Amazon.Com Case Studies

Name: PRASHANTH BALAKRISHNAN Student ID: 071090070 Course: BIS 541/03 –MANAGING INFORMATION SYSTEMS Program: CEMBA Commonwealth Executive Master of Business and Administration TMA 1: â€Å"Amazon. com†- A Business History Tutor: Prasanan P. T. Kannan Submission Date: 07. March. 2009 [pic] TABLE OF CONTENTS ChapterTitlePage 1. 0Executive Summary 2. 0Problem Statement1 3. 0Analysis of Causes 3. 1 Amazon’s Debt 2-3 3. 2 Competition3-4 3. 3 Expansion4-6 4. 0Decision Criteria and Alternative Solutions 4. 1 Reduce expenditure in inventories and better management7 in supply chain 4. Presenting a competitive edge to competitors7 4. 3 Expansionto Asia8 5. Recommended Solutions 5. 1 Technology Integration and R&D9 5. 2 Strategic Cost Analysis9 5. 3 Differentiation9 5. 4 Inventory10 5. 5 Visionary & Informative10-11 5. 6 Keep customers in the loop on everything11 5. 7 Shipping & Delivery11 5. 8 Expansion to Asia Region11-12 5. 9 Word-of mouth advertisement12 6. 0 Expand the product lines13 6. 0Appendices14-16 7. 0References17 Executive Summary The study comprises of Amazon. om which started its history by selling books and now one of the online market leaders globally not only for books but products from various categories. Company started with a mission to be Earth’s most customer centric company. In order to become the largest and convenience online store for all, there are major problems or threat being faced by Amazon. com in succeeding its mission. The major problems are Amazon facing high amount of debt, it’s less initiative in not expanding to other developed countries, and also competition from other online retailers and one tough opponent is Barnes & Nobles. Many plans of actions can be taken and some of it is; Amazon. com should decrease long–term debt by increasing expenditure on research and development, increasing word-to-mouth advertisement and good customer service. Amazon. com should also expand the five most common languages in Asian region. Focus marketing strategies on customer feedback to find out what Asian customers tend to buy and willing to spend on. Strategize new plan on improving sites to be informative and attractive as much as possible so Amazon. com should also adapt to the best technology where it can sustain as a strong innovator in ever increasing retailer market. Amazon. com also must strive to give customers the best service in shipping and delivery as it’s an important aspect in online business to out beat its entire competitors on this online industry. Problem Statement The main problem faced by Amazon. com now being an online retailer can be divided to three in overall. Amazon. com is in confronting huge debt behind their successful screen. Amazon. com is lack of expansion to other regions or Asia which be said as another big market for a huge online bookseller as Amazon. com. Another problem is the competition being faced by them with one of the tough opponent as Barnes&Nobles. Analysis of the Problem Amazon. com’s in Debt 3. 1 Amazon’s Debt One of major causes of Amazon’s huge debt is its large expenditure. In order to keep its advantageous position, Amazon has no choice but to continue to spend astronomical amounts of money on sales & marketing, research & development and general & administrative costs. (Table 1 & Table 2) â€Å"One misstep, and its love affair withy investors and sources of capital could be over. (Kimberly Weisul, 1999) †¢ Competitors Although Amazon won the battle soon after entering the online cd and music market, there are some competitions in other product lines that may be too immensely strong to beat. For example, in March of 1999, Amazon introduced an auction service. After a few months effort, its auction business performed slightly, indicating how difficult it is to challenge the giant’s eBay and Yahoo! Auctions. |Auction Sites |27-Sep-99 |Multiplier needed to equal eBay listings | |Amazon Auctions |4. 0% |15. 3 | |eBay |73. 60% |   | |Yahoo! Auctions |21. 60% |3. 