Amazon.com has a leading edge in the e-commerce world. It has a strong competitive advantage. However, as with many online retailers, there are certain aspects of conducting business over the web that creates difficulties and the need for marketing planning.
This marketing plan consists of an environmental scan, customer behavioural patterns, current segment market, marketing strategies and recommendations in strategies.
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Amazon.com is the largest online retailer. The company opened its virtual doors in July 1995 by Jeff Bezos in Seattle. Since then it has enjoyed rapid expansion in all aspects of its operations, including business turnover, and a spectacular rise in share value since public floatation in 1997.
Amazon.com sells only on-line and is essentially an information broker. Amazon.com has a constantly growing database of over 12 million customers in more than 160 countries. Amazon.com is the place to find and discover anything customers want to buy online. They have earth’s biggest selection of products, including millions of books, free electronic greeting cards, online auctions, videos, CDs, DVDs, toys, games, electronics, kitchenware, computers, and more.
2.1) Competitive position – Amazon.com is the biggest on-line international retail store in the world – Strong in-house internet technology with excellent offline customer services – A huge database of loyal customers – base of over 12 million shoppers – The company has grown to a massive online superstore with recent sales of $1.64 billion in 1999, an increase of 270% from the previous year’s sales – Amazon.com has a very powerful position in the media industry.
– Amazon.com is using the Internet to transform book buying into the fastest, easiest, and most enjoyable shopping experience possible.
Market share of the online book business 2.2) Amazon’s mission – To become the largest selection of select retail categories Amazon.com seeks to be the world’s most customer-centric company, – To provide the best shopping experience and become the place where people come to find and discover.
– To convince all online customers to use Amazon as their search platform.
– Provides excellent customers personalize services and discount profitable prices.
– Let customers can find and discover anything they might want to buy online at Amazon.com 2.3) Corporation objectives There are 4 important objectives of Amazon.com as below: a) Improve customer relationships Amazon.com will continue to invest heavily in building relationships with new customers. Customer obsession is the key focus at Amazon. 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.
b) Expand products and services Product and service expansion is important because it will also encourage repeat customer, as the company becomes increasingly well known to a wider customer base. As long as people keep coming back to purchase new types of merchandise, Amazon.com will make money.
c) Expand partnerships Amazon.com’s partnership ventures have been successful in the past so the company hopes to continue that success. These partnerships like drugstore.com, gear.com, and ashford.com, provide a large selection and great customer service, just like Amazon. Effective partnerships have been proven to greatly enhance a business.
d) Profitability in every Amazon.com business Sustainable profitability is the main motive for every company. 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. It is now time to cut its fixed costs and generally improve on company spending.
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.
2.4) Marketing Objectives – Achieve a 200% increase in sales per year for books – Achieve a 250% increase in sales per year for music – Achieve a 275% increase in sales per year for movies – Achieve a 100% increase in sales per year for electronics & software The percentage increase in sales for the above categories were determined by each category’s required strength minus the current strength of that product line all divided by the number of years left on the loan. This is the percent increase necessary per year for the specific product line to create enough profit to exactly pay off the loan.
3.1) TWOS framework Threats – Decreasing economy: Amazon can no longer get cheap capital from the stock market because of the amount of failed Internet companies.
– Uncertain Internet business trends: Business risks related include amount of indebt, competition, potential fluctuations in operating results and rate of growth, foreign currency exchange rates and government regulation – Competition with suppliers: suppliers selling directly to customers may make more profit than through a middle man. It will lead suppliers cannot offer low prices to Amazon.
– Interruption of services: System interruptions caused by power losses, bad weather, hardware failure and computer viruses often make Amazon.com unavailable and prevent efficiently fulfilling orders.
Opportunities – Increasing Internet markets: Amazon.com did have a large group of customers that wanted to shop online. Global Internet users are increasing rapidly.
– New technology: Amazon.com Web Services harnesses the vast product information already available on its website and turns it into a resource for developers as users. Currently, over 800,000 sites have enrolled in the Associates Program worldwide.
