Company Introduction 2 Basic facts about Amazon
Amazon.com is a US based multinational electronic commerce company.
Headquartered in Seattle, Washington, it is the world's largest online retailer.
Jeff Bezos founded Amazon.com, Inc. in 1994 and the site went online in 1995.
The name Amazon.com was chosen because the Amazon River is one of the largest rivers in the world.
Amazon.com started as an online bookstore but soon diversified into selling DVDs, CDs, MP3 downloads, computer software, video games, electronics, apparel, furniture, food, and toys.
Amazon.com listed with the tagline, ‘Earth’s biggest bookstore’.
Posted a net revenue of $34.2 billion and net income of $1.15 billion in 2010.
Amazon boasts of a customer base of 137 million which is more than twice that of GROUPON
In 15 years (1995 - 2011) Amazon went from 1 category to 16 categories
By introducing two new product categories every year for almost a decade, Amazon’s market share represents one third of U.S. e-commerce sales
Did you know? 3 all these companies belong to Amazon…
Other Amazon Initiatives 4 Companies with Mother brand name AmazonBasicsAmazon-branded electronic products Amazon Studios online social movie studio Amazon Kindle E- book reader AmazonFresh sells and delivers groceries in Seattle Amazon Warehouse Deals offers discounts on refurbished products Amazon prime Prime membership program
Other Amazon Initiatives 5 Companies with Mother brand name Amazon Cloud drive Cloud computing Amazon Instant Video Video on Demand Service Amazon Web Services Collection of web services giving cloud computing platform Amazon Appstore Interactive venue for developers and buyers Amazon Cloud Player lets you sync music and playlists across computers Amazon mp3 Online music store
Both male and female, mostly in the age group 35 – 49. More importance to females as they are the predominant customers for Amazon. Amazon’s acquisition of Zappos was also for getting detailed insights about young woman as an online customer
From all over the world. Amazon is a global company and looks for customers all around the world. They have got tie-ups with third party sellers for international coverage
Tech Savvy users and Early technology adopters. Separately designed products like Amazon mp3, Amazon kindle, Amazon Appstore for them.
Seller customers. Amazon’s primary objective is to bring maximum number of reliable sellers under it.
App developers. New TG. Started targeting through Amazon Appstore
Competitors 8 Classification Competitors of Amazon can be classified into
Amazon Inc being a multinational e-commerce company and due to its presence over various e-commerce categories have a lot of competitors in various categories
For example rottentomatoes.com is a competitor for IMDB.com and Google App Engine is a competitor for Amazon Web Services. These two in actual becomes competitor for Amazon Inc but not amazon.com
Here we are considering only the online retailing/retailing division of Amazon.com and have classified the competitors accordingly
Competitors 9 Amazon Vs Ebay Even though the business models of Amazon.com and EBay.com are different EBay is one of the major competitor for Amazon. Normal retailing model of business Faster search and transaction speed More trusted brand by customers Products are on an average cheaper than any other site Late in global entry and not fully utilized global distribution Best in the industry in customer service Simplicity due to one listing per product More repeat purchase Auction model of retailing More number of sellers and buyers Lesser inventory cost Better reach and global presence (Amazon still doesn’t have a specialized unit in India where as ebay.in is doing well) Good customer service and very less error rate Multiple listing per product. Better margins for sellers
Competitors 10 Amazon Vs Walmart As Wal-Mart has entered into online retailing it poses as a major threat to Amazon.com. The increasing presence of amazon in web space was the reason which made Wal-mart jump into online retailing at the first place. Amazon is supposed to overtake Wal-Mart in total revenues by 2025 Largest online retailer No store presence Online sales of 34 billion in 2010 40% growth in 2010 Better prices than walmart !!! (cheaper by almost 19 %) Diversified portfolio with futuristic outlook Customer base of 137 million Subsidiaries in 7 countries Customer service ranking is 1 28 acquisitions till date Largest retailer Online sales of 4 billion in 2010 Store sales around 400 billion in 2010 Better brand value due to store presence 17% growth in 2010 Low profit margin Customer base of 200 million Subsidiaries in 14 countries Customer service ranking is 10 14 acquisitions till date
