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Introduction:

Amazon was founded in 1994, spurred by what Bezos called "regret minimization
framework", his effort to fend off regret for not staking a claim in the Internet gold rush

"In his typically analytic way, Bezos cast his decision in what he calls the "regret-
minimization framework." He imagined that he was 80 years old and looking back at his
life. And suddenly everything became clear to him. When he was 80, he'd never regret
having missed out on a six-figure Christmas bonus; he wouldn't even regret having tried
to build an online business and failed. "In fact, I'd have been proud of that, proud of
myself for having taken that risk and tried to participate in that thing called the Internet
that I thought was going to be such a big deal. It was like the wild, wild West, a new
frontier. And I knew that if I didn't try this, I would regret it. And that would be
inescapable."
The company began as an online bookstore named "Cadabra.com", a name quickly
abandoned for sounding like "cadaver"; while the largest brick-and-mortar bookstores
and mail-order catalogs for books might offer 200,000 titles, an on-line bookstore could
offer more. Bezos renamed the company "Amazon" after the world's biggest river. Since
2000, Amazon's logotype is an arrow leading from A to Z, representing the desire to sell
many products.

The domain amazon.com attracted at least 615 million visitors annually by 2008
according to a Compete.com survey. This was twice the numbers of walmart.com.

Amazon's initial business plan was unusual: the company did not expect a profit for four
to five years; the strategy was effective. Amazon grew steadily in the late 1990s while
other Internet companies grew blindingly fast. Amazon's "slow" growth provoked
stockholder complaints: that the company was not reaching profitability fast enough.
When the dot-com bubble burst, and many e-companies went out of business, Amazon
persevered, and, finally, turned its first profit in the fourth quarter of 2002: U.S. $5
million, just 1¢ a share, on revenues of more than U.S. $1 billion, but the profit was
symbolically important.

Merchant partnerships

Amazon.com powers and operates retail web sites for Target, Sears Canada, Benefit
Cosmetics, Bebe Stores, Timex Corporation, Marks & Spencer, Mothercare and Lacoste.
For a growing number of enterprise clients, currently including the UK merchants Marks
& Spencer, Benefit Cosmetics' UK entity and Mothercare, Amazon provides a unified
multi channel platform from whence a customer can interchangeably interact with the
retail website, standalone in-store terminals, and phone-based customer service agents.
Amazon Web Services also powers AOL's Shop@AOL.

Product lines

Amazon has steadily branched into retail sales of music CDs, videotapes and DVDs,
software, consumer electronics, kitchen items, tools, lawn and garden items, toys &
games, baby products, apparel, sporting goods, gourmet food, jewelry, watches, health
and personal-care items, beauty products, musical instruments, clothing, industrial &
scientific supplies, groceries, and more.
Products and services

Amazon.com has incorporated a number of products and services into its shopping
model, either through development or acquisition.

2001

Honor System and donations


The Honor System was originally launched in 2001 to allow customers to make
donations or buy digital content, with Amazon collecting 2.9 percent of the
payment plus a flat fee of $0.30 USD.

2002

Web Services
Amazon launched Amazon Web Services (AWS) in 2002. The service provides
programmatic access to many features leveraged behind the scenes on its website.

2004

Amazon also created "channels" to benefit certain causes. In 2004, Amazon's


"Presidential Candidates" allowed customers to donate US$5-200 to the campaigns of
2004 U.S. presidential hopefuls. Amazon has periodically reactivated a Red Cross
donation channel after such tragedies as 9/11 and Hurricane Katrina. After the 2004
earthquake and tsunami in the Indian Ocean, Amazon set up an online donation channel
to the American Red Cross, waiving its processing fee. As of January 2005, over 162,000
individuals had donated over US$13.1 million. Similar channels were set up for the
British, Canadian, French, German and Japanese Red Cross organizations. Over 7,000
Britons donated more than US$350,000; 900 Canadians over US$56,000; 660 French
over US$23,000; 2,900 Germans over US$145,000; and 1,900 Japanese over US$66,000.