– Cooperation with other businesses: Customers can buy products from other vendors through Amazon’s website. They attract new customers through links on other sites. Customers can access Amazon’s services from within partner websites.
Strengths – Good customer services: The one-click service function lets customers feel a sense of immediacy when ordering online and satisfied with the improved electronic confirmations service.
– Fast access to supply. When customers find the products and click the order key. The data of order will be transferred to one of Amazon’s servers. Then inform the employee to take the product and pack them by customer’s desired.
– International recognition. Anyone who wants to buy books online will first go to Amazon. Amazon uses online advertisements and referrals from their customers to inform people of their services.
– Provide safe and convenient shopping services. Credit card transactions can reduce the risk of being robbed or losing cash. Customers can avoid exchanging currency.
Weaknesses – Waiting for a product delivery is a weakness of Amazon. Although the item offered is immediately shipped and instantly have the item they want.
– Unmanageable operation: Amazon lost money due to their operation policy.
– Bad investments: Amazon invested in an unsuccessful wireless technology company, and other failed e-commerce companies. These lost enough value to harm Amazon’s operations.
– Hardware problems: Amazon’s decentralized servers often suffer from hardware failures. When this occurs, the entire system is affected and their services can stall and they can lose data Strengths Weaknesses Opportunities – Increase customer service department- Improve website performance for handheld Internet devices- Expand relationships with international businesses- Emphasize security in marketing – Redirect investments in failing companies to safer companies- Outsource more technology services to improve systems and reduce costs- Allow partners more autonomy to reduce overhead
Threats – Use new technology to coordinate mutually beneficial solutions with suppliers- Establish secure systems to prevent outside interruptions- Use recognition and speed to increase international reputation and sales- Establish a larger share of online business through marketing to discourage competition – Increase orders from suppliers- Stop investing in e-commerce companies- Increase system security 3.2) The micro environment – Porter’s 5 forces a) Threat of entry – Brand loyalty is very important for the sales of Amazon.com – Absolute cost advantages. Amazon.com has lost it’s advantage due to new company that has entered the market has realized that Amazon had the more popular system and then tried to copy it.
– Government policy as barrier to establish online retail website Amazon.com perspective – moderate threat of entry b) Power of suppliers – Amazon.com was the industry’s number one overall seller, online and retail combined in 1999. As a result, with larger orders get better deals.
– Suppliers are a threat when “they are able to force up the price that a company must pay for its inputs or reduce the quality of inputs they supply, therefore depressing the company’s profitability.
Amazon.com perspective – low to medium power of supplier c) Power of buyers – The buyers of online retails are becoming more empowered because of the use of the Internet. There have been several websites that have entered the online retails business by offering low price and good customer services Amazon.com perspective – strong power of buyers d) Threat of substitute products – Low price strategy is critical to compete with real-world book superstores – If Amazon’s products have few close substitutes, then company has a better opportunity of gaining more profits due to the ability of raising prices.
– Amazon does not have to worry about customers switching to other products. Companies that are not threatened by substitutes should indeed take advantage of such a situation.
Amazon.com perspective – low threat of substitutes e) Competitive rivalry – CDNow, a leader in music and MP3.com an Internet retailer of music that are serious competition from other online web stores who have a dedicated following and are focused on a specific market.
– There are untapped product markets that have potential for profitability Amazon.com perspective – intense and increasing rivalry 3.3) Competitive analysis As with any corporation, Amazon.com has major competition including such well known business as below: a) Barnes & Noble Inc.
Barnes & Noble.com is an internet commerce branch of Barnes & Noble Inc. which includes physical bookstores that have been designed with comfort and convenience. It receives more than six million unique visitors per month to its Web site, www.bn.com. It is perhaps their largest competitor.
b) Wal-Mart.com Wal-Mart has experienced success internationally because of its ability to transport the company’s unique culture and effective retailing concepts to each new country. They respond to customer needs, merchandise preferences and local suppliers.
c) CdNow.com CdNow.com is an online music store and is similar in that stock shares are available to the public as well, making it a like corporation. They have a much smaller business range though.
d) Ebay.com Ebay.com is also on the Internet and it is much larger than Amazon.com and offers live auctions and bidding for customers.
