SlideShare a Scribd company logo
1 of 11
The Secret of Amazon:
Lessons for
Multichannel Retailers
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
McKinsey on Marketing & Sales – Slideshare Brief
October, 2012
McKinsey & Company | 1
Assortment leadershipPrice leadership
Amazon's "triple threat" value proposition is eroding traditional
retailers' value propositions
Category depth
Avg. number of SKUs / category
(5 categories)
100 random items
Price index1 vs. Amazon.com
SOURCE: William Blair pricing report, 2011; Wells Fargo SKU analysis, 2011; American Customer Satisfaction Index, 2011
1 Price including sales tax and shipping
2 Non-food and non-club, determined by 2011 revenues
Customer experience
Experience rating
American Customer Satisfaction
Index 2011
316
2,125
7X
86
76
13% higher
scores
113Top 5 retailers2 105
100
5-13% lower
prices
McKinsey & Company | 2
Other1
Percent of Margin
Total = 6.2 billion
Profitable diverse revenue models create lock-in and loyalty while
reinforcing Amazon's core business
SOURCE: Amazon financials; McKinsey analysis; analyst reports
Operating
margin2
41
263
29
2
3
1 Includes Advertising and other non-retail revenues
2 Gross operating profit is total sales less cost of sales and fulfillment (marketing, G&A, and technology costs are not subtracted); total margin from 2011
3 Excludes prime purchases made through marketplace vendors to avoid double-counting
How models lock-in customers
▪ Amazon web services provides end-to-end e-commerce solutions
including hosting, web design, search technology, and data storage
▪ Content strategy is centered around "cloud" powered by AWS
▪ Marketplace, introduced in 2000, allows third-party vendors to sell
on Amazon.com
▪ Increases selection, and lowers prices through competition, more
than 2M vendors sell ~30M items on marketplace
▪ Amazon's A to Z guarantee improves trust among buyers
▪ For an annual membership fee, Prime gives customers free two-day
shipping
▪ Helps Amazon to reach different segments through targeted
programs like Amazon Moms and Amazon Students
▪ Prime members spend 2.5-4.0x compared to non-prime members
McKinsey & Company | 3
Amazon Prime drives loyalty and supply chain predictability
while allowing Amazon more control over the customer experience
825
4,919
572
1,218
6,158
Gross marginStreaming
costs
273
Shipping and
fulfillment costs
COGSMember-
ship revenue
Incremen-
tal sales
SOURCE: Analyst and expert interviews; team analysis
Economics of Amazon Prime
USD Millions
McKinsey & Company | 4
0.2-0.4
1.5-2.0
100.0
Optimized inventory
control
Factory gate
Pricing/direct
supplier pick-up
1.0-1.5
Efficient outbound
fulfillment
Average MC retailer
cost of online sales
Amazon's
cost of sales
96.3-97.1
Lower cost structure driven by world-class, high-tech supply chain…InboundOutbound
1 Advanced shipping notices
 Pick up 90% items from
suppliers, saving shipping
charges vs. prepaid
 Pick up only 35-40%
items from suppliers
 20 DCs within 95% of MSAs.
Most orders fulfilled through
zone 0-1 shipping
 Favorable contracts with
shippers (20%) cheaper
 Only 1-2 DCs for online
necessitate use of Zone
3-5 shipping
 High shipping cost due
to lower volume
 Only 20% of items in all DCs, --
reduces inventory by 3-5 days
 Track and trace through ASN1
reduces inventory by 1-2 days
▪ Most DCs not designed
for stocking products
▪ Online and store
systems not integrated
Other multichannel
retailers
SOURCE: Expert interviews; team analysis
McKinsey & Company | 5
32
-34
Top 5 retailers1
… and superior working capital management
SOURCE: Bloomberg; financial statements; team analysis
42
90
15
16
59
40
Top 5 retailers1
Amazon.com
Days
inventory
Days
receivable
Days
payable
Key drivers
▪ Amazon only keeps the fastest
moving items in stock in all DCs
▪ Long-tail items are kept in only a few
DCs or drop-shipped
▪ Advanced demand estimation
technology leads to less inventory
▪ Amazon customers are only allowed
to pay by credit/debit card, ensuring
fast receivable collection times
▪ Companies with large cash sales
(e.g., Walmart) have advantage over
Amazon
▪ Amazon agrees to pay many
suppliers (book publishers) only
after item is sold
▪ Amazon takes 14 days to pay its
Marketplace sellers
Cash Conversion Cycle (CCC)
Days, 2011
1 Non-food and non-club, determined by 2011 revenues
If the top 10 retailers had Amazon's CCC, they would collectively save $150B+ in working capital
McKinsey & Company | 6
`
Amazon spends on R&D
like a tech company …
… resulting in breakthrough efficiency and
business models
Technology spend1
Percent of sales, 2011
Maniacal focus on technology (~3X IT investment over top retailers)
has created breakthrough efficiency and business models
SOURCE: Financial statements, Jeff Bezos’ letters to shareholders, Team Analysis, ACSI 2010
Technology examples Impact
▪ Amazon invented colla-
borative filtering algorithm for
recommendations
▪ 35% of sales in 2006 came
from recommendations
▪ Automated/email based
customer service systems
(90% automated vs. 44% for
average retailer)
▪ Best-in-class customer
satisfaction (ACSI score
of 86)
▪ Sophisticated supply
chain systems
▪ Best-in-class efficiency
reduces COGS by 3-4%
▪ Dynamic pricing algorithm
and web crawlers
▪ Intra-day price changes
to maintain 5-20% price-
leadership over retailers
6
2
+300%
Top 5 retailers1
1 Non-food and non-club, determined by 2011 revenues
McKinsey & Company | 7
…have made Amazon a go-to search destinationBreakthrough content and
search innovations…
▪ 7 million user-submitted
reviews in 20091
▪ 57% of online consumers
trust other users on retail
websites2
▪ Amazon supports
keyword, barcode,
image, and voice search
for price comparison and
product research
What next? Amazon's content and advanced search capabilities have
put it at the forefront of product research
SOURCE: iConsumer 2011
12
Home improvement 11
Health & Beauty 15
Household products 16
Furniture
Electronics 29
DVDs/Videos 40
Video Games 30
Books 49
20
25
20
20
21
12
20
10
1 Jeff Bezos' letter to shareholders 2010
2 Percent of consumers that trust or somewhat trust reviews by source, iConsumer 2011
Where consumers start online research
% of respondents
Search engine
McKinsey & Company | 8
Amazon will further strengthen its "triple threat" value proposition by
continuing to eliminate remaining sources of friction in online shopping
3
9
6
11
22
23
27
Easy Returns
I don't shop online
Human customer
service reps
No delivery costs
Quality of
product concerns
Immediacy
Enjoyment of
shopping
SOURCE: iConsumer retail survey 2011; U.S. 13+ year-old internet users
What if Amazon eradicates
every single reason for your
customers to go to the store?
Percent Example Amazon initiative to address reason…
▪ Amazon is building same-day
delivery capability
▪ Selling the Kindle in-store
▪ Partnership with 7/11
▪ Developing own store
▪ Prime offers free 2-day
delivery
▪ Mobile apps allow any shopping
experience to become Amazon
purchases
▪ Amazon offers free returns
for defective products
Top reasons consumers shop in-store
Amazon is
working
towards
removing
88% of
reasons
people shop
in store
McKinsey & Company | 9
Amazon is on track to become…
The king of retail … knocking big box stores
off price leadership throne with 10% lower
prices
The next generation convenience
multichannel retailer … without any major
retail presence
Your "anytime, anywhere digital identity"
… knowing you better than you know yourself
Your “go-to” product search engine … the
default destination for all product information
The B2B backbone of choice … from your
site to their doorstep
Your bank account and more … from books
to personal finance, travel and beyond
McKinsey & Company | 10
www.cmsoforum.mckinsey.comWWW
@McK_CMSOForum
www.youtube.com/McKinseyCMSOforum
marketingandsales@mckinsey.com
Nora Aufreiter
Nora_Aufreiter@mckinsey.com
Kelly
Ungerman
Kelly_Ungerman@mckin
sey.com
Josh
Leibowitz
Josh_Leibowitz@mckins
ey.com

