its strength to grow. It is very clear that Amazon management team is very focused. In order to meets its future targets, Amazon has implemented a restructuring plan.
It will allow Amazon to reduce operating costs, reduce employee staff, and strengthen some of its fulfillment and customer service operations. According to the quarterly report released by amazon. com for quarter ended September 30, 2004 “There has been a steep decline in operating costs” (Amazon, Quarterly results, 2004). This has improved the performance of the company. Since its beginning, Amazon has adopted various e-Business model to increase its customer base and recently set its focus on making profit. Given below are the strategies adopted by Amazon.
Amazon has a track recording of first gaining expertise in the market and then scaling into other areas. For example, Amazon started with a web-based bookstore model and after gaining expertise in various operations expanded to other segments and geographies. Another example is, after capturing the US market; it expanded its business to Europe, namely the U. K, France and Germany and then to Japan. One advantage of this approach is that the incremental costs to expand the business, whether to multiple product line or geographically are small.
This strategy of perfecting before scaling helps in long-term survival and growth of the company. Since its beginning, Amazon has always kept focus on the needs of its customer and never lost sight of it. This gives Amazon a strong foothold of the internet retail business. Playing on this customer strength, Amazon has struck deals with industry leaders retailers Toysrus. com, Borders, Drugstore. com, and Target to help them draw customers to their Web sites, thereby giving birth to its services segment. Amazon is playing on its strength here and in the process creating a place for itself as a provider of e-tail services.
Under Amazon’s cooperative model, the partners do not compete with each other and try to lessen each other risks. This cooperation represents a symbiotic relationship, where the two partners do what they do best while depending on each other to eliminate respective weaknesses. On August 10 2000, Amazon and Toyrus announced a strategic alliance. According to the press release by Amazon “The two companies have entered into a strategic alliance under which each company will assume responsibility for specific aspects of the toy and video games and baby products stores.
Toysrus. com, in collaboration with its majority shareholder, Toys “R” Us, Inc. , will identify, buy and manage inventory; Amazon. com will handle site development, order fulfillment, and customer service, housing both Toysrus. com’s and its own inventory in Amazon. com’s U. S. distribution centers” (Dennis et al. , 2004:118). This alliance helped Amazon in eliminating its inventory risk, as it does not have to purchase or store any toys until the customer have ordered and paid for the goods. Under Amazon’s coopetitive model the two parties act as provider and customer.
Both the parties compete with each other but one party tries to lessen other risks and in return gets the share of others business. On Apr 11, 2001 Amazon and Border announced strategic alliance. According to the press release by Amazon on Apr 11, 2001, “Amazon. com will be the seller of record, providing inventory, fulfillment, site content and customer service for the co-branded site. The new site will continue to offer content unique to Borders. com, including store location information and in-store event calendars” (Prior, 20001:6).
In this case Amazon will continue to sell books on its own, but will also provide services to Border. In return Amazon will get a share of every sale by Border. According to an article on Informit. com “The Click and Brick model allows an existing offline business to profit from partnering with an emerging online presence”.  In this regard, Amazon has struck a deal with electronic retailer Circuit city. This will give the customer, the advantages of picking up their purchases from hundreds of stores rather then paying for shipment charges.
Amazon will receive a share of the revenues for all Circuit City electronics goods sold through Amazon. Amazon will be responsible for processing the transaction while Circuit City will be responsible for order fulfillment and product-related customer service. In all these cases, Amazon is extending its channel expertise in Web retailing to “e-nable” other retailers. With a full year’s experienced retailers under its belt, Amazon is set to scale the service model. The Borders and Circuit City deals are important steps in that direction.
The coopetitive model is converting Amazon into a “product-less platform provider”, directly impacting its bottom line, with no inventory costs. The business model adopted by Amazon has given it a boost in its online business. By making strategic alliances with the industry leader and making the life of customer has made Amazon a profit making company. According to 2004, financial results Amazons’ “Operating cash flow was $567 million for 2004, compared with $392 million for 2003. Free cash flow grew 38% to $477 million for 2004, compared with $346 million for 2003.
Common shares outstanding plus shares underlying stock-based awards outstanding totaled 434 million at December 31, 2004, compared with 433 million a year ago. Net sales were $2. 54 billion in the fourth quarter, compared with $1. 95 billion in fourth quarter 2003, an increase of 31%. Net sales, excluding the $85 million benefit from changes in foreign exchange rates, grew 26% compared with fourth quarter 2003” (Amazon, 2005). Amazon business model has steadily evolved and over the years the large retailers have realized the importance of Business-to-consumer e-commerce.
In contemporary context, along with other e-commerce companies Amazon experiences several problems. Financial and marketing analytics indicate that due to increased online competition, Amazon is gradually loosing its market share. Experts and investors indicate that Amazon’s technology and content costs soared 59% in the quarter, while the company keeps spending heavily on marketing campaigns, free-shipping promotions and other marketing activities to attract customers to shop regularly on its site.
It is not surprising that Amazon is spending estimated 60 percent of their revenue on numerous marketing activities and building an appropriate brand image. Amazon’s brand allows company to be known, distinct, and credible in the minds of existent and potential customers, consumers, and stakeholders. Amazon’s brand facilitate the building of relationships with existing and potential customers, consumers, and stakeholders. In addition, company’s brand communicates the benefits offered to buyers and stakeholders that embody the value system of the company.