Key Drivers of Growth (1/2) Third Party Unit Growth and Prime/Free Shipping
Third Party or Seller Business is a key driver of growth for Amazon
It allows Amazon to increase selection and grow faster
It also helps push down prices on Amazon as Third Parties fight for buyers
Another key driver of growth is Amazon Prime - Amazon's program that gives annual free two-day shipping for a $79 subscription
The graph shows that Prime is driving significant growth internationally (primarily Europe)
Key Drivers of Growth (2/2) Third Party Unit Growth and Prime/Free Shipping
Shipping costs have increased over the years and in 2Q 2011, the shipping cost was 4.9%
This could mean that more users might register for Amazon Prime
The e-commerce market is growing at 14% and every Amazon segment is growing faster
Electronics and General Merchandise market in US is growing five times the US e-commerce market
*Media US – Media (books, music, video games, kindle ebooks) in US *Media Intl – Media International *EGM US – Electronics and General Merchandize in US *EGM Intl – Electronics and General Merchandize International 12
Consumer Insights (1/2) 13 Insights that shaped Amazon.com Building Trust When Amazon started they found out that their main issue was the doubtfulness inside the customers towards e-commerce and amazon.com. From this insight Amazon came up with the idea of customer reviews. When people see other people’s review they feel more confident to do the purchase. Increasing Sales Amazon found out from their database that there is a relation between the next purchase and current purchase. Based on this they developed a recommendation module which suggested a set of customized products to the customer. Faster Process It was found out that the customers who come to an online shop are there basically because of the ease of shopping. They like the reduced hassle and no-queue process. Based on this insight Amazon developed a process called one-click ordering and patented it. Prime Customers From the insight that many customers feel that delivery charges are non value adding items and felt looted for paying that Amazon came up with the idea of Amazon prime. For a subscription price the subscriber gets one year free delivery. This also induced brand loyalty.
Consumer Insights (2/2) 14 Insights that shaped Amazon.com SEO Soon after Google became a leader in online search Amazon identified that many of the potential customers search in Google for landing into a page for online purchase. Amazon strengthened its search engine optimization (SEO). Amazon has 248,000,000 pages stored in Google's index. Each of these pages has the opportunity to rank for any number of keywords in search engines. Affiliate Marketing Amazon found out that when there is more involvement with the brand, the consumer himself will act as a brand ambassador. Amazon thus started affiliate marketing. People loved to recommend the books they love to others and get an income out of it. Acquisitions Amazon found out lately that its customers mostly belong to age group of 30-50. So they wanted to get to know more about young customers. Rather than changing the current image they acquired company’s which were targeting youth such as Zappos and woot. Also they found that customers to digital camera and books go to specified sites and communities to discuss and search products. With this insight they acquired dpreviewwhich is the leading review site on digital camera and shelfarifor book community
Customer Care 15 Services that increase brand loyalty
“If you make customers unhappy on the Internet, they can each tell 6,000 friends”
Jeff Bezos (CEO Amazon).
Amazon’s customer service was ranked No 1 in 2009 and 2011 by American Customer Satisfaction Index
Following a bottom-up approach, every decision at Amazon is driven by the customer's needs.
Every employee, even the CEO, spends two days every two years on the service desk to answer calls and help customers
Amazon introduced many of the current ubiquitous best-practices to e-commerce industry. Below are a list of innovations bought by them
Increasing seller & customer base 16 Basic Strategy
Customer Retention 18 Strategies followed to retain the current customers Amazon benefits from a loyal customer base: 2/3 of the sales comes from returning customers In 2007 Amazon launched Amazon Payments to directly compete with PayPal. This also introduced barriers to entry for new players as they will have to adjust to current payment methods. The new payment system worked as an add-on customer service Introduced Amazon gift cards for inducing trial and repeat purchase.