4 | Source: Auction Web sites and C. E Unterberg Towbin †¢ Consumer Behavior Amazon. com is widely regarded as having one of the best management team of any internet company. However, there are some outside forces that are not easy to manipulate. Security; as the number of Internet crimes increases, customers are becoming aware of the possible danger involved in the process of on-line shopping. This security problem may not be difficult to improve since security technology is innovated quickly, but to convince customer of this is not as easy ? Etailers vs. retailers Another factor is hard to manage customer purchasing habits. Most consumers still prefer the capability of seeing a product before buying it. Additionally, the number of people buying personal computers and that of the Internet population wil l directly affect Amazon’s sale. . 2 Competition †¢ Michael Porter’s Model ? Supplier ; Amazon started to build its own distribution centers in different locations and moving the products directly form the factory rather than from other distributors such that Amazon can lower its marginal costs. (Chao Janice C. Rice, Brandi S. Dec 8, 1999) ? Consumers ; Amazon. com continues to spend a lot of money in advertisement to reach customers as well as to increase customer awareness of eCommerce in general and brand name in particular. (Chao Janice C. Rice, Brandi S. Dec 8, 1999) ? Substitutes; The Substitute of eCommerce, the traditional retailers, is still more attractive than the Etailers. For example, we as consumers more than likely would rather go to the bookstore and browse through a book before we buy it. (Chao Janice C. Rice, Brandi S. Dec 8, 1999 ) 3. 3 Expansion †¢ Lack of Spanish website version (Latino and Hispanic Americans are the fastest-growing online ethnic group) †¢ Amazon. com is very less popular or it can said there are people without knowing the existence of Amazon. om †¢ Website is not more expanded with more languages options where currently there are options only for Canada, United Kingdom, Germany, Japan, France and China (www. amazon. com) Competition with Barnes& Nobles Amazon. com Weakness ? Difficulties of handling large number of customers ? Limited operating history ? Security awareness ? Low margins in the sector ? Risk of introduction of wrong new categories which could damage company’s bra nd ? Company’s offered free shipping might affect future financial outcome ? Certain products (high volume/weight) have high shipping costs which could confront with local offline retailers Threats ? eBay, Barnes & Nobles, and Wal-Mart ? Population segment not targeted to on-line sales due to their lack of internet access ? Weak economic performance of Germany and France in the last year ? Competition will increase due to the low barriers to entry in the market: offline companies are coming online ? Heavy investments in Partnerships (Dustin Nadeau & Donatas Sumyla. April 2006) Barnes and Nobles and Amazon. com are competing, but both stores and other online stores recognize what works and are studying one another – often duplicating one another’s business strategies. This has resulted in them having more similarities than differences and it helps the consumers find similarities across the Web such as; †¢ When a description of an item is given, Amazon and Barnes and Nobles both place the shopping cart option prominently displayed to the upper, right portion of the screen. This makes it very efficient and useable for the viewer and they do not have to search around the page for this button. (Clementina Imobhio May 5, 2001) †¢ In pricing, both Amazon. com and Barnesandnobles. com display the average price or their items above their own discounted rates so that the users feel as though they are saving money. (Clementina Imobhio May 5, 2001) †¢ Both sites are â€Å"Flexible†, there is an option of buying things at a later date and placing them in the shopping cart temporarily. This option is called the wish list and it is displayed just beneath the â€Å"Add to Cart† button. Users can access this saved information and acce ss it on their next visit. (Clementina Imobhio May 5, 2001) †¢ Both sites offer â€Å"Security† that provides safe shopping, privacy and efficiency by requiring customers to join as members at a certain point during a transaction. Membership is free and requires an email address, full name, home address and phone number. It allowing customers to maintain an order status and helps provide a history of what they bought. (Clementina Imobhio May 5, 2001) †¢   Both sites are very â€Å"Scalable†, allowing for a huge selection of items to be added to the product catalog or taken away. A Field size is accommodated in the database. (Clementina Imobhio May 5, 2001) 4. 