More Related Content

What's hot

Top Trends in Payments 2022
Top Trends in Payments 2022Top Trends in Payments 2022
Top Trends in Payments 2022
Capgemini
 
Roland berger automotive_landscape_2025_20110314
Roland berger automotive_landscape_2025_20110314Roland berger automotive_landscape_2025_20110314
Roland berger automotive_landscape_2025_20110314
lauri213
 

What's hot (20)

Top Trends in Payments 2022
Top Trends in Payments 2022Top Trends in Payments 2022
Top Trends in Payments 2022
 
Digitising Consumers in India - BCG & Matrix Study
Digitising Consumers in India - BCG & Matrix StudyDigitising Consumers in India - BCG & Matrix Study
Digitising Consumers in India - BCG & Matrix Study
 
The Accelerating Growth of Frictionless Commerce | A.T. Kearney
The Accelerating Growth of Frictionless Commerce | A.T. KearneyThe Accelerating Growth of Frictionless Commerce | A.T. Kearney
The Accelerating Growth of Frictionless Commerce | A.T. Kearney
 
Maximizing Enterprise AI Investments | Accenture
Maximizing Enterprise AI Investments | AccentureMaximizing Enterprise AI Investments | Accenture
Maximizing Enterprise AI Investments | Accenture
 
McKinsey | When Things Get Complex: Complex Systems, Challenges and Where to ...
McKinsey | When Things Get Complex: Complex Systems, Challenges and Where to ...McKinsey | When Things Get Complex: Complex Systems, Challenges and Where to ...
McKinsey | When Things Get Complex: Complex Systems, Challenges and Where to ...
 
