Amazon.Com Essay, Research Paper
I. Current Situation
A. Current Goals and Objectives
1. Improve customer relationships
2. Expand products and services
3. Expand overseas
4. Expand partnerships
5. Profitability in every Amazon.com business
B. Current Strategies
2. Media and target advertising
3. Affiliate program
C. Current Policies
II. SWOT Analysis
1. Leading online bookseller
2. Leading online music retailer
3. High profile online partnerships and alliances
4. Strong market position in non – media products
1. Buying products online is impersonal
2. Waiting for product delivery
3. Inability to make a net profit
4. Company overgrowth
1. Large growing market
2. Global appeal
3. Partnership possibilities
1. Partnerships failing
2. Governmental internet regulations
A. Do nothing
B. Further expand partnerships
C. Global expansion
D. Discourage further growth
E. Eliminate partnerships and return to original focus ( books)
F. Upgrade merchandise
G. Establish physical stores
A. Further expand partnership
B. Upgrade merchandise
C. Global expansion
A. Form synergistic alliances with Nordstrom and Nike
B. E – books
C. Expansion into Japan
VI. Evaluation and Control
A. Customer feedback
1. E – mail
2. Chat rooms
B. Company feedback
1. Track sales growth
2. Track repeat customers
A. America’s Growing Market Opportunity
Amazon.com is an online retailer that has created a business unlike any other. It services over 17 million customer accounts in over 150 countries. Amazon.com sells many types of items in many different categories; books, music, videos, video games, toys, and DVDs are just a few. Many e – commerce companies have established a strategic commercial relationship with Amazon. This company has an obviously large marketing opportunity along with a large customer base. It is a great brand with a distinguishing reputation. However, every retailer needs its share of improvement and Amazon.com is certainly no exception. (Amazon.com, Inc)
Current Goals and Objectives:
In the year 2000, Amazon.com has five important marketing goals. These goals consist of improving customer relationships, expansion of products and services, expansion overseas, expansion in partnerships, and profitability in all Amazon businesses.
Amazon.com will continue to invest heavily in building relationships with new customers. Customer obsession is the key focus at Amazon. With fierce competition like Barnes & Noble, Amazon.com must be on its toes. The competition is run by well – funded, smart, and aggressive people. There will be nothing to worry about if the competitors stay focused on Amazon and Amazon stays focused on the customer. There are three main factors that matter most to customers: selection, ease – of – entry, and price. Amazon.com will make sure it continues to be the best in those three areas. By doing so, Amazon will be better than its competitors and have greater customer appeal. (Amazon.com Investor Relations), (Bezos, A Bookstore )
Amazon.com will build a place where customers can locate anything anywhere. Anything anywhere refers to products and services. Product and service expansion is important, as the company becomes increasingly well known to a wider customer base. Expansions of products and services will also encourage repeat customers. As long as people keep coming back to purchase new types of merchandise, Amazon.com will make money. (Amazon.com Investor Relations)
Overseas expansion has become a successful business move for many companies. Amazon’s international businesses are bringing in more profits than it’s United States businesses. As previously stated, Amazon.com has been selling merchandise and has vast customer accounts in over 150 countries. This puts it in a position as a leading global retailer. It has sales, brand, and customer appeal all over the world. So far, Amazon.com has two established online websites in Europe. One is in the United Kingdom and the other one is in Germany. Both are the number one e – commerce sites in their respective countries. Surely there will be many new sites in other foreign countries in the future. There is a new site that just opened in France. Based on our research, we believe there is also potential for new sites in Japan, Italy, and Spain. With no pricing pressures in these foreign markets, these sites have more profit potential than those in the United States. Amazon’s goal of expanding overseas should greatly benefit the company. (Upbeat Analysis Day, Morgan Stanley), (Amazon.com Investor Relations)
Amazon.com’s partnership ventures have been successful in the past so the company hopes to continue that success. Amazon has always had partnerships with companies that are much like itself. These companies, like drugstore.com, gear.com, and ashford.com, provide an enjoyable shopping experience. They provide a large selection and great customer service, just like Amazon. Because of the success of these partnerships, Amazon has acquired some high – margin revenue. Effective partnerships have been proven to greatly enhance a business and we plan to keep Amazon expanding and moving in the right direction. (About Amazon.com), (Amazon.com, Inc.), (Amazon.com, Morgan Stanley), (Amazon.com Investor Relations)