Due to increased online competition, the brand image strategy utilized by Amazon is justified because it helps to retain existing customers and to attract new ones, gradually making them returning. For every business, particularly online e-retailing, good customers’ returning rate is an indication of a healthy business. That’s why Amazon should pursue this aggressive marketing and branding strategy to keep its customers. Many analysts discuss merger opportunities for Amazon. The merger will help Amazon. com expand the market share in E-commerce and create a new passageway.
For instance, Amazon. com can merge with Wal-Mart, which has $26 billion market value and only $756 million debt. Now Wal-Mart is interested in E-commerce and online shopping. If Amazon. com merges with Wal-Mart, they will become the largest retail company in E-commerce. Amazon. com will also increase its market share. In addition, after the merger, Amazon. com can gain more marketing resources from Wal-Mart to create a new sales passageway. For instance, customers can purchase the products from Amazon. com on the Internet and pick the items, or return them at Wal-Mart.
It will provide additional choose for customers. The merger may help Amazon to create new customers and products. Bertelsmann has $14 billion market value and the company’s strategy now is focusing on music retailing and book sales. Their business is related to Amazon’s business. The CEO of Bertelsmann is also trying to open their business in American market (Brynjolfsson & Urban, 2001). If Amazon. com merges with this company, it will gain the new customers from Bertelsmann. Furthermore, integrating the products from Bertelsmann, Amazon.
com can create new products on their website. Finally, a merger can improve and cover the financial loss of Amazon such as net sales loss, long-dept and cash loss. For instance, if Amazon merges with General Growth Properties, which has 136 malls in 37 states and owns $2. 8 billion market value, Amazon. com can still keep the power of operation and exercise the new marketing strategies (Brynjolfsson & Urban, 2001). Moreover, Amazon. com can gain the financial support from this company to cover its long-debt $2 billion. In addition, the merger will help Amazon.
com increase the financial resources such as the amount of cash flow, and also decrease the cost and expense of the company. Another future prospect is to invent a new E-business strategy. E-commerce is one way that people can trade on the Internet. This trading system is very important, but it is not the only thing that the e-commerce enterprises should focus on. Amazon. com is a giant in E-commerce and the company uses Secure Sockets Layer (SSL) to trade, but Amazon cannot make profits even though the company has very strong technological support.
Some specialists point out that communication, resources allocation, and project management guarantees success in E-commerce. Effective communication, which can improve business performance, is one of the objectives that Amazon. com should fulfill. Effective communication includes two aspects: internal and external. First of all, internal communication emphasizes negotiation. Necessary and correct information must be communicated precisely between the employees or the departments. Secondly, external communication emphasizes on empowerment and good timing.
For instance, Customer Services is a department that helps customers to solve problems. They have to communicate with the customers and understand what the customers want and need, and then report to the departments or the board. If the customer service department has the power to react immediately from the problems of customers and has good communication and relationship with the customers, it will create more business opportunities for Amazon. com. The second key that helps industry to succeed in E-commerce is resources allocation. There are various resources in the enterprises such as human resources and customer resources.
First of all, concerning human resources, Amazon. com should understand employees’ particularities and arrange them in appropriate positions. If the employees are set in the right positions, the company should become more efficient. Secondly, in regard to customer resources, Amazon should collect information, such as suggestion, complaint or demand from the customers and then try to improve their products or services to provide better services to the customers. If the services satisfy the customers, Amazon will create more and more opportunities and new customers in the near future.
For example, new outsourcing strategies should be used to collect focus group to survey customers’ opinions. The third key that may become helpful for Amazon is project management. A successful E-commerce enterprise should focus on project management. Project management emphasizes teamwork (Epstein, 2004). There are many teams in the company and each team has its different project and goal. Each team also has its power to make the decision. The responsibility of the team is to achieve the product. The responsibility of the enterprise is to manage the teams and make sure that the projects can be finished effectively.
Distributing the limited resources to different teams and projects is the great challenge to the project management. The best way to overcome this challenge is to emphasize effective communication and negotiation Amazon. com is now considered as the world’s largest e-retailer of books, CDs and DVDs. The Amazon’s web portal is user-friendly, enabling e-Shoppers to find books quickly by title, author or subject. Users can find their title in seconds from a few keywords. Synopses and contents lists are provided, along with a list of other relevant books.
Amazon keeps a record of customers’ preferences and advises when new books likely to be of interest are published. During many years, Amazon is renowned for customer service, security and fast delivery. However, in current business context, the company is loosing market share, though is still well-recognized leader in online industry. The company keeps heavily investing in its brand through aggressive online and offline marking, building appropriate brand awareness among its current and potential clients. References Amazon, Inc. (2004). Quarterly results, Available at < http://media. corporate-ir.
net/media_files/irol/97/97664/reports/91338ACL. pdf> Amazon, Inc. (2005). Press release Q4 Financial Results, Available at < http://media. corporate-ir. net/media_files/irol/97/97664/news/Release_Q4_04. pdf> Retrieved June 5, 2006 Dennis C. , Fenech T. , Merrilees B. (2004). E-Retailing, Routledge, London Brynjolfsson E. and Urban G. (2001). Strategies for E-Business Success, Jossey-Bass Epstein M. (2004). Implementing E-Commerce Strategies: A Guide to Corporate Success after the Dot. Com Bust, Praeger Prior, M. (2001). “Amazon to Operate Borders. com. ” DSN Retailing Today, May 1, 40(9): 6.