Seven Forces Reshaping Enterprise Software
Seven Forces Reshaping Enterprise SoftwareSeven Forces Reshaping Enterprise Software
Seven Forces Reshaping Enterprise Software
 
Tech Adoption and Strategy for Innovation & Growth
Tech Adoption and Strategy for Innovation & GrowthTech Adoption and Strategy for Innovation & Growth
Tech Adoption and Strategy for Innovation & Growth
 
When, Where & How AI Will Boost Federal Workforce Productivity
When, Where & How AI Will Boost Federal Workforce ProductivityWhen, Where & How AI Will Boost Federal Workforce Productivity
When, Where & How AI Will Boost Federal Workforce Productivity
 
The Rapidly Evolving Landscape of Meal Kits and E-commerce in Food & Beverage
The Rapidly Evolving Landscape of Meal Kits and E-commerce in Food & BeverageThe Rapidly Evolving Landscape of Meal Kits and E-commerce in Food & Beverage
The Rapidly Evolving Landscape of Meal Kits and E-commerce in Food & Beverage
 
Roland berger automotive_landscape_2025_20110314
Roland berger automotive_landscape_2025_20110314Roland berger automotive_landscape_2025_20110314
Roland berger automotive_landscape_2025_20110314
 
Digital globalization: The new era of global flows
Digital globalization: The new era of global flowsDigital globalization: The new era of global flows
Digital globalization: The new era of global flows
 
McKinsey: Understanding shifts in consumer behavior
McKinsey: Understanding shifts in consumer behaviorMcKinsey: Understanding shifts in consumer behavior
McKinsey: Understanding shifts in consumer behavior
 
Right Cloud Mindset: Survey Results Hospitality | Accenture
Right Cloud Mindset: Survey Results Hospitality | AccentureRight Cloud Mindset: Survey Results Hospitality | Accenture
Right Cloud Mindset: Survey Results Hospitality | Accenture
 
Whole Brain Leadership: New Rules of Engagement for the C-Suite| Accenture St...
Whole Brain Leadership: New Rules of Engagement for the C-Suite| Accenture St...Whole Brain Leadership: New Rules of Engagement for the C-Suite| Accenture St...
Whole Brain Leadership: New Rules of Engagement for the C-Suite| Accenture St...
 
Turning big data into big revenue
Turning big data into big revenueTurning big data into big revenue
Turning big data into big revenue
 
Intelligent Automation in Accounting and Finance with IMA Queens College Stud...
Intelligent Automation in Accounting and Finance with IMA Queens College Stud...Intelligent Automation in Accounting and Finance with IMA Queens College Stud...
Intelligent Automation in Accounting and Finance with IMA Queens College Stud...
 
A.T. Kearney Consolidation of the US Banking Industry
A.T. Kearney Consolidation of the US Banking IndustryA.T. Kearney Consolidation of the US Banking Industry
A.T. Kearney Consolidation of the US Banking Industry
 
Russian Consumers and the New Economic Reality
Russian Consumers and the New Economic RealityRussian Consumers and the New Economic Reality
Russian Consumers and the New Economic Reality
 
Changing the Trajectory: How Companies Can Lean In Too
Changing the Trajectory: How Companies Can Lean In TooChanging the Trajectory: How Companies Can Lean In Too
Changing the Trajectory: How Companies Can Lean In Too
 
Race in the workplace: The Black experience in the US private sector
Race in the workplace: The Black experience in the US private sectorRace in the workplace: The Black experience in the US private sector
Race in the workplace: The Black experience in the US private sector
 

Similar to Amazon's secret sauce

SP16 SIBC Bain Project Final Presentation
SP16 SIBC Bain Project Final PresentationSP16 SIBC Bain Project Final Presentation
SP16 SIBC Bain Project Final Presentation
Chang Woo Jung
 
MARKETING -Group Assignment
MARKETING -Group AssignmentMARKETING -Group Assignment
MARKETING -Group Assignment
Bilal Ahmed
 
Amazon_Team_C^3G_Case_Submission_2013
Amazon_Team_C^3G_Case_Submission_2013Amazon_Team_C^3G_Case_Submission_2013
Amazon_Team_C^3G_Case_Submission_2013
Darryl Cooper
 
Webinar: Staying Agile during the Holiday Code Freeze, Sept 2013 with Windsor...
Webinar: Staying Agile during the Holiday Code Freeze, Sept 2013 with Windsor...Webinar: Staying Agile during the Holiday Code Freeze, Sept 2013 with Windsor...
Webinar: Staying Agile during the Holiday Code Freeze, Sept 2013 with Windsor...
WhatConts
 
Chp2 retailing in e commerce 2009
Chp2 retailing in e commerce 2009  Chp2 retailing in e commerce 2009
Chp2 retailing in e commerce 2009
Engr Razaque
 

Similar to Amazon's secret sauce (20)

SP16 SIBC Bain Project Final Presentation
SP16 SIBC Bain Project Final PresentationSP16 SIBC Bain Project Final Presentation
SP16 SIBC Bain Project Final Presentation
 
Amazon Industrial analysis
Amazon Industrial analysisAmazon Industrial analysis
Amazon Industrial analysis
 
Amazon strategic and financial planning
Amazon strategic and financial planningAmazon strategic and financial planning
Amazon strategic and financial planning
 