Sustainable profitability is the main motive for every company. It is the underlying foundation of every company’s goals. Currently, Amazon generates revenue that is reinvested into the company. The goal is to continue to reinvest and make a profit in all business sectors. Currently, the international Amazon businesses have high revenues. It is now time to work on increasing profits in the United States. Amazon needs to cut its fixed costs and generally improve on company spending. One area that should be improved is vendor management. When the companies pick their suppliers, they have to take all costs into consideration, not just the cost of goods. They have to look at delivery costs, quality of merchandise, and the service provided. After evaluating all three factors, Amazon can determine the highest value, lowest cost supplier. We also plan to increase profitability by improving all major company processes. (Upbeat Analysis Day, Morgan Stanley), (Amazon.com Investor Relations)
One can easily say that Amazon.com is the world leader in e – commerce. It became so by providing a highly knowledgeable service to people with various tastes, interests, and styles. A company needs clear and focused strategies in order to reach that world leader status. Currently these are three highly successful strategies in use. (Peterson, 2000)
The first strategy is partnerships. Amazon has been very successful in acquiring online partnerships. It has aligned itself with many different companies. The most successful venture for Amazon so far was its multi – million dollar advertising partnership with America Online. America Online has been the leader in providing Internet service. Amazon had the right idea when it forged this partnership with the Internet giant. The terms of the deal include receiving an “above – the – fold” front screen button on the AOL.com homepage. This web page is the most visited site on the web. The screen button links users directly to the Amazon.com Internet site. This very high profile deal helped Amazon develop a trusted brand name, using the already established and highly trusted brand name of AOL, which already has the trust of its visitors. Amazon.com’s founder Jeff Bezos said: “Amazon’s partnership with America Online gives us access to its more than 8 million members (now 25 million) and makes us the exclusive bookseller to users of AOL.com and NetFind. We are especially enthusiastic about this agreement’s creative approaches to putting information about Amazon.com in front of users when and where they are most likely to act on it. This is a significant step in Amazon’s strategy of expanding our reach to online users.” (Marye, How Did They Do It?)
Partnerships have always played a major role in Amazon’s success. Aligning with similar companies is always a smart idea. Most small websites cannot afford to buy space on AOL but companies can trade links or join “web – rings”. Web – rings are groups of sites that link to each other and co – promote. Web – rings have specific categories, which can be a shortfall unlike trading links; with a variety of sites is a good way to increase traffic into websites. Branching out is important while always keeping a target audience in mind. (Marye, How Did They Do It?)
The second strategy is the use of promotional tools such as media and target advertising. Amazon.com runs very few television commercials compared to its competitors, Borders.com and Barnes & Noble. Amazon.com promotes itself by using radio, one of the oldest means of advertising. Radio, however, is still one of the most effective ways of advertising. The exposure is less than that of television but the quality is higher. Radio advertising is one of the least expensive forms of advertising. On the radio, Amazon advertises with popular syndicated shows like Rush Limbaugh and Larry King. These shows would most likely have the type of listeners who would go to the Amazon.com website, look around and make a purchase. This practice of targeting certain shows to appeal to their audiences is called target advertising. Amazon also targets audiences that listen to classical and jazz music by advertising on those radio stations. The goal behind this strategy is to target the most intelligent audience; they are most likely regular readers. If they are regular readers then chances are they purchase books on a regular basis. (Marye, How Did They Do It?)
Amazon.com has been successful with the strategies discussed above. There is one other form of advertising the company uses. This advertising has probably been its key to growth, exposure, and name branding. This form of advertising is called affiliate programs and this is Amazon’s third strategy. These programs, sometimes called partner programs, are: “An agreement between a retailer and a sub – retailer whereby the retailer pays the sub a percentage of any sales generated by the traffic driven to the retailer’s site. Amazon has an affiliate program that smaller websites can sign up for. This allows these websites to place an ad or a link on Amazon’s website. The sales are tracked and anything purchased results in a commission for the smaller websites.” ClickQuick.com provided a description about the success of Amazon’s affiliate program: “One of the oldest affiliate referral income partners on the Internet and perhaps the largest with over 200,000 affiliates. It pays 15% on individually linked books and 5% on all other items. You build a custom bookstore, music store, and video store on your site or simply put up a link to Amazon.com and get paid on all sales. Amazon does the customer service, shipping, and tracking of sales. The program has no hidden sales quotas or performance tiers.” Amazon.com has had so much success with the affiliate programs that it patented the technology. Part of the beauty of this technology is Amazon generates sales, name branding, and traffic through its website. There are so many Amazon banners, links, and logos throughout the Internet and Amazon is not paying any money for the advertising, except when it leads to a sale. (Marye, How Did They Do It?)