2005

Prime
Amazon Prime offers customers free 1-day shipping in the UK, Japan and
Germany and free 2-day shipping in the United States, for a yearly fee of US$ 79
or £49. The service also offers discounted priority shipping rates. Amazon
launched the program in the continental United States in 2005, Japan in June 2007
and the United Kingdom and Germany in November 2007.
Shorts
Launched in 2005, Amazon Shorts offers exclusive short form content, including
short stories and non-fiction pieces from best-selling authors, all available for
immediate download at US$.49. As of June 2007, the program has over 1,700
pieces and is adding about 50 new pieces per week.
Mechanical Turk
In November 2005, Amazon.com began testing Amazon Mechanical Turk, an
application programming interface (API) allowing programs to dispatch tasks to
human processors.

2006

S3
In March 2006, Amazon launched an online storage service called Amazon
Simple Storage Service (Amazon S3). An unlimited number of data objects, from
1 byte to 5 gigabytes in size, can be stored in S3 and distributed via HTTP or
BitTorrent. The service charges monthly fees for data stored and for data
transferred.
Discussion boards
In August 2006, Amazon launched product wikis (later folded into Amapedia) and
discussion forums for certain products using guidelines that follow standard
message board conventions.
EC2
In August 2006, Amazon introduced Amazon Elastic Compute Cloud (Amazon
EC2), a virtual site farm, allowing users to use the Amazon infrastructure with its
high reliability to run diverse applications ranging from running simulations to
web hosting.

2007

Amapedia
In January 2007 Amazon launched Amapedia, a collaborative wiki for user-
generated content to replace Product Wiki.
Unbox
In March 2007, Amazon launched an online video on demand service, which has
been criticized for its use of digital rights management (DRM).

MP3 downloads
In September 2007, Amazon launched a new music store (currently in beta) called
Amazon MP3, which sells downloadable tracks, all in the MP3 format and most
recorded at 256 kilobits per second variable bit rate (VBR).Amazon's terms of use
agreements legally restrict use of the music, but Amazon does not use DRM to
enforce those terms.
Amazon MP3 is selling music from the Big 4 record labels, EMI, Universal,
Warner Bros. Records, and Sony BMG, as well as many independents; as of
January 2008 they are the only store to sell DRM-free music from all Big 4 labels.
Previous to the launch of this service, Amazon made an investment in Amie
Street, a similar music store with a variable pricing model based on demand.
Vine
In August 2007 Amazon launched Amazon Vine, which allows top product
reviewers free access to pre-release products from vendors participating in the
program.
FPS
In August 2007 Amazon launched a payment service specifically targeted at
developers. Amazon FPS has facilities for developing many different charging
models including micro-payments. The service also gives developers easy access
to Amazon customers.
Kindle
In November 2007, Amazon launched Amazon Kindle, an e-book reader which
downloads content over "Whispernet," a free EV-DO wireless service on the
Sprint Nextel network. Initial offerings include approximately 115,000 books,
newspapers, magazines and blogs. The screen uses E Ink technology to reduce
battery consumption.
Simple DB
In December 2007, Amazon introduced Simple DB, a database system, allowing
users of its other infrastructure to utilize a high reliability high performance
database system.

2008

Amazon MP3
In January 2008 Amazon announced they would be rolling out their Amazon MP3
service to their subsidiary websites worldwide throughout the year.

Undated

Connect
Amazon Connect enables authors to post remarks on their book pages and to
customers who have bought their books.
Web Store
Web Store by Amazon allows businesses to create e-commerce websites using
Amazon technology. Merchants can customize their sites using their own photos
and branding. Sellers pay a commission of 7 percent, which includes credit-card
processing fees and fraud protection, and a subscription fee of $59.95/month for
an unlimited number of web stores and listings.
Question 1)
How does Amazon.com create value for its customers? How has its approach to creating
value changed since its founding?

Amazon creates value for its customers by offering customer satisfactory services by
managing retail operations with efficient use of technology. Operational efficiency is the
strength of Amazon.com and supports the management to maintain its competitive
advantage and enhance corporate performance.

Amazon.com creates value for its customers by offering customers broad array of
products to select from through their website and ensuring timely delivery of products to
exhibit high level of commitment towards their business and customers

Amazon.com was a venture into an emerging market of internet and had to face hidden
and unexpected hurdles in order to survive and excel in the market. Therefore,
Amazon.com kept modifying its strategies with their focus on enhancing customer
experience of online shopping and to delivery exceptional services with complete
convenience to their customers. One of the major strategic decisions was to compromise
on cost saving stragegy when Amazon.com started to maintain its own warehouses in
different countries in order to ensure timely and accurate delivery to their customers

Question 2)
Who are Amazon.com’s competitors and how has it created its competitive advantage?