MARKETING -Group Assignment
MARKETING -Group AssignmentMARKETING -Group Assignment
MARKETING -Group Assignment
 
Amazon_Team_C^3G_Case_Submission_2013
Amazon_Team_C^3G_Case_Submission_2013Amazon_Team_C^3G_Case_Submission_2013
Amazon_Team_C^3G_Case_Submission_2013
 
Strategy Analysis of Amazon's fire Phone
Strategy Analysis of Amazon's fire PhoneStrategy Analysis of Amazon's fire Phone
Strategy Analysis of Amazon's fire Phone
 
Amazon
AmazonAmazon
Amazon
 
2017 fall com cap retail instore research
2017 fall com cap retail instore research2017 fall com cap retail instore research
2017 fall com cap retail instore research
 
2017 fall com cap retail instore research
2017 fall com cap retail instore research2017 fall com cap retail instore research
2017 fall com cap retail instore research
 
Amazon TQM (2) Amazon TQM (2)Amazon TQM (2).pptx
Amazon TQM (2) Amazon TQM (2)Amazon TQM (2).pptxAmazon TQM (2) Amazon TQM (2)Amazon TQM (2).pptx
Amazon TQM (2) Amazon TQM (2)Amazon TQM (2).pptx
 
Webinar: Staying Agile during the Holiday Code Freeze, Sept 2013 with Windsor...
Webinar: Staying Agile during the Holiday Code Freeze, Sept 2013 with Windsor...Webinar: Staying Agile during the Holiday Code Freeze, Sept 2013 with Windsor...
Webinar: Staying Agile during the Holiday Code Freeze, Sept 2013 with Windsor...
 
Amazon's European Distribution Strategy Case Study
Amazon's European Distribution Strategy Case StudyAmazon's European Distribution Strategy Case Study
Amazon's European Distribution Strategy Case Study
 
Annex Cloud | Leveraging Amazon DSP Data for a Profitable Customer Acquisitio...
Annex Cloud | Leveraging Amazon DSP Data for a Profitable Customer Acquisitio...Annex Cloud | Leveraging Amazon DSP Data for a Profitable Customer Acquisitio...
Annex Cloud | Leveraging Amazon DSP Data for a Profitable Customer Acquisitio...
 
Webinar July 12
Webinar July 12Webinar July 12
Webinar July 12
 
Brand Management Study of Amazon
Brand Management Study of Amazon Brand Management Study of Amazon
Brand Management Study of Amazon
 
Junglee.com
Junglee.comJunglee.com
Junglee.com
 
Why CPG Companies Need to Manage the Amazon Digital Shelf
Why CPG Companies Need to Manage the Amazon Digital ShelfWhy CPG Companies Need to Manage the Amazon Digital Shelf
Why CPG Companies Need to Manage the Amazon Digital Shelf
 
Leeds Online Seller Meetup
Leeds Online Seller MeetupLeeds Online Seller Meetup
Leeds Online Seller Meetup
 
Chp2 retailing in e commerce 2009
Chp2 retailing in e commerce 2009  Chp2 retailing in e commerce 2009
Chp2 retailing in e commerce 2009
 
Amazon
AmazonAmazon
Amazon
 

More from McKinsey on Marketing & Sales

More from McKinsey on Marketing & Sales (20)

McKinsey European consumer sentiment survey: How current events are shaping S...
McKinsey European consumer sentiment survey: How current events are shaping S...McKinsey European consumer sentiment survey: How current events are shaping S...
McKinsey European consumer sentiment survey: How current events are shaping S...
 
McKinsey European consumer sentiment survey: How current events are shaping U...
McKinsey European consumer sentiment survey: How current events are shaping U...McKinsey European consumer sentiment survey: How current events are shaping U...
McKinsey European consumer sentiment survey: How current events are shaping U...
 
McKinsey European consumer sentiment survey: How current events are shaping I...
McKinsey European consumer sentiment survey: How current events are shaping I...McKinsey European consumer sentiment survey: How current events are shaping I...
McKinsey European consumer sentiment survey: How current events are shaping I...
 
McKinsey European consumer sentiment survey: How current events are shaping G...
McKinsey European consumer sentiment survey: How current events are shaping G...McKinsey European consumer sentiment survey: How current events are shaping G...
McKinsey European consumer sentiment survey: How current events are shaping G...
 
McKinsey European consumer sentiment survey: How current events are shaping F...
McKinsey European consumer sentiment survey: How current events are shaping F...McKinsey European consumer sentiment survey: How current events are shaping F...
McKinsey European consumer sentiment survey: How current events are shaping F...
 