To ensure customer safety and satisfaction, Amazon has instilled three company policies throughout the organization. These policies concern privacy, pricing, and product returns.
When a customer makes a purchase on Amazon.com, the company will ask for some personal information. This information is used to help personalize and improve further shopping experiences. Some of the gathered information includes name, address, phone number, social security number, credit card information, and driver’s license number. This information is used to improve the company’s communication with the customer. Information is automatically obtained every time customers interact with the company. Examples of this information are e – mail address, purchase history, products viewed by customers, and shops visited. E – mail communication is quickly established between Amazon.com and the customer. It receives a confirmation when customers open e – mail from Amazon. It is an important part of business to obtain information about customers. Amazon.com does not sell this information to other companies. It is, however, shared with subsidiaries of Amazon.com. All information is protected on the website using various methods. The Secure Sockets Layer (SSL) encrypts information imputed into the computer so no one outside of Amazon can access information customers provide. When a credit card is used to pay for an order, only the last five digits are revealed in the order confirmation. Amazon does all of these things to protect its customer’s privacy. (Amazon.com Information), (Amazon.com Privacy), (Amazon.com Automatic)
Many times what lures a customer to buy is the price of the item and its availability. Each item has a price and availability listing on that item’s page. Low prices are always offered on all CDs, books, toys, electronics, DVDs etc Many items run for up to 40% less than in department stores. Sometimes there will be an item that is incorrectly priced in Amazon’s online catalog. If this occurs and the item’s price is lower than Amazon’s stated price, the customer would be charged the lower amount. If the item’s price is higher than Amazon’s price, Amazon will contact the customer before shipping or canceling the order. Recently, a price changing test was done in the DVD store to evaluate the website in the areas of site design and product pricing. “We’ve learned that certain aspects of our site resonates with customers in different ways, and we are continually fine – tuning our site presentation to see how these variables affect customers’ purchasing decisions” says Patty Smith, Amazon spokeswoman. Customers began complaining about the price differences and felt this practice was dishonest. In fact in this process of price changing, Amazon lost many customers. Because of these factors, Amazon.com altered its price testing policy and gave partial refunds to customers who paid higher prices than others on the same items. In the event that price testing is done in the future, customers will always be charged the lower price and anyone who pays anything higher will automatically receive a refund for the difference. (Rosencrance, 2000), (Gates, 2000) (Rosencrance, DVD Pricing), (Amazon.com Pricing)
The simplest out of all of Amazon.com’s company policies is its return policy. A customer can return an item within 30 days of the receipt of the order for a full refund. Simply indicate the reason for return, include the packing slip and wrap the package securely. Gifts can also be returned within 30 days of receipt. A gift certificate will be sent as a refund. Amazon.com will basically take any of their merchandise back and always gives the customer the benefit of the doubt. (Amazon.com Return)
Amazon.com is the leading online bookseller. Its competitors, Barnes & Noble and Borders, cannot even come close. Amazon.com was the first company to establish an online bookstore and is the leader in that space. (AMZN, 2000)
In addition, Amazon.com is also the leading online music retailer. This site offers everything any other music store does, with the convenience of online service. (AMZN, 2000)
Amazon.com has many high profile online partnerships and alliances. The two biggest are America Online and Microsoft. Both are allowing Amazon to branch out and reach new target markets. (AMZN, 2000)
Amazon.com has a very powerful position in the media industry. Due to the vast amounts of partnerships, Amazon now has a strong market position in the non – media industry. (AMZN, 2000)
Many people value the time and energy saved from buying books online. Many people also believe that buying books online is impersonal verses browsing a bookstore. Because Amazon.com is an online bookstore, Amazon does provide the personalized service and attention one would find in a bookstore. (AMZN, 2000)
Waiting for a product delivery is another weakness of Amazon.com. Although the item offered is immediately shipped when the order is placed one could go to the store and instantly have the item they want. (AMZN, 2000)
A major weakness of Amazon.com is its inability to make a net profit. The company does very well with sales and overall is very successful. All of the money Amazon makes is reinvested into the company. (AMZN, 2000)
Amazon.com, within its short life, has become very prosperous. The company has many partnerships with many powerful companies. The issue has been raised that Amazon is growing too fast. Many feel this quick growth is a strength while many others view it as a weakness. With so many products out on the market owned by Amazon, the company may not be able to focus the appropriate attention and effort to promote these products. (AMZN, 2000)
If Amazon.com wants to continue expanding, there is a large growing market available to the company. Even though it is involved with numerous of different market segments, there are many more that it has yet to discover. (AMZN, 2000)
With the success of Amazon websites in Germany, United Kingdom, and France, the company has generated global appeal. There have been possibilities of establishing websites in Italy, Spain, and Japan. So far, Japan looks the most promising. (AMZN, 2000)
In addition to global appeal, Amazon has many partnership possibilities. The success of this online company is unlike any other. This success makes it possible for easily establishing partnerships with other companies. (AMZN, 2000)
Failing partnerships is a huge threat to Amazon.com. For example, Yahoo dropped Amazon to partner with Barnes & Noble. This does not reflect well on Amazon. If smaller companies see a company like Yahoo drop Amazon, these small companies may not want to take the risk of partnering with Amazon. (AMZN, 2000)
Another threat that Amazon.com may have to worry about is governmental regulations. Government, at any time, may pose restrictions on Internet sales or overseas expansion. These restrictions would greatly affect the well – being of an Internet company. (AMZN, 2000)
As it can be clearly seen, Amazon.com would like to continue its success. But what happens next? What direction should the company head? Seven different alternatives have come to mind for the marketing aspect of Amazon. These seven alternatives are possibilities for the marketing department to expand the success of Amazon.com.