0 Alternative Solutions 4. 1 Reduce expenditure in inventories and better management in supply chain ? Use increased income to pay down long-term debt ? Keep operating costs low (efficiencies of scales) ? Increase expenditure on Research & Development arena ? Strategic cost analysis ( WOU , MIS notes) ? Determining Differentiation ( WOU , MIS notes) 4. 2 Presenting a competitive edge to competitors †¢ Create more expertise in marketing and more product launches compared to competitors; †¢ Do a more through research on the customers needs and come up with something new that has its own brand and establishes as only Amazon. om could have the product. (Sujan Sarkar. April 23, 2007) †¢ A new Strategy on only books should be brought up in order to outcome one tough opponent as Barnes & Nobles. For example, Amazon. com’s booth’s can be set up in country sides where there is no access for Internet and give knowledge to country people that there also business through online. This is because; giving more exposure and awareness to people might be a business opportun ity as well. †¢ Product review information; Customers would have n a clear description, synopsis and other customer’s review on the book as it gives a clear rating of the book and there won’t be any sort of disappointments for them after purchase. 4. 3 Expansion to Asia †¢ Create different website versions based on the five most common language in Asian region †¢ Focus marketing strategies on customer feedback to find out what Asian customers tend to buy. †¢ Word of mouth advertisement (Onder Savas Devrim Dirik. January 9, 2003) †¢ Continue expanding its product lines 5. 0 Recommended Solution & Implementation 5. Technology Integration and R&D Amazon. com should increase expenditure in the research and development arena. We believe that Amazon should prepare itself for additional telecommunications implementations such as high speed internet and network security. These types of implementation, though representative of considerable R&D costs, ar e probably most significant factors that etailers must prepare for near future. As users, connections increase in speed, any delays on the part of the etailer they are connecting to will become obvious and less tolerable. Amazon can stay ahead of the pack by preparing a unique and comfortable interface for the users. 5. 2 Strategic Cost Analysis Amazon. com should also use Strategic cost analysis process where identify the firm’s value chain, diagnose the key elements that drive the costs of each value activity, identify competitors value chains, develop a strategy to lower relative costs by controlling cost drivers, ensure that any cost reduction does not erode differentiation in service and test the cost reductions if its sustainable in the end of the analysis. . 3 Differentiation They should also consider by costs by determining Differentiation where the process goes as determine who the real buyer is, identify buyer’s value chain and put in rank order the buyer’s reason to purchase, asses the current potential sources of diffentiation, identify the cost of these resources, design a value chain to maximize value relative costs, test for sustainiablity and reduce costs in activi ties that do not affect the chosen forms of differentiation. 5. Inventory; There are programs built to be extremely user-friendly, and most offer great support along the way of usage for online businesses to maintain the book database. Amazon should invest in software to best highlight and maintain the data on the site and importantly back up systems. Keep inventory accurate and up to date; This is also an important aspect that Amazon can out beat its competitors with as this is first step towards building a long-term relationship with that customer. Inventory of the books stock-out and sold out will be kept up to date on the site. 5. 