McKinsey Survey: Japanese consumer sentiment during the coronavirus crisis
McKinsey Survey: Japanese consumer sentiment during the coronavirus crisisMcKinsey Survey: Japanese consumer sentiment during the coronavirus crisis
McKinsey Survey: Japanese consumer sentiment during the coronavirus crisis
 
McKinsey Survey: Australian consumer sentiment during the coronavirus crisis
McKinsey Survey: Australian consumer sentiment during the coronavirus crisisMcKinsey Survey: Australian consumer sentiment during the coronavirus crisis
McKinsey Survey: Australian consumer sentiment during the coronavirus crisis
 
McKinsey Survey: Indian consumer sentiment during the coronavirus crisis
McKinsey Survey: Indian consumer sentiment during the coronavirus crisisMcKinsey Survey: Indian consumer sentiment during the coronavirus crisis
McKinsey Survey: Indian consumer sentiment during the coronavirus crisis
 
McKinsey: Survey: Indonesian consumer sentiment during the coronavirus crisis
McKinsey: Survey: Indonesian consumer sentiment during the coronavirus crisisMcKinsey: Survey: Indonesian consumer sentiment during the coronavirus crisis
McKinsey: Survey: Indonesian consumer sentiment during the coronavirus crisis
 
McKinsey Survey: Korean consumer sentiment during the coronavirus crisis
McKinsey Survey: Korean consumer sentiment during the coronavirus crisisMcKinsey Survey: Korean consumer sentiment during the coronavirus crisis
McKinsey Survey: Korean consumer sentiment during the coronavirus crisis
 
McKinsey European consumer sentiment survey: How current events are shaping F...
McKinsey European consumer sentiment survey: How current events are shaping F...McKinsey European consumer sentiment survey: How current events are shaping F...
McKinsey European consumer sentiment survey: How current events are shaping F...
 
McKinsey European consumer sentiment survey: How current events are shaping U...
McKinsey European consumer sentiment survey: How current events are shaping U...McKinsey European consumer sentiment survey: How current events are shaping U...
McKinsey European consumer sentiment survey: How current events are shaping U...
 
McKinsey European consumer sentiment survey: How current events are shaping G...
McKinsey European consumer sentiment survey: How current events are shaping G...McKinsey European consumer sentiment survey: How current events are shaping G...
McKinsey European consumer sentiment survey: How current events are shaping G...
 
McKinsey European consumer sentiment survey: How current events in Europe are...
McKinsey European consumer sentiment survey: How current events in Europe are...McKinsey European consumer sentiment survey: How current events in Europe are...
McKinsey European consumer sentiment survey: How current events in Europe are...
 
McKinsey European consumer sentiment survey: How current events are shaping S...
McKinsey European consumer sentiment survey: How current events are shaping S...McKinsey European consumer sentiment survey: How current events are shaping S...
McKinsey European consumer sentiment survey: How current events are shaping S...
 
McKinsey European consumer sentiment survey: How current events are shaping I...
McKinsey European consumer sentiment survey: How current events are shaping I...McKinsey European consumer sentiment survey: How current events are shaping I...
McKinsey European consumer sentiment survey: How current events are shaping I...
 
McKinsey survey: European consumer sentiment survey: How current events are s...
McKinsey survey: European consumer sentiment survey: How current events are s...McKinsey survey: European consumer sentiment survey: How current events are s...
McKinsey survey: European consumer sentiment survey: How current events are s...
 
McKinsey survey: European consumer sentiment survey: How current events are s...
McKinsey survey: European consumer sentiment survey: How current events are s...McKinsey survey: European consumer sentiment survey: How current events are s...
McKinsey survey: European consumer sentiment survey: How current events are s...
 
McKinsey survey: European consumer sentiment survey: How current events are s...
McKinsey survey: European consumer sentiment survey: How current events are s...McKinsey survey: European consumer sentiment survey: How current events are s...
McKinsey survey: European consumer sentiment survey: How current events are s...
 
McKinsey survey: European consumer sentiment survey: How current events are s...
McKinsey survey: European consumer sentiment survey: How current events are s...McKinsey survey: European consumer sentiment survey: How current events are s...
McKinsey survey: European consumer sentiment survey: How current events are s...
 

Recently uploaded

Obat Aborsi Pasuruan 0851\7696\3835 Jual Obat Cytotec Di Pasuruan
Obat Aborsi Pasuruan 0851\7696\3835 Jual Obat Cytotec Di PasuruanObat Aborsi Pasuruan 0851\7696\3835 Jual Obat Cytotec Di Pasuruan
Obat Aborsi Pasuruan 0851\7696\3835 Jual Obat Cytotec Di Pasuruan
Obat Aborsi Jakarta Wa 085176963835 Apotek Jual Obat Cytotec Di Jakarta
 
Powerpoint showing results from tik tok metrics
Powerpoint showing results from tik tok metricsPowerpoint showing results from tik tok metrics
Powerpoint showing results from tik tok metrics
CaitlinCummins3
 
Obat Aborsi Bandung 0851\7696\3835 Jual Obat Cytotec Di Bandung
Obat Aborsi Bandung 0851\7696\3835 Jual Obat Cytotec Di BandungObat Aborsi Bandung 0851\7696\3835 Jual Obat Cytotec Di Bandung
Obat Aborsi Bandung 0851\7696\3835 Jual Obat Cytotec Di Bandung
Obat Aborsi Jakarta Wa 085176963835 Apotek Jual Obat Cytotec Di Jakarta
 
