Amazon Com An E Commerce Retailer Marketing Essay

Amazon Com An E Commerce Retailer Marketing Essay Aggressive competition, along with the external factors of a poor economy and possible repeal of the Internet sales tax exemption, has forced Amazon.com to reevaluate its current strategies and redevelop an effective differentiating strategy in order to make the company a consistent money maker in the short and long-term time frames, while still continuing to pursue corporate objectives of expanding at reasonable costs and staying ahead of the companys competition. 2. Summary statement of the recommended solution: Develop and implement a competitive business-to-business (B2B) exchange for suppliers, retailers, manufacturers and distributors. B. THE SITUATION Amazon.com was founded by Jeff Bezos in 1994 and was , à ¢Ã¢â€š ¬Ã‚ ¦considered to be the premier online retailer in the world (Collins, P., Mockler, R., Gartenfeld, M., p. 2, 2003) in 2003. The company originally only started with selling books, but later expanded into several other product lines such as: CDs, DVDs videos, electronics, toys, apparel, and home garden supplies. Amazon.com also offered services which included: online auctions, partnerships with retailers (i.e. The Gap Eddie Bauer,) Zshops (store hosting) and website management. In 2003 the company reported its first operating profit of $64.1 million, which was an 115.55% increase from 2001s $412.2 million operating loss, for the fiscal year ending December 31st, 2002. Amazon continued to meet its internal goals, à ¢Ã¢â€š ¬Ã‚ ¦of focusing on increased market share, expanded product offerings, and overall sales growth, the company was still facing pressureà ¢Ã¢â€š ¬Ã‚ ¦to produce consistent operating profits and t o prove that its business model worked financially over the long-term. (Collins, P., Mockler, R., Gartenfeld, M., p. 3, 2003) The pressure the company was facing, combined with a decreasing consumer confidence, an increased unemployment rate, and competitive threats from other online companies, like eBay and Yahoo!, who had started to expand into Amazon.coms current markets, left Bezos à ¢Ã¢â€š ¬Ã‚ ¦with the task of developing an effective differentiating enterprise strategy if Amazon.com was to survive and prosper against aggressive competitionà ¢Ã¢â€š ¬Ã‚ ¦ (Collins, P., Mockler, R., Gartenfeld, M., p. 2, 2003) II. ANALYSIS A. ANALYSIS OF THE SITUATION 1. Management In Amazon.com first year as a company, they focused completely on increasing market share and superior customer service, but when the dotcom bubble burst happened and Amazon.coms stock prices fell Bezos and his management team struck a good balance between their goal of increasing market share and their goal of producing a profit. This shows that the management team for Amazon.com is rather flexible one and is willing to change strategies when the opportunities arise and the company is willing to modify its business model if it feels that an opportunity to expand in a new area will be profitable. 2. Operations Amazon.com has a corporate headquarters, which is located in Seattle, WA, and several distribution centers that are located in New Castle Delaware, Coffeyville Kansas, as well as in Campbellsville and Lexington Kentucky. Having these distribution centers allow for a better ability to regionally segment the United States, which allows for faster order fulfillment and higher customer satisfaction. Since they operate online, they have also expanded their website operations into several different countries including: Canada, France, Germany, Japan and the United Kingdom. 3. Marketing Amazon.com, in 2002, was available in only five international geographic regions including: Canada, France, Germany, Japan and the United Kingdom, as well as the United States. The company needed effective ways to reach out to its markets and in 1999 and 2000, Amazon.com spent a good amount of money, like many online retailers of the time, on advertising/marketing. They sacrificed short-term profits in order to acquire a greater chance of market share. At this time, online retailing was a fairly unfamiliar way of doing business, and the company felt that spending money on advertising/marketing its goods and services was the best way to give them a competitive edge. In the 2002 holiday season alone, Amazon.com spent about $5 million on TV and radio ads, but due to increased pressure of producing an operating profit while still being able to offer low prices combined with free shipping, the company was forced to cut advertising/marketing expenses and decided to suspend all of its TV an d radio advertisements. The company then invested in much more forms of online advertising/marketing (i.e. search engine ads and email ads), as well as direct mail and newspaper advertisements. This allowed for successful cutbacks in the budget. 