5 Visionary & Informative A picture is worth a thousand words; Uploading pictures by decreasing explanations or descriptions could attract customer’s attraction and curiosity in exploring the book. Somehow it boosts up sales compared to other online booksellers who give attention in words. Product Review Information; In case of books, editorial reviews are provided by the company and it applies for all books. Customers can also rate each other’s review. A rating is placed against each review so that customers can decide whether to read or not based on that. Most online booksellers do not include this but they display the customer’s satisfaction on the delivery service provided by them which is less important to boost up sales. People out there want to pay you for your books; Amazon should use own merchant service account or a service offered by a listing site, make sure that customers can buy books quickly and painlessly with a credit card while you have them on the brink of finalizing said purchase. Don’t judge a book by its cover; First impressions are lasting impressions. When a customer receives the book they’ve ordered, make sure the first thing they see is a product and package that you are proud to have supplied by using use clean, new boxes without writing (or envelopes for low-cost paperbacks) for shipments. Customers will be expecting an excellent service but if its vice versa then they are chances for them to switch to other online retailers. 5. 6 Keep customers in the loop on everything; Amazon should update the status of order to customers on the order made and also keep them in loop by e-mail the listing service directly with questions about their orders and keep updating the latest events and new stocks of books through emails. 5. 7 Shipping & Delivery Follow-up; After shipping out an item to the customer, Amazon should send them an e-mail a day or two after expecting that they’ll receive their package, asking them if they’ve received it and are satisfied, and reminding them that there customer rep are there to help should they have any questions about their order. This is also a great time to remind them that you have similar items in stock or to offer them a coupon towards future purchases. 5. 8 Expansion to Asia Region Amazon should strive to expand its expertise to Asia region as well as high potentials are there which huge population. Education is becoming one important aspect in Asia and lack of important reference books are always a problem in many parts of Asia. It should diversify its marketing capability in Asia too to capture the market. Amazon is very less popular in Asia regions. Amazon. om should take Asia to consider for its business expansion. Amazon could also diversify its marketing and research ability to expand mostly to the developed countries of other territory. In order to grow big and always sustain in the market and competition, Amazon should takes this sort of steps to expand. International Sites; Amazon. com has got an added advantage of international sites on Canada, United Kingdom, Germany, Japan, France and China. All about what the customers have to do to browse the site with their language is by clicking to their national site. For example, if you clink Japan, immediately the whole website will change its descriptions and instructions into Japanese language. This is not at all applicable for a customer in Malaysia or any other regions of Asia. It should expand and add more languages options in its site to accumulate its customers. Giving customers what they want is also one strategy not all online business can do but if this can be proven in Amazon’s case then it have all the potential to be the one. 5. 9 Word-of mouth advertisement Amazon also should increase its word-of mouth advertisement. This might seem odd for an industry leader to rely upon such a quaint tactics as this, but we truly believe that in the world of Internet this is a powerful tool. We are quick to visit sites that our friends identify as being fabulous, and Amazon might capitalize on this by rewarding its customers who can reel in a new prospects. 6. 0 Expand the product lines Amazon should expand its product lines. Given’s Amazon’s vision and its unique position in the etailer industry, the cost associated with entering new markets is significantly lower than that of its competitors. There is no reasons to let this advantage slip away unused. Conclusion In order to stay focus on business Amazon. com has various ways and strategies that can be implemented with proper organizations communication networks. Financial reports should be reviewed annually and quarterly if necessary to come up with decisions whether to boost up sales or to maintain on a certain criteria for the wellness of business. Amazon. com also should have a frequent customer feedback program where they could exchange view on the services