Presentation4 (2) survey responses clearly labelled
Presentation4 (2) survey responses clearly labelledPresentation4 (2) survey responses clearly labelled
Presentation4 (2) survey responses clearly labelled
CaitlinCummins3
 
Obat Aborsi Surabaya 0851\7696\3835 Jual Obat Cytotec Di Surabaya
Obat Aborsi Surabaya 0851\7696\3835 Jual Obat Cytotec Di SurabayaObat Aborsi Surabaya 0851\7696\3835 Jual Obat Cytotec Di Surabaya
Obat Aborsi Surabaya 0851\7696\3835 Jual Obat Cytotec Di Surabaya
Obat Aborsi Jakarta Wa 085176963835 Apotek Jual Obat Cytotec Di Jakarta
 
NewBase 17 May 2024 Energy News issue - 1725 by Khaled Al Awadi_compresse...
NewBase   17 May  2024  Energy News issue - 1725 by Khaled Al Awadi_compresse...NewBase   17 May  2024  Energy News issue - 1725 by Khaled Al Awadi_compresse...
NewBase 17 May 2024 Energy News issue - 1725 by Khaled Al Awadi_compresse...
Khaled Al Awadi
 

Recently uploaded (20)

SCI9-Q4-MOD8.1.pdfjttstwjwetw55k5wwtwrjw
SCI9-Q4-MOD8.1.pdfjttstwjwetw55k5wwtwrjwSCI9-Q4-MOD8.1.pdfjttstwjwetw55k5wwtwrjw
SCI9-Q4-MOD8.1.pdfjttstwjwetw55k5wwtwrjw
 
Chapter 2 Organization Structure of a Treasury
Chapter 2 Organization Structure of a TreasuryChapter 2 Organization Structure of a Treasury
Chapter 2 Organization Structure of a Treasury
 
Obat Aborsi Pasuruan 0851\7696\3835 Jual Obat Cytotec Di Pasuruan
Obat Aborsi Pasuruan 0851\7696\3835 Jual Obat Cytotec Di PasuruanObat Aborsi Pasuruan 0851\7696\3835 Jual Obat Cytotec Di Pasuruan
Obat Aborsi Pasuruan 0851\7696\3835 Jual Obat Cytotec Di Pasuruan
 
Powerpoint showing results from tik tok metrics
Powerpoint showing results from tik tok metricsPowerpoint showing results from tik tok metrics
Powerpoint showing results from tik tok metrics
 
What are the differences between an international company, a global company, ...
What are the differences between an international company, a global company, ...What are the differences between an international company, a global company, ...
What are the differences between an international company, a global company, ...
 
Obat Aborsi Bandung 0851\7696\3835 Jual Obat Cytotec Di Bandung
Obat Aborsi Bandung 0851\7696\3835 Jual Obat Cytotec Di BandungObat Aborsi Bandung 0851\7696\3835 Jual Obat Cytotec Di Bandung
Obat Aborsi Bandung 0851\7696\3835 Jual Obat Cytotec Di Bandung
 
Presentation4 (2) survey responses clearly labelled
Presentation4 (2) survey responses clearly labelledPresentation4 (2) survey responses clearly labelled
Presentation4 (2) survey responses clearly labelled
 
wagamamaLab presentation @MIT 20240509 IRODORI
wagamamaLab presentation @MIT 20240509 IRODORIwagamamaLab presentation @MIT 20240509 IRODORI
wagamamaLab presentation @MIT 20240509 IRODORI
 
Unlocking Growth The Power of Outsourcing for CPA Firms
Unlocking Growth The Power of Outsourcing for CPA FirmsUnlocking Growth The Power of Outsourcing for CPA Firms
Unlocking Growth The Power of Outsourcing for CPA Firms
 
A DAY IN THE LIFE OF A SALESPERSON .pptx
A DAY IN THE LIFE OF A SALESPERSON .pptxA DAY IN THE LIFE OF A SALESPERSON .pptx
A DAY IN THE LIFE OF A SALESPERSON .pptx
 
Mastering The Art Of 'Closing The Sale'.
Mastering The Art Of 'Closing The Sale'.Mastering The Art Of 'Closing The Sale'.
Mastering The Art Of 'Closing The Sale'.
 
The Art of Decision-Making: Navigating Complexity and Uncertainty
The Art of Decision-Making: Navigating Complexity and UncertaintyThe Art of Decision-Making: Navigating Complexity and Uncertainty
The Art of Decision-Making: Navigating Complexity and Uncertainty
 
Obat Aborsi Surabaya 0851\7696\3835 Jual Obat Cytotec Di Surabaya
Obat Aborsi Surabaya 0851\7696\3835 Jual Obat Cytotec Di SurabayaObat Aborsi Surabaya 0851\7696\3835 Jual Obat Cytotec Di Surabaya
Obat Aborsi Surabaya 0851\7696\3835 Jual Obat Cytotec Di Surabaya
 
Pitch Deck Teardown: Goodcarbon's $5.5m Seed deck
Pitch Deck Teardown: Goodcarbon's $5.5m Seed deckPitch Deck Teardown: Goodcarbon's $5.5m Seed deck
Pitch Deck Teardown: Goodcarbon's $5.5m Seed deck
 