4. Finance Amazon.coms first company goal was to gain market share, and the companys management team was willing to sacrifice potential profits in order to allow for potential growth. The company focused on this goal up until the dotcom burst and then switched gears and focused on controlling expenses in order to produce an operating profit according to general accounting principles. If one exams Amazons financial sheets from 2000 to 2003, one can clearly see how hard it is to sustain operating profitability and why the company is seeking to take a different course in several areas, including cutting costs. While Amazon had operating profits of $52 million in the third quarter of 2003-its first operating profit in a quarter that doesnt include the holiday season-it was a mute accomplishment. Once interest payments of $30 million are subtracted, Amazon is left with just $22 million in operating profits. With numbers like this, it makes for a rather weak financial portfolio. 5. Administration (Human Resources) A big part of Human Resources is customer service, which was a tremendous emphasis for the company, and because of that emphasis Amazon.com had outstanding customer service. This is one of the primary reasons the company become so successful. Their customer service allowed for the empowerment of the companys customers, and made maintaining a high level of customer service completely necessary, as well as pivotal to the companys survival. The company was able to accomplish such outstanding customer service in five ways: 1. Their customer service informed customers of predicted and actual shipping times, and gave the option of allowing customers to piece out large orders. 2. It allowed customers to review products. 3. Emails were sent to customers offering suggestions on other products based on past orders. 4. Numerous ways to search for products were offered making for an easy to use interface. 5. Using cutting edge technology, like 1 Click Ordering , making for an easy shopping experience. These reasons, along with things like Amazon.coms A to Z and Safe Shopping Guarantee (Collins, P., Mockler, R., Gartenfeld, M., p. 10, 2003), allowed them to differentiate themselves from their competition. 6. SWOT Analysis a. Strengths The companys strengths include: economies of scale, strategic alliances, broad customer base, internet storefront, variety of products and services, first mover advantage, customer loyalty, technological advantages, and distribution capabilities. b. Weaknesses The companys weaknesses include: difficulties of handling large number of customers, limited operating history, security awareness, and low margins in the sector. c. Opportunities The companys opportunities include: building alliances with other companies, concentrating on emerging segments, and concentrating on developing markets. d. Threats The companys threats include: the unknown future of online commerce, more offline companies becoming online companies (new competition) and heavy investments. 7. Products or Services Amazon.com doesnt actually manufacture any of the products that it sells; however, they do warehouse and ship books, videos, music/DVDs, electronics, home garden, apparel and toys. The company has several services that include: online auctions, Zshops, and Website Management. Zshops offer smaller business the opportunity to be able to sell on Amazon.coms interface. This increases the small businesss customer base as well as their product reach. This allows Amazon.com the ability of hosting and managing their websites. The companys website management service gives smaller businesses that dont have adequate websites to use Amazon.coms technology on their own web interfaces. B. PROBLEM DEFINITION 1. State the problem symptoms: The problem that Amazon.com is presenting is that the company, tremendous growth and increase in revenues, must grow and expand their business in innovative ways in order to stay ahead of their competitors, while maintaining the level of excellent customer service they have become so well known for. Due to the increase of competitors, along with the possibilities of taxes levied against online transactions, if Amazon.com cannot find a feasible and low cost expansion solution, the company might have to cut products or services they offer in order to maintain profitability. If this takes place the company could find itself with less global corporate positioning, a potentially tarnished reputation or they could even end up being the receiving end of a buyout from a competing company. 2. Define what is intended to be accomplished by correcting the problem: If Amazon.com successfully corrects their current problem, the company can continue to different themselves from their competition and hold onto the top spot of global online retailers. The company also will not have to make any reductions in their product or service offerings, allowing them to continue with their initial company mission of making book (as well as other products as this point) buying, à ¢Ã¢â€š ¬Ã‚ ¦into the fastest, easiest, and most enjoyable shopping experience possible. (Collins, P., Mockler, R., Gartenfeld, M., p. 4, 2003) 3. Examine the causes of the problem: There are several possible causes to Amazon.coms dilemma. Aside from: economic downfalls, increasing unemployment rates, issues of diverse cultures