Place tactics as part of the eMarketing Mix.


The eMarketing space consists of new Internet companies that have emerged as the
Internet has developed, as well as those pre-existing companies that now employ
eMarketing approaches as part of their overall marketing plan. For some companies the
Internet is an additional channel that enhances or replaces their traditional channel(s). For
others the Internet has provided the opportunity for a new online company.

New Internet companies.


These companies only trade on the Internet.
New online retail brand e.g. Amazon, Lastminute.com - Essentially these companies
could not have been conceived without the creation of the Internet. New companies
sprang up as the Internet began to be adopted. Entrepreneurs were investing heavily in all
sorts of start-ups. Some were successes, most were not.

New online manufacturer brand e.g. Dell.com - Entrepreneurs saw opportunities for
developing online manufacturers' brands that took advantage of online technologies that
enabled innovative new products to be adapted to customer preferences, and by using IT
to enable efficient and effective operations such as assembly and logistics.
Online Auction e.g. eBay. In common with new online retail brands, before the
emergence of Internet technologies, this concept was not possible. Essentially eBay is a
Consumer-to-Consumer (C2C) business. For more information on how online auctions
work, see the lesson on eMarketing and price.
Pre-existing companies that have adopted eMarketing.
These are traditional companies that trade on the Internet.
Banking and financial Services e.g. HSBC Bank. Banks and financial services have
benefited tremendously from the popularity of Internet usage. There is a mixture of new
online banks and traditional banks, both offering online banking services. Essentially
banks no longer need to invest in high cost, high street selling units i.e. old fashioned
town-based banks. Labor costs have also been reduced since much of the traditional
banking bureaucracy is done using IT, and the use of overseas call centers has meant that
salaries are much lower. Software also means that customers can be retained by using
Customer Relationship Management (CRM) eMarketing approaches.

Existing online retail brand e.g. Wal-Mart, took advantage of this new mode of
distribution by extending products and services to consumers via the medium of the
Internet. eMarketing enhances their traditional marketing.
Direct distribution channel e.g. New York Yankees' shop. Organizations have access to
consumers worldwide. So brand loyal consumers such as sports fans are now able to buy
directly from their preferred club, which pockets the entire profit without having to give a
cut to intermediaries.
Wholesalers e.g. C and S wholesale Grocers. IT allows retailers to order directly from
their wholesale partners via their website. Retailers can check stocks and look at current
promotions. This approach is more effective than depending entirely on merchandisers.
Agents e.g. Avon Representatives. There are a number of different types of agents. One
well known example is that of Avon cosmetics and their workforce of extremely loyal
representatives. The representatives are in reality agents. eMarketing allows customers to
choose between the services of their traditional Avon rep or the Avon Online Shop i.e.
using an agent or going direct.
Franchises e.g. KFC. There are many examples of franchises. The online equivalent of a
franchise is an affiliation or 'affiliate.' This gives the franchise owner the opportunity to
develop a network of affiliates that display goods, services or solutions on the affiliate
website. A commonly cited example is that of Amazon.com. So if you are a golf
enthusiast, and you have developed a site that give tips on how to play better golf, then
you can apply to Amazon.com for an affiliation that allows you to place tailored Amazon
ad boxes on your site. They can be adapted to sell golfing books, and you as the site
owner can adapt the ads to match the feel of your site. For every golf book sale that your
leads generate, you are paid a commission.
Vending and automated retailers e.g. Coke machines. Vending is very much based upon
the physical location of machines near to where they are most likely to sell product.
However, vending machines can use IT and the Internet to communicate with a central
server, giving information on what is currently selling well, or what might need
replacing.
Competitive Advantage
Question 3)
Which of Porter’s and Treacy and Wiersema’s competitive strategies has Amazon
pursued? What is its competitive position?