Home Furnishings Ecommerce Platform Short Pitch 2024
Home Furnishings Ecommerce Platform Short Pitch 2024Home Furnishings Ecommerce Platform Short Pitch 2024
Home Furnishings Ecommerce Platform Short Pitch 2024
 
Navigating Tax Season with Confidence Streamlines CPA Firms
Navigating Tax Season with Confidence Streamlines CPA FirmsNavigating Tax Season with Confidence Streamlines CPA Firms
Navigating Tax Season with Confidence Streamlines CPA Firms
 
Progress Report - UKG Analyst Summit 2024 - A lot to do - Good Progress1-1.pdf
Progress Report - UKG Analyst Summit 2024 - A lot to do - Good Progress1-1.pdfProgress Report - UKG Analyst Summit 2024 - A lot to do - Good Progress1-1.pdf
Progress Report - UKG Analyst Summit 2024 - A lot to do - Good Progress1-1.pdf
 
A DAY IN LIFE OF A NEGOTIATOR By Pondicherry University MBA Students.pptx
A DAY IN LIFE OF A NEGOTIATOR By Pondicherry University MBA Students.pptxA DAY IN LIFE OF A NEGOTIATOR By Pondicherry University MBA Students.pptx
A DAY IN LIFE OF A NEGOTIATOR By Pondicherry University MBA Students.pptx
 
First Time Home Buyer's Guide - KM Realty Group LLC
First Time Home Buyer's Guide - KM Realty Group LLCFirst Time Home Buyer's Guide - KM Realty Group LLC
First Time Home Buyer's Guide - KM Realty Group LLC
 
NewBase 17 May 2024 Energy News issue - 1725 by Khaled Al Awadi_compresse...
NewBase   17 May  2024  Energy News issue - 1725 by Khaled Al Awadi_compresse...NewBase   17 May  2024  Energy News issue - 1725 by Khaled Al Awadi_compresse...
NewBase 17 May 2024 Energy News issue - 1725 by Khaled Al Awadi_compresse...
 