and languages, legal and regulatory differences, localization issues, and technology and infrastructure expansion concerns. The markets are flooded with millions of products and various options are available for customers to switch their loyalties. Hence the product life cycles are considerably shorter. Shorter product life cycles have denied companies the sustained and reliable growth, as well as financial benefits, and posed a challenge of survival to many others in the same market as Amazon.com. III. SYNTHESIS A. ALTERNATIVE SOLUTIONS 1. The first alternative solution is to, à ¢Ã¢â€š ¬Ã‚ ¦expand Amazon.coms business in online auctions. Because of the continued need for an intermediary in these types of transactions, Amazon.com would be able to market this additional service to both its current customer base, through the use of personalized eà ¢Ã¢â€š ¬Ã¢â‚¬Ëœmails, and to new customers, through a general advertising campaign, including television and print ads. The benefit of this alternative was that Amazon.com would be expanding on an existing service offering and would not incur any developmental or startup expenses. An additional benefit would be that by aggressively promoting this service, Amazon.com would be able to attract new visitors to its web sites, and these customers might also purchase additional goods and services, such as new books and music that Amazon.com offered. This alternative was feasible because of the prior experience Amazon.com had developed in expanding and marketing other product lines and services. By learning from past mistakes and successes, Amazon.com would be able to formulate the correct marketing campaign to attract additional traffic to its web sites. The alternative could work because Amazon.com had become one of the premier online brands and had a large enough customer base to compete against eBay and other established online auction services such as Ubid.com and Yahoo! Auctions. In addition to its name recognition, Amazon.com would look to use its large number of customer service programs, such as Amazon Payments and Safe Shopping Guarantee, to address buyer and seller concerns about privacy, fraud, and security while also expanding the number of payment options available to both parties. The first drawback within this alternative was that Amazon.com would be competing against its own product offerings, as well as those of its retail partners. A second drawback was the fact that it was going headà ¢Ã¢â€š ¬Ã¢â‚¬Ëœtoà ¢Ã¢â€š ¬Ã¢â‚¬Ëœhead with one of th e few other profitable online companies, eBay. eBay had built a considerably large base of loyal customers who would possibly be reluctant to go to a competitor. A way around the first drawback was to either set up the auction services in a separate and distinct section on the web site, away from the retail aspect, or set up a new web address for this service line. A way around the second drawback was for Amazon.com to market itself as a less expensive alternative to eBay, setting its pricing structure at a level that was lower than eBays. (Collins, P., Mockler, R., Gartenfeld, M., p. 15, 2003) 2. The second possible alternative solution is to, à ¢Ã¢â€š ¬Ã‚ ¦develop and implement a businessà ¢Ã¢â€š ¬Ã¢â‚¬Ëœtoà ¢Ã¢â€š ¬Ã¢â‚¬Ëœbusiness (B2B) exchange for suppliers, manufacturers, distributors, and retailers to use. Because the largest percentage of eà ¢Ã¢â€š ¬Ã¢â‚¬Ëœcommerce sales resulted from transactions conducted on 13213 exchanges, this opened up a large potential market for Amazon.com to expand into. The benefit of this alternative was that Amazon.com could easily market this service to its large number of affiliates and partners that it conducted business with. Having its partners suppliers and distributors participate in this online exchange would allow their affiliates to achieve greater operational efficiencies in their supply chain. These efficiencies would translate into lower prices for Amazon.com. A second additional benefit for Amazon.com would be the steady cash flow it would receive through the charging of hosting fees and commissions on completed transac tions. This alternative was feasible because Amazon.com would use its past experiences and patented technology to develop a secure, easyà ¢Ã¢â€š ¬Ã¢â‚¬Ëœtoà ¢Ã¢â€š ¬Ã¢â‚¬Ëœuse platform that its customers would be comfortable with. It was also feasible because of the large number of midsize to small companies that did not have the necessary capital to develop or run their own exchanges but wished to participate in these auctions in order to increase their own sales and market coverage. This alternative could win against the competition because these additional offerings would be available to all companiesà ¢Ã¢â€š ¬Ã¢â‚¬Ëœnot just companies from one specific industry, which most existing B2B exchanges did (for example, Covisint in the automotive industry). And because Amazon.com would only be acting as an intermediary with these exchanges, costs would be kept to a minimum because Amazon.com would only be the host of the exchange and would not have to hold any inventory. The drawbac k to