Customer Retention 19 Strategies followed to retain the current customers Vertical Integration Kindle became another reason for customers to come back to Amazon. Huge seller base A customer base of 137 millions makes it impossible for any seller to neglect Amazon and they joins in which in turn increases customer base due to large collection of items Lock in Amazon made it difficult for customers to switch platforms for reading their e-book through their proprietary format Special Offers everyday Plays with various offers in Amazon instant video, the video on demand service. Personalized store Personalized pages tracking past purchase behavior and using modern algorithms to give recommendations. Also the look and feel of the page keeps on changing to give a modern outlook Amazon Prime Annual subscription saving schemes for loyal customers
Kano’s Model 21 Model for product development and Customer Satisfaction Excitement Attributes Everyday GOLD BOX deals Customer reviews Content search Kindle e-book reader Sensible recommendations Performance Attributes Minimal Time to delivery Easy navigation through site Free shipping Wide collection One click service Threshold or Basic Attributes Online shopping Product comparison Low prices Reliable and hassle free payment
Brand Life Cycle 23 Amazon web services, publishing Acquisitions : Joyo, IMDB . MobiPocket etc. MAC downloads, MP3s, International expansion Online bookstore Largest catalogue, home delivery of books Diversification: Electronics, apparel, CD, DVD etc. Spinoffs: A9, Lab126, endless.com etc. Introduction Innovation Innovation Maturity Growth Decline Growth
Emerging Trends 24 Internet Retailing Performance and Growth prospects by Category 2010-15 Source: Euromonitor
Amazon follows a hybrid structure while developing new brands
It follows a mix of product, source and endorsing brand architecture
It is also a result of unplanned portfolio growth
They used product brand architecture whenever they acquired other internet based firms whose offerings where different from the core offering provided by Amazon
Amazon Kindle 26 Brand Architecture and Other details
The Amazon Kindle is an e-book reader developed by Amazon.com subsidiary Lab126 which uses wireless connectivity to enable users to shop for, download, browse, and read e-books, newspapers, magazines, blogs, and other digital media.
With the Kindle effect, the e-book sales of Amazon surpassed paper book sales for the first time in last quarter of 2010.
Due to its technological nature and short life span, Kindle follows a umbrella brand architecture model
Customer Profiling 27 WALKING WOUNDED Some of the current users who are dissatisfied about shipping delays Customers who faced technical glitch and their cash got locked in CHAMPION Repeat purchasers Customers who give reviews and ratings to different services Early adopters of technology Those who enrolled for prime membership program MISSING IN ACTION Registered inactive users Loyal customers of other competitors Customers who are doubtful towards online payment modes TERRORIST Dissatisfied customers spreading their opinion through social media sites Hard core I pad fans creating disruptive blogs against kindle
The actual technology that allows a Kindle to operate probably relies on several if not dozens of patented apparatuses and processes that Amazon either holds the patent to or licenses from the patent holder.
The Amazon and Kindle brands are most certainly registered trademarks.
Most of the books that are downloaded for Kindle are copyrighted, and Amazon has a deal with the publisher/author to distribute the content electronically.
Amazon.com’s 1-Click Ordering: Storing a customer's billing information so that they do not have to enter it every time they make a purchase is also patented. It is also commonly referred to as 1-Click Checkout.
Amazon.com’s Internet-Based Customer Referral System:It is patented on the process of allowing other websites market their books for a commission.
Amazon.com has also been awarded patent for an automated system called “gift conversion” wizard that would allow users to return Amazon-derived gifts even before the order was shipped.
Amazon.com has also filed a patent for mini-airbags like protection for cellphones. There will be an airbag deployable from the side of the cellphone when it senses that will inflate when it senses that the cellphone will hit the ground.
Brand Personality 29 Aaker’s Model for Brand Personality The Green filled cells are the associated characters for Amazon as a person Even though Amazon is functioning in an online market, due to its low price strategy it has avoided to bring a sophisticated image to itself
Pricing Strategy 30 Cost Leadership New Opportunities: Revenue opportunities through bundling or products. Amazon prime : Next day shipping > Customer switch from other sites. Average of 5-6% of revenue comes from shipping
Advertising, Sales and Promotion Strategies Attractive Advertising and Selling Plans available on Amazon.com
Upload product catalog and set budget
Customers see seller’s product ads on amazon.com
Customers click to product pages on seller’s website
Vision and Mission 34 "Our vision is to be earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.“ All the activities including promotions, marketing campaigns, acquisitions etc. are aligned towards this common vision of the company.
Distribution Strategy 38 Digitally driven distribution network Amazon understood that sustainable massive growth can be obtained only through developing distribution network. They poached 2 of Wal-Mart's critical employees.
They were responsible for Wal-Mart's computerized supply chain and impressive supply-and-distribution network . Wal-Mart filed a suit in 1998 which was settled outside the court.