Doing nothing is always an alternative. Leaving everything as is and giving the company a chance to improve on its own is sometimes a good idea.
Another alternative is global expansion. The international market keeps growing so there will always be room to expand into other countries.
Another possibility is further expanding partnerships and alliances. Amazon.com has had successes and failures with partnerships. There is the successful partnership with America Online and the failed partnership with Yahoo. Yahoo dropped Amazon and is now partners with Barnes & Noble. Alliances have worked in the past by bringing new customers to the website.
Amazon.com has been criticized for over – expansion of the company. Discouraging further growth is an alternative to take into consideration. This alternative would allow the company to focus on current businesses and markets. (Motley Staff, 2000)
Books were the original product for Amazon that enabled success. Expanding into other areas was smart, an alternative could be to eliminate these partnerships and go back to the original focus of the company.
Technology is always changing and in order to keep current, the merchandise needs to be updated. Because of this, another alternative could be to upgrade merchandise to appeal to this new technologically aware market.
The last alternative for Amazon.com is to establish actual Amazon stores worldwide in addition to their online websites. Having a physical store location may encourage people without computers to shop at Amazon.
Not all of these alternatives will be used to help Amazon. Only the alternatives that are felt to be the most effective will be recommended for implementation.
There were great measures taken to review these alternatives. Meetings were held with all of the different departments involved in Amazon.com. The finance department was questioned about the budget for marketing and which of these alternatives would be the most cost effective. If there was any software change involved with any of these alternatives, the information systems department was made aware and consulted. They reviewed the alternatives and made it known which were the smartest to recommend from an information systems standpoint. The production department also had input in reference to these alternatives. Their agreement or disagreement was very important, especially if the physical store alternative was chosen. Anything involving the hiring or firing of personnel went through the human resources department. It was necessary to find out if the manpower associated with these alternatives was already in the company or needed to be hired. International expansion could be a big factor in the success of Amazon.com. Therefore, the international business section of Amazon was an important aspect in the evaluation of these alternatives.
After reviewing all of the alternatives listed with all departments of Amazon.com, it has been decided to recommend the following three alternatives. We recommend that Amazon should expand its partnerships and alliances. These expansions will keep Amazon’s name circulating throughout the Internet. Most of Amazon’s customers become repeat shoppers. This mainly is due to the company’s variety of products and its excellent customer service. If they see the Amazon.com symbol on a different website or know of a company associated with Amazon.com, they are more likely to go to the site and make a purchase.
The second recommended alternative is upgrading merchandise to appeal to the ever – changing technologically driven market. In 1999, the Amazon.com classical music store enhanced its recommendation service and added features to promote independent artists. Also in 1999, Amazon dedicated an area of its music store to download songs from major established performers. Amazon.com was the first online music retailer to feature this service. This is an example of upgrading merchandise. Amazon has turned music into downloadable music and it is now time to turn books into downloadable books. (Amazon.com, Inc.)
The third recommended alternative is global expansion. On the international front, Amazon.com has established websites in the United Kingdom, Germany, and most recently France. According to the chart titled America’s Growing Market Opportunity, the company has had great success overseas and there needs to be further expansion. The international business department of Amazon.com has done research on international expansion. The research has focused on new sites in Italy, Spain, and Japan. The most promising new site, based on the research, is Japan. (Amazon.com, Morgan Stanley)
It is not enough to simply make recommendations to improve the well – being of a company. Each recommended alternative needs an implementation plan. These implementation plans must address the departments involved, the actual plan itself, and a time – table of when things will occur, and most importantly a single champion. This champion will make the plan work as their top priority.