and products most desired to be acquired online by customers. Top level management meetings should be initiated to assure goals are achieved. A proper corrective action should be determined after the first year if annual objectives weren’t accomplished. However there are difficulties and competitions to overcome, and how companies attack these difficulties will separate the winners form the losers. Appendix |AMAZON. COM, INC. HISTORICAL INCOME STATEMENTS | |(in millions, except per share data)(quarterly information unaudited) | |Amazon. com Investor Relations | | | | | | | |Calendar Years Ended – December 31, | | |2008 |2007 |2006 |2005 |2004 |2003 |2002 | |Media |   | $ 5,350 | $ 4,630 | $ 3,582 | $ 3,046 | $ 2,589 | $ | | | | | | | | |2,270 | |Other |   | 448 | 326 | 263 | 222 | 130 | | | | | | | | | |110 | |International |   |   |   |   |   |   |   | |Media |   | 5,734 | 4,612 | 3,485 | 2,885 | 2,513 | | | | | | | | | |1,780 | |Other |   | 94| 57| 20| | | | | | | | | |8 |2 |- | |Consolidated |   |   |   |   |   |   |   | |Media |   | 11,084 | 9,242 | 7,067 | 5,931 | 5,102 | | | | | | | | | |4,050 | |Other |   | 542 | 383 | 283 | 230 | 132 | | | | | | | | | |110 | Table 2- Source; www. amazon. com (Investors Relations) |Total U. S. Home, Work and University Locations, Unique Visitors (000) | |Source: comScore Media Metrix | |Rank |Property |Unique Visitors |Rank |Property |Unique Visitors | | | |(000) | | |  (000) | |   |Total Internet : Total Audience |191,863 |   |   |   | |1 |Google Sites |151,010 |26 |Target Corporation |28,628 | |2 |Yahoo! Sites |146,131 |27 |Time Warner – Excluding AOL |27,209 | |3 |Microsoft Sites |125,568 |28 |Weatherbug Property |26,944 | |4 |AOL LLC |108,441 |29 |Bank of America |26,322 | |5 |Fox Interactive Media |90,510 |30 |United Online, Inc |26,048 | |6 |Ask Network |74,742 |31 |Gorilla Nation |25,585 | |7 |eBay |72,160 |32 |AT&T, Inc. 25,574 | |8 |Amazon Sites |64,768 |33 |Answers. com Sites |25,563 | |9 |Wikipedia Foundation Sites |62,737 |34 |Demand Media |25,447 | |10 |FACEBOOK. COM |57,232 |35 |CareerBuilder LLC |24,750 | |11 |Glam Media |55,293 |36 |Everyday Health |24,717 | |12 |Turner Network |54,877 |37 |Shopzilla. com Sites |24,097 | |13 |Apple Inc. 54,194 |38 |Photobucket. com LLC |23,928 | |14 |CBS Corporation |53,539 |39 |WordPress |23,730 | |15 |New York Times Digital |49,110 |40 |Real. com Network |23,359 | |16 |Viacom Digital |46,510 |41 |Expedia Inc |22,703 | |17 |Weather Channel, The |40,056 |42 |JPMorgan Chase Property |22,399 | |18 |craigslist, inc. 39,437 |43 |Mons ter Worldwide |22,244 | |19 |AT&T Interactive Network |38,184 |44 |Gannett Sites |21,829 | |20 |Adobe Sites |35,315 |45 |WorldNow – ABC Owned Sites |21,586 | |21 |Comcast Corporation |33,940 |46 |WebMD Health |21,185 | |22 |Wal-Mart |33,513 |47 |iVillage. com: The Womens Network |21,002 | |23 |Superpages. com Network |32,558 |48 |NBC Universal |20,974 | |24 |Verizon Communications Corporation |32,412 |49 |WhitePages |19,351 | |25 |Disney Online |30,345 |50 |ESPN |19,266 | Table 3; Media Matrix; http://www. comscore. com References 1] Chao Janice C. Rice, Brandi S. Dec 8, 1999 http://www. rhsmith. umd. du/faculty/jbailey/ents630/amazon. pdf 2] Dustin Nadeau & Donatas Sumyla. April 2006- Amazon. Com Inc 2004. (Accessed Feb 20, 2009) 3] Clementina Imobhio May 5, 2001 – E-Transaction: Shopping Carts Comparison (Accessed Feb 20, 2009) 4] Paul Larson. February 14, Amazon. com – Motley Fool Research, Stock Report http://www. fool. com/search/index. aspx? go=1&site=USMF &q=amazon. com (Accessed Feb 16, 2009) 5] Onder Savas Devrim Dirik. January 9, 2003 – Informat? on Management (Accessed Feb 16, 2009) 6] Strategic Analysis of Amazon. com (Accessed Feb 19, 2009) 7] www. wikinvest. com/wiki/E-Commerce, (Accessed Feb 20, 2009) 8] www. ikinvest. com/stock/Amazon. com_(AMZN), (Accessed Feb 20, 2009) 9] www. wikinvest. com/stock/Barnes_%26_Noble_(BKS), (Accessed Feb 20, 2009) 10] Sujan Sarkar. April 23, 2007 – Amazon vs. Barnes & Noble: www. santarosa. edu/~ssarkar/cs66sp07/fprj/abn. htm (Accessed Feb 16, 2009) 11] Table 1- Source; www. amazon. com (Investors Relations) (Accessed Feb 17, 2009) 12] Table 2- Source; www. amazon. com (Investors Relations) (Accessed Feb 17, 2009) 13] Table 3; Media Matrix; http://www. comscore. com (Accessed Feb 17, 2009) ———————– AMAZON Supplier New Entrance Substitute Consumers