Distribution Strategy 39 Digitally driven distribution network Started in-sourcing the value chain to have more control over distribution Ex. Acquired book surge (now createspace) which was a print on demand company. This helped Amazon to reduce their dependence on suppliers and also inventory level. With the help of Richard and Jimmy Amazon started its process of developing a world class distribution network and circumvent other distributors They massively used IT for developing their supply chain and logistics. This was copied after seeing the success of Wal-mart. In 2000 70% of Amazon’s software development concerned about distribution centers. As a part of completely controlling its distribution, Amazon Fresh implemented its own delivery network Now entered digital distribution through kindle, Amazon mp3, instavideo etc. This means every book/song is available in 60 seconds.
SWOT Analysis 41 For Amazon.com in Retailing industry America's largest online retailer Robust brand image enhances bargaining power Diversified into product lines other than books to strengthen customer reach Kindle builds strong presence in the eBooks Free shipping offers would be a challenge in the long run Patent infringement issues erode stakeholder confidence Late in entering emerging markets like China and India STRENGTHS WEAKNESSES Acquisitions extend product line and strengthen technical platform Increase in online retail sales in the US Poor publicity with publishers due to the pricing model Launch of Apple's iPad intensifies competition Foreign exchange fluctuation OPPURTUNITIES THREATS
Porter’s 5 Forces 42 Analysis of Online Retailing Industry Low barriers to entry New technologies can be disruptive Less brand loyalty towards online shops High probability of new entrants Can utilize economies of scale Can come up with better range of products Comparison sites gives price variations in different sites Buyer has complete information Wide buying options available Lot of product review sites With social media, word of mouth becomes an important feedback point. Large number of suppliers Global distribution networks intensifying competition High bargaining power of big shot retailers Less differentiation in product Focus on low prices lead to low customer loyalty More choices in online stores and cheaper prices lack the touch and feel factor Large presence of physical retailers and shops Online shopping becoming increasingly widespread
Brand Extension opportunities 43 AmazonMovies– The strong industry knowledge with IMDB and CDNow can be leveraged to create an online movie rental business in the lines of Blockbuster. AmazonWallet– A common and secure payment gateway along the lines of PayPal, which can be leveraged by other e-commerce sites. AmazonWorld – A social commerce platform which enables users to discuss, review and recommend products and services with their friends and acquaintances, linked with amazon.com user base. AmazonScholar – Range learning equipments such as Scientific and Financial calculators. The brand already has created an association with electronics with Kindle. AmazonGlobal – A facility which simplifies purchase, shipping and taking care of other formalities for items purchased from any Global location
Marketing Strategies of Amazon 44 Amazon.com bases its marketing strategy on six pillars. It freely proffers products and services. It uses a customer-friendly interface. It scales easily from small to large. It exploits its affiliate’s products and resources. It uses existing communication systems. It utilizes universal behaviours and mentalities. Much of its marketing is subliminal or indirect – it does not run $1 million dollar ads during Super Bowls nor post flyers in mall marketplaces (unlike Groupon). Amazon.com relies on wily online ploys, strong partner relations and a constant declaration of quality to market itself to the masses.
Marketing Plan (1/2) 46 Online marketing Amazon Mainly concentrate on Online marketing through adsense, affiliate marketing and online community building. Compared to their online spend, their offline spend is meager. PAY PER CLICK ADVERTISING Purchases PPC ads on Google to direct browsing customers to their websites. Buys space on the left side of Google’s search listing results, and pays a fee for each visitor to Amazon.com who clicks on their sponsored link EMAIL MARKETING Amazon.com engages in permission marketing, where customers give the company permission to send them e-mails detailing product promotions AFFILIATE MARKETING Links to various products in Amazon.com is kept in the websites of third parties or of other retailers. Amazon.com pays a certain fee for each customer visit through these links. ONLINE ADS In various social networking sites such as Facebook, Orkut etc In various communities and discussion forums for specific products and services such as dpreview, goodreads etc
Marketing Plan (2/2) 47 Offline marketing Amazon’s offline spent is very less (below $10 dollar. Amazon.com’s strategy is simple: since customers shop online, online is where they will be found. ) MEDIA TV – ads showing benefits of products like Kindle Radio – sponsoring various radio programs PROMOTION Events Online buying experience Online games Free delivery on special occasions EVENTS Shopping Malls: competitions like reading speed challenges Helps in customer experiencing the product (Kindle) OTHERS Sponsored T-shirts pens, mugs etc