In most cases companies try to broaden their lines, not narrow them. Amazon is no different. Amazon.com is constantly forming new partnerships and alliances to attract new customers. It formed an alliance with ofoto.com, an online photography service. The newly acquired electronic line of business has become the second largest category behind books. Their best seller is DVDs. Amazon.com wants to form more alliances with companies like Toysrus.com and enter into new product categories. Selection is considered an advantage and not a disadvantage. Amazon’s goal of being a one – stop shop for everything online will bring the company great success. After carefully researching the history of partnerships and determining what made them a success or failure, new partnership plans will be implemented. (Ries, 2000), (Bloomberg News, 2000), (Amazon Quarterly Report, 2000)
Recently, Amazon.com has developed many high – powered partnerships and alliances. Amazon has a promotional alliance with America Online where Amazon products are available across several AOL brands. There is also an Amazon link on the AOL homepage. Amazon paid approximately 19 million dollars to AOL for this service. Although costly, we believe further alliances are one element in creating future profits. Amazon has a partnership with Microsoft to deliver e – books online, which will be discussed later in this paper. The finance department has assured us that there is funding available for these partnerships. The department feels that Amazon’s main concern is profitability and more partnerships are a step in the right direction. Amazon already has America Online and Microsoft as two huge partners. We feel the next step should be to create partnerships in different high – powered market segments. (Balluck, 2000)
Plans have been made to talk with Nordstrom. Talks will begin in 2001 allowing time for further research. We need to establish a synergistic relationship with a company where both will benefit from this partnership. When visiting the Nordstrom website, the customer will see a link to Amazon.com for further information on the products. In exchange, Amazon.com will display a banner advertisement for Nordstrom. For every sale at Amazon from the Nordstrom site, Nordstrom will receive 5% of that sale. Amazon will receive a 10% commission for sales through its website.
Amazon has also targeted Nike with the same kind of deal. Nike will have a link to Amazon for books or information on sports. Amazon, in exchange, will have an advertising banner for Nike on the website. Nike, just like Nordstrom, will receive a 5% commission and Amazon 10%.
Both of these partnerships should be established by June 2001. We expect to see an overall revenue growth of 5% by June 2002, from commissions.
The key to enabling these two new partnerships is establishing a synergistic relationship. Synergy is the concept that joining the efforts of certain parts of an organization will generate results greater than the sum of their individual efforts. When Nordstrom and Nike establish partnerships with Amazon.com., all three companies will benefit. (Jain, 2000)
The second implementation plan deals with upgrading merchandise. Amazon has so many different partnerships that it would be too hard and very costly to upgrade everything. We have decided to start the upgrading with Amazon’s best selling products, books, music, and movies. Music has gone from cassettes and CDs to downloadable music. Amazon.com has a section of its website specifically for downloading music. Movies have gone from videos to downloadable video clips. We have decided that the next step should progress from books to e – books.
As stated in a previous paragraph, Amazon has created a relationship with Microsoft. This partnership will lead to Amazon opening an online e – bookstore using the Microsoft Reader format for e – books. Consumers will be able to buy and download these books. Dick Brass, Vice – President of Technology development for Microsoft, says: “Amazon is the largest vendor of books on the web and could be the largest vendor of e – books. They could help make e – books happen real fast.” (Gates, 2000)
There are many advantages of e – books over printed books. E – books have an incredible storage capacity. One disk will hold everything needed. E – books are also very versatile. They give the reader the ability to move/ copy important sections of the book from one place to another, making it easy to take notes. An electronic dictionary is included on each e – book, allowing the reader to click on the word and get the definition. (Ochoa, 2000)
E – book online stores will take some time to open. We are planning to establish these stores by March 2001. These stores have the potential to be very successful so we do not want to rush things. Advertising for e – books will be done on the radio and through word – of – mouth, the usual Amazon.com advertising strategy. We predict that with e – books running at a cost of 3 – 7 dollars, we forecast revenue of about 750 million dollars within the first three years. These estimates may be conservative, the e – book industry shows great potential. It is a smart choice for Amazon to get into this business. This is the next step necessary to keep Amazon.com technologically updated. (Gates, 2000), (Hawkins, 2000)
The third imp