this was that Amazon.com would be entering a business that would require more intense customer service than its other lines of business. This was due to the high dollar amounts of the transactions, as well as the issue of product specifications. An additional drawback would be the issue of payment processing and concerns with the shipping and receiving of goods. A way around the first drawback was to assign specific customer service personnel to each exchange category. By having an assigned customer service representative handle all aspects of the exchange transaction, Amazon.coms employees would be able to build an excellent relationship with the involved parties, which would help to address any issues that might occur. The way around the second drawback could be broken down into two categories. First, Amazon.com would use its escrow payment service to hold all movies until the goods were received and all parties were satisfied. To help address shipping concerns, Amazon.com, b ecause of its relationship with shipping companies, could negotiate discounted deals with them for their exchange partners to use. (Collins, P., Mockler, R., Gartenfeld, M., p. 16, 2003) B. RECOMMENDATIONS AND CONCLUSION According to the evidence in this case study, the recommended solution is to seek growth through implementation of a business-to-business (B2B) exchange for suppliers, manufacturers, distributors, and retailers to use. Business-to-business (B2B) exchange is increasing rather rapidly and it will offer the chance to enter a new market. This solution can provide a number of benefits, including the fact that growing Internet technology allows for a level of collaboration between affiliated partners in the supply chain, which would have been difficult and/or rather expensive in the past for anyone but the biggest producers or retailers. Implementation of a business-to-business exchange would benefit Amazon.com by allowing the company to, à ¢Ã¢â€š ¬Ã‚ ¦easily market this service to its large number of affiliates and partners that it conducted business with. Having its partners suppliers and distributors participate in this online exchange would allow their affiliates to achieve greater operational efficiencies in their supply chain. These efficiencies would translate into lower prices for Amazon.com. A second additional benefit for Amazon.com would be the steady cash flow it would receive through the charging of hosting fees and commissions on completed transactions. (Collins, P., Mockler, R., Gartenfeld, M., p. 16, 2003) It could also allow for additional functions that could be performed which have been previously unaddressed:       à ¢Ã¢â€š ¬Ã‚ ¢ Providing a starting point where buyers and sellers enter the market either through a web browser/interface, or supply chain optimization solution.       à ¢Ã¢â€š ¬Ã‚ ¢ Gathering buyers and sellers of a specific industry in one centralized marketplace.       à ¢Ã¢â€š ¬Ã‚ ¢ Facilitating and enabling transactions by building trust in the online market through credit verifications, reputation ratings and various decision making support tools.       à ¢Ã¢â€š ¬Ã‚ ¢ Post-transaction customer service support such as: warranty and maintenance, asset management, etc. which would promote recurring participation. However, even though à ¢Ã¢â€š ¬Ã‚ ¦Amazon.com would be entering a business that would require more intense customer service than its other lines of business. This was due to the high dollar amounts of the transactions, as well as the issue of product specifications. An additional drawback would be the issue of payment processing and concerns with the shipping and receiving of goods. (Collins, P., Mockler, R., Gartenfeld, M., p. 16, 2003) There is an easy way around this problem, which is to, à ¢Ã¢â€š ¬Ã‚ ¦assign specific customer service personnel to each exchange category. By having an assigned customer service representative handle all aspects of the exchange transaction, Amazon.coms employees would be able to build an excellent relationship with the involved parties, which would help to address any issues that might occur. (Collins, P., Mockler, R., Gartenfeld, M., p. 16, 2003) In conclusion, implementing a business-to-business strategy would allow Amazon.com to remain competitive even in a, à ¢Ã¢â€š ¬Ã‚ ¦poor economic environment, and the possible repeal of the sales tax exemption afforded eà ¢Ã¢â€š ¬Ã¢â‚¬Ëœcommerce transactionsà ¢Ã¢â€š ¬Ã‚ ¦ (Collins, P., Mockler, R., Gartenfeld, M., p. 16, 2003.) The benefits and advantages of this solution outweigh the disadvantages as, this alternative would win against the competition because these additional offerings would be available to all companiesà ¢Ã¢â€š ¬Ã¢â‚¬Ëœnot just companies from one specific industry, which most existing B2B exchanges did (for example, Covisint in the automotive industry). And because Amazon.com would only be acting as an intermediary with these exchanges, costs would be kept to a minimum because Amazon.com would only be the host of the exchange and would not have to hold any inventory. (Collins, P., Mockler, R., Gartenfeld, M., p. 16, 2003)