Amazon's secret sauce

  • 1. The Secret of Amazon: Lessons for Multichannel Retailers Any use of this material without specific permission of McKinsey & Company is strictly prohibited McKinsey on Marketing & Sales – Slideshare Brief October, 2012
  • 2. McKinsey & Company | 1 Assortment leadershipPrice leadership Amazon's "triple threat" value proposition is eroding traditional retailers' value propositions Category depth Avg. number of SKUs / category (5 categories) 100 random items Price index1 vs. Amazon.com SOURCE: William Blair pricing report, 2011; Wells Fargo SKU analysis, 2011; American Customer Satisfaction Index, 2011 1 Price including sales tax and shipping 2 Non-food and non-club, determined by 2011 revenues Customer experience Experience rating American Customer Satisfaction Index 2011 316 2,125 7X 86 76 13% higher scores 113Top 5 retailers2 105 100 5-13% lower prices
  • 3. McKinsey & Company | 2 Other1 Percent of Margin Total = 6.2 billion Profitable diverse revenue models create lock-in and loyalty while reinforcing Amazon's core business SOURCE: Amazon financials; McKinsey analysis; analyst reports Operating margin2 41 263 29 2 3 1 Includes Advertising and other non-retail revenues 2 Gross operating profit is total sales less cost of sales and fulfillment (marketing, G&A, and technology costs are not subtracted); total margin from 2011 3 Excludes prime purchases made through marketplace vendors to avoid double-counting How models lock-in customers ▪ Amazon web services provides end-to-end e-commerce solutions including hosting, web design, search technology, and data storage ▪ Content strategy is centered around "cloud" powered by AWS ▪ Marketplace, introduced in 2000, allows third-party vendors to sell on Amazon.com ▪ Increases selection, and lowers prices through competition, more than 2M vendors sell ~30M items on marketplace ▪ Amazon's A to Z guarantee improves trust among buyers ▪ For an annual membership fee, Prime gives customers free two-day shipping ▪ Helps Amazon to reach different segments through targeted programs like Amazon Moms and Amazon Students ▪ Prime members spend 2.5-4.0x compared to non-prime members
  • 4. McKinsey & Company | 3 Amazon Prime drives loyalty and supply chain predictability while allowing Amazon more control over the customer experience 825 4,919 572 1,218 6,158 Gross marginStreaming costs 273 Shipping and fulfillment costs COGSMember- ship revenue Incremen- tal sales SOURCE: Analyst and expert interviews; team analysis Economics of Amazon Prime USD Millions
  • 5. McKinsey & Company | 4 0.2-0.4 1.5-2.0 100.0 Optimized inventory control Factory gate Pricing/direct supplier pick-up 1.0-1.5 Efficient outbound fulfillment Average MC retailer cost of online sales Amazon's cost of sales 96.3-97.1 Lower cost structure driven by world-class, high-tech supply chain…InboundOutbound 1 Advanced shipping notices  Pick up 90% items from suppliers, saving shipping charges vs. prepaid  Pick up only 35-40% items from suppliers  20 DCs within 95% of MSAs. Most orders fulfilled through zone 0-1 shipping  Favorable contracts with shippers (20%) cheaper  Only 1-2 DCs for online necessitate use of Zone 3-5 shipping  High shipping cost due to lower volume  Only 20% of items in all DCs, -- reduces inventory by 3-5 days  Track and trace through ASN1 reduces inventory by 1-2 days ▪ Most DCs not designed for stocking products ▪ Online and store systems not integrated Other multichannel retailers SOURCE: Expert interviews; team analysis
  • 6. McKinsey & Company | 5 32 -34 Top 5 retailers1 … and superior working capital management SOURCE: Bloomberg; financial statements; team analysis 42 90 15 16 59 40 Top 5 retailers1 Amazon.com Days inventory Days receivable Days payable Key drivers ▪ Amazon only keeps the fastest moving items in stock in all DCs ▪ Long-tail items are kept in only a few DCs or drop-shipped ▪ Advanced demand estimation technology leads to less inventory ▪ Amazon customers are only allowed to pay by credit/debit card, ensuring fast receivable collection times ▪ Companies with large cash sales (e.g., Walmart) have advantage over Amazon ▪ Amazon agrees to pay many suppliers (book publishers) only after item is sold ▪ Amazon takes 14 days to pay its Marketplace sellers Cash Conversion Cycle (CCC) Days, 2011 1 Non-food and non-club, determined by 2011 revenues If the top 10 retailers had Amazon's CCC, they would collectively save $150B+ in working capital
  • 7. McKinsey & Company | 6 ` Amazon spends on R&D like a tech company … … resulting in breakthrough efficiency and business models Technology spend1 Percent of sales, 2011 Maniacal focus on technology (~3X IT investment over top retailers) has created breakthrough efficiency and business models SOURCE: Financial statements, Jeff Bezos’ letters to shareholders, Team Analysis, ACSI 2010 Technology examples Impact ▪ Amazon invented colla- borative filtering algorithm for recommendations ▪ 35% of sales in 2006 came from recommendations ▪ Automated/email based customer service systems (90% automated vs. 44% for average retailer) ▪ Best-in-class customer satisfaction (ACSI score of 86) ▪ Sophisticated supply chain systems ▪ Best-in-class efficiency reduces COGS by 3-4% ▪ Dynamic pricing algorithm and web crawlers ▪ Intra-day price changes to maintain 5-20% price- leadership over retailers 6 2 +300% Top 5 retailers1 1 Non-food and non-club, determined by 2011 revenues
  • 8. McKinsey & Company | 7 …have made Amazon a go-to search destinationBreakthrough content and search innovations… ▪ 7 million user-submitted reviews in 20091 ▪ 57% of online consumers trust other users on retail websites2 ▪ Amazon supports keyword, barcode, image, and voice search for price comparison and product research What next? Amazon's content and advanced search capabilities have put it at the forefront of product research SOURCE: iConsumer 2011 12 Home improvement 11 Health & Beauty 15 Household products 16 Furniture Electronics 29 DVDs/Videos 40 Video Games 30 Books 49 20 25 20 20 21 12 20 10 1 Jeff Bezos' letter to shareholders 2010 2 Percent of consumers that trust or somewhat trust reviews by source, iConsumer 2011 Where consumers start online research % of respondents Search engine
  • 9. McKinsey & Company | 8 Amazon will further strengthen its "triple threat" value proposition by continuing to eliminate remaining sources of friction in online shopping 3 9 6 11 22 23 27 Easy Returns I don't shop online Human customer service reps No delivery costs Quality of product concerns Immediacy Enjoyment of shopping SOURCE: iConsumer retail survey 2011; U.S. 13+ year-old internet users What if Amazon eradicates every single reason for your customers to go to the store? Percent Example Amazon initiative to address reason… ▪ Amazon is building same-day delivery capability ▪ Selling the Kindle in-store ▪ Partnership with 7/11 ▪ Developing own store ▪ Prime offers free 2-day delivery ▪ Mobile apps allow any shopping experience to become Amazon purchases ▪ Amazon offers free returns for defective products Top reasons consumers shop in-store Amazon is working towards removing 88% of reasons people shop in store
  • 10. McKinsey & Company | 9 Amazon is on track to become… The king of retail … knocking big box stores off price leadership throne with 10% lower prices The next generation convenience multichannel retailer … without any major retail presence Your "anytime, anywhere digital identity" … knowing you better than you know yourself Your “go-to” product search engine … the default destination for all product information The B2B backbone of choice … from your site to their doorstep Your bank account and more … from books to personal finance, travel and beyond
  • 11. McKinsey & Company | 10 www.cmsoforum.mckinsey.comWWW @McK_CMSOForum www.youtube.com/McKinseyCMSOforum marketingandsales@mckinsey.com Nora Aufreiter Nora_Aufreiter@mckinsey.com Kelly Ungerman Kelly_Ungerman@mckin sey.com Josh Leibowitz Josh_Leibowitz@mckins ey.com