What are the problems encountered by e-tailers? How has Amazon.com succeeded to deal with these problems?

Amazon.com: The world’s largest B2C e-store [Source: Adapted from Turban et al. (2012) pp. 134-135] The opportunity Amazon.com reported that its annual profit for 2008 had doubled from 2007, with a 41 percent revenue increase, despite adverse US and global economic conditions. Entrepreneur Jeff Bezos faced an opportunity rather than a business problem. In the early 1990s Bezos saw the huge potential for retail sales over the Internet and identified books as the most logical product for e-tailing. In July 1995, Bezos started Amazon.com, an e-tailing pioneer, offering books via an electronic catalogue from its website. Over the years the company has recognised that it must continually enhance its business models and online storefront by expanding its product selection, improving the customer experience, and adding services and alliances. In addition, the company recognised early on the importance of order fulfilment and warehousing. It has invested hundreds of millions of dollars in building physical warehouses designed for shipping small packages to hundreds of thousands of customers. Amazon.com’s challenge was, and remains, how to succeed where many have failed – namely, how to sell consumer products online, at a profit, and show a reasonable rate of return on investment. The solution: Reaching out to customers In addition to its initial electronic bookstore, Amazon.com has expanded its offerings to a vast array of products and services segmented into three broad categories: media (books, music, DVDs, etc); electronics and other merchandise (including its new wireless reading device, Kindle 2; office supplies; cameras; toys; etc.); and other (non-retail activities, such as Web services, Amazon Enterprise solutions, etc.) Key features of the Amazon.com superstore are easy browsing, searching, and ordering; useful product information, reviews, recommendations, and personalisation; broad selection; low prices; secure payment systems; and efficient order fulfilment. Amazon.com is known for its innovations. For example in 2010, Amazon Seller Product Suggestion Box provides transparency to sellers by recommending specific products for third party sellers to sell on Amazon.com. The suggestions are based on customers’ browsing history. The Amazon.com website has a number of features that make the online shopping experience more enjoyable. For example, its ‘Gift Ideas’ section features seasonally appropriate ideas and services. AmazonConnect allows customers to select their favourite authors, read about them, and then receive e-mails from some of those authors. Amazon.com also offers various marketplace services. Amazon Auctions hosts and operates auctions on behalf of individuals and small businesses throughout the world. The Shops service hosts electronic storefronts for a monthly fee, offering small businesses the opportunity to have customised storefronts supported by the richness of Amazon.com’s order-fulfilment processing. Customers can use web-enabled mobile phones, PDAs, or pocket PCs to access Amazon.com and shop anywhere, anytime (more than $1 billion of merchandise in 2009). Amazon.com can also be accessed via AT&T’s #121 voice service. Amazon.com is recognised as an online leader in creating sales through customer intimacy and customer relationship management (CRM), which are cultivated by informative marketing front ends and one to one advertisements. 15 In addition, sales are supported by highly automated, efficient back-end systems. When a customer makes a return visit to Amazon.com, a cookie file identifies the user and says, for example, ‘Welcome back, Sarah Shopper,’ and then proceeds to recommend new books from the same genre of the customers previous purchases and a range of other items. It also provides detailed product descriptions and ratings to help consumers make informed purchase decisions. The site has an efficient search engine and other shopping aids. Amazon.com has a superb warehousing system that gives the company an advantage over the competition. Amazon.com is known for its strategy and acquisition of its successful competitors in niche markets (e.g., CDNow, Zappos). The company also acquired supplementary companies such as Alexa, Junglee, and DPReview. Customers can personalise their accounts and manage orders online with the patented ‘1-Click’ order feature. 1-Click includes an electronic wallet which enables shoppers to place an order in a secure manner without the need to enter their address, credit card number, and other information each time they shop. It allows customers to view their order status, cancel or combine orders that have not yet entered the shipping process, edit the shipping options and addresses on unshipped orders, modify payment method for unshipped orders, and more. In 1997, Amazon.com started an extensive associates programme. By 2009, the company had more than 2 million partners worldwide that refer customers to Amazon.com. Partners that feature Amazon’s products in their self-contained online store embedded directly within their partners’ Web page can earn up to a 15 percent referral fee if the advertisement ends with a sale (cf. affiliate-program.amazon.com). Starting in 2000, Amazon.com has undertaken alliances with major ‘trusted partners’ that provide knowledgeable entry into new markets. For example, clicking ‘Office Supplies’ allows customers either to select from Amazon.com’s office supplies or to browse those to Office Depot; clicking ‘Health and Personal Care’ allows customers to benefit from great deals offered by Weight Watchers. In yet another extension of its services in September 2001Amazon.com signed an agreement with Borders Group Inc., providing Amazon.com’s users with the option of in-store pick up for their merchandise at Borders’ physical bookstores. 16 Amazon.com is also becoming a web fulfilment contractor for national online chains such as Target. AmazonFresh is a grocery delivery service. Amazon MP3 allows downloads, some free, others for 69¢ per song. Amapedia is a wiki for user-generated content, a video on demand service for Amazon MP3. AmazonConnect allows authors to post remarks on their book pages to customers who have bought their books. Amazon.com offers many Web 2.0 social shopping features (e.g. customers’ reviews). It also acquired Woot.com, a company known for its social commercial activities. The Results In 1999, Time magazine named Bezos ‘Person of the Year,’ recognising the company’s success in popularising online shopping. In January 2002, Amazon.com declared its first profit – for the 2001 fourth quarter. Since then the company has remained profitable. Annual sales for Amazon.com have trended upward, driven largely by product diversification and its international presence. This pioneer e-tailer now offers over 17 million book, music, and DVD/video titles to some 20 million customers. Despite the increased competition, Amazon.com has been holding its place as the number one B2C money making EC site in the world. Given its warehouse system and order fulfilment, Amazon.com can offer very low prices. Add to this to the high customer satisfaction and the huge and superb selection of products and you can understand why Amazon.com is selling more than three times the products compared to its nearest competitor. Amazon.com also offers several features for international customers, including over 1 million Japanese language titles. Amazon.com maintained its position as the number one e-tailer in 2008, generating revenues of $19.2 billion, with a net income of $645 million. Amazon.com the king of e-tailers, which has shown all others the potential of B2C eC, is increasing its profitability, even in economic crises. Questions: 1. What are the problems encountered by e-tailers? How has Amazon.com succeeded to deal with these problems? 2. Describe the key characteristics of Amazon.com’s approach that has ensured sustained stickiness among its customer base. 3. At a time when most businesses around the world have suffered the effects of recession, how has Amazon.com managed to grow its business year on year? 4. Do you think all e-tailers would be successful if they were to follow Amazon.com’s approach? Why or why not?