Strengths.
Amazon is a profitable organization. In 2005 profits for the three months to June dipped
32% to $52m (£29.9m) from $76m in the same period in 2004. Sales jumped 26% to
$1.75bn. Until recent years Amazon was experiencing large losses, due to its huge initial
set up costs. The recent dip is due to promotions that have offered reduced delivery costs
to consumers.
Customer Relationship Management (CRM) and Information Technology (IT) support
Amazon's business strategy. The company carefully records data on customer buyer
behaviour. This enables them to offer to an individual specific items, or bundles of items,
based upon preferences demonstrated through purchases or items visited.
Amazon is a huge global brand. It is recognisable for two main reasons. It was one of the
original dotcoms, and over the last decade it has developed a customer base of around 30
million people. It was an early exploiter of online technologies for e-commerce, which
made it one of the first online retailers. It has built on nits early successes with books, and
now has product categories that include electronics, toys and games, DIY and more.
Weaknesses.
As Amazon adds new categories to its business, it risks damaging its brand. Amazon is
the number one retailer for books. Toy-R-Us is the number one retailers for toys and
games. Imagine if Toys-R-Us began to sell books. This would confuse its consumers and
endanger its brands. In the same way, many of the new categories, for example
automotive, may prove to be too confusing for customers.
The company may at some point need to reconsider its strategy of offering free shipping
to customers. It is a fair strategy since one could visit a more local retailer, and pay no
costs. However, it is rumoured that shipping costs could be up to $500m, and such a high
figure would undoubtedly erode profits.
Opportunities.
The company is now increasingly cashing in on its credentials as an online retail pioneer
by selling its expertise to major store groups. For example, British retailer Marks and
Spencer announced a joint venture with Amazon to sell its products and service online.
Other recent collaborations have been with Target, Toys-R-Us and the NBA. Amazon's
new Luxembourg-based division aims to provide tailored services to retailers as a
technology service provider in Europe.
There are also opportunities for Amazon to build collaborations with the public sector.
For example the company announced a deal with the British Library, London, in 2004.
The benefit is that customers c an search for rare or antique books. The library's catalogue
of published works is now on the Amazon website, meaning it has details of more than
2.5m books on the site.
In 2004 Amazon moved into the Chinese market, by buying china's biggest online
retailer, Joyo.com . The deal was reported to be worth around $75m (£40m). Joyo.com
has many similarities to its new owner, in that it retails books, movies, toys, and music at
discounted prices.
Threats
All successful Internet businesses attract competition. Since Amazon sells the same or
similar products as high street retailers and other online businesses, it may become more
and more difficult to differentiate the brand from its competitors. Amazon does have it s
brand. It also has a huge range of products. Otherwise, price competition could damage
the business.
International competitors may also intrude upon Amazon as it expands. Those domestic
(US-based) rivals unable to compete with Amazon in the US, may entrench overseas and
compete with them on foreign fronts. Joint ventures, strategic alliances and mergers could
see Amazon losing its top position in some markets.
The products that Amazon sells tend to be bought as gifts, especially at Christmas. This
means that there is an element of seasonality to the business. However, by trading in
overseas markets in different cultures such seasonality may not be enduring.

Question 4)
What marketing strategy recommendations would you make to Amazon.com?
Over All Cost Leader Ship

The business level of Amazon.com is cost leadership. Best selling books are sold at a 30 to 40
percent discount and other books are discounted at 10 percent (Bade).

Amazon.com’s corporate strategy was in the form of single business to dominant all of
business, but has since moved towards unrelated because they are offering more than just
books at their website

Its massive amount of sales can be attributed to its low competitive prices and ease of shopping
conveniently from home.

Reasons:
Cost Leadership: Amazon.com has tried to achieve cost leadership. This is partly
facilitated by extracting additional trade discounts from the publishers and by not having
the expense of maintaining retail premises.
These factors are, however offset to a degree by the investment in ICT systems and the
cost of delivery to customers (a cost conventional bookstores do not have). Amazon has
achieved a degree of cost leadership but at the cost of continuing losses - a position that
might
not be sustainable.
Arguably the way to achieve cost leadership is to concentrate on the best seller market -
buy in bulk and sell at a discount. Some supermarkets have made some effort in this
direction and if that trade became substantial it could hurt all specialist book retailers.
Differentiation: Arguably the conventional retailers and the online retailers are very
different (and as noted in answer 1 they are best suited to different parts of the market).
The online retailers are attempting to differentiate themselves with technologies such as
'one click' and next day delivery
(in selected locations) but these innovations are easily copied (unless the courts rule to
the contrary!).

Focus: This is about not being a general bookstore but specialising in a particular
segment of the market. Specialist bookstores can be found online for dog lovers, horror
afficionadoes and doubtless many other requirements - they also need to differentiate
themselves and create a sense of community as doubtless amazon, et al. would also
provide most of the titles they are able to stock. A further example of focus is the campus
or airport bookstore, both of which have the advantage of location and of specialist local
knowledge.