3.4) Macro environment a) Political factors – Restriction of information transfer. People more concerned about privacy of personal data.
b) Economic factors – Penetration of IT in the household sector and business sector – Customer become more prices conscious. They can search more information through the Internet C) Sociological factors – There is increased use of the Internet. People more depend on Internet daily whether searching information or looking for entertainment.
D) Technological factors – Many large organizations have invested heavily in hardware, software and telecommunications in order to trade on-line.
– Except the traditional advertising channel. Internet can provide new channel for advertising.
Customer behavioural patterns
Research shows that some customers are complaints about shopping in real-world stores such as crowds and the limited open hours. As this reason many of customers enjoy purchase online because there are improvements in the shopping experience. Online shopping can 24hours 7days with better selection and low price are a few of the advantages of shopping online. Amazon.com use low price strategy with wide selection of items and excellent offline customer services to achieve high brand loyalty from customers.
Market Segmentation, Positioning and Targeting Segmentation
With its multiple brands, Amazon segments its market; each brand represents a unique image and caters to a distinct demographic. Friendly, low price are aimed at the middle to high-level income market. Therefore, Amazon.com markets its products to people that are willing to shop online, and they want to buy products at an affordable price. These would be people that are technologically literate, but without huge levels of income. Amazon.com uses mass marketing as its segmentation strategy. It uses demographics and behaviour as its market segmentation.
In which it tries to attract consumers of various ages, different ethnic backgrounds, medium-income level, and both genders, with high school or higher level of education. These consumers have interests in purchase online; some of them show high level of brand loyalty to Amazon.com Target Market Demographic Profile User: Owners of personal Computers & shop at home consumers.
Age: 25 – 45 (young adults to early-middle age) Generation: Generation X – Young Boomer Gender: Both gender Family Size: 1 – 4 Since the target market is young, they will tend to be single or with new families.
Family Life Cycle: Single to married with young children Income: Medium to high income that can be spent on purchase online Social Class: Middle-Upper Middle Education: Completed college to university Occupation: White-collar to professional Positioning Amazon.com has even position in leading Internet retailers that are improving the lives of customers by making shopping easier and more convenient. Amazon.com acts as the only store selling everything you want. This distinguishes Amazon.com from Internet portals, a starting point where the consumer bounces in and out of different stores all with their own look and feel, security measures, and privacy statements.
With Amazon.com the customer only deals with one owner of the merchandise, one payment system, one secured web site, and privacy concern. When Jeffrey Bezos says he wants a customer to be able to buy anything from one place, he is required to use a virtual store such as Amazon.com because a real world store could never warehouse endless products for millions of people. The target market of Amazon.com is literally anyone who can see the pages and this means people with access to the Internet.
The supply chain management
One of Amazon.com growth strategy was improving its distribution infrastructure. Their plan was to open one or more distribution centres to increase investment and in its existing infrastructure in order to increase efficiency.
Currently, Amazon.com sells its merchandise at 20% above the cost of goods sold. Some products have more room for a profit margin without looking overpriced. Products that have very low wholesale prices may be the initial targets for increasing consumer cost. By outsourcing or deploying a supplier managed inventory program which allows for direct shipment from the original equipment manufacturer helps to drive down inventory costs.
With fewer expenses, the prices of each product should be matched with the frequency of sales and priced to surpass expenditures by 20%. Distributing the overhead cost across all product lines with more emphasis on the cheaper products, Amazon.com can make a profit, have competitively low prices, increase stakeholder wealth, and retain and improve their market share.
They need to raise inventory turnover and create a better system of carrying it due to the high holding costs of inventory. In addition, reduce “split shipments” to lower operating costs. Without having an efficient inventory and operation, the cost of maintenance will be a burden on the overall financial success.
Existing marketing mix
GE Matrix SECTOR ATTRACTIVENESS High Medium Low
– Low price but profitable
– Largest selection of product specially on book & DVD categories
– Strong search engineer
– Excellent offline customer services
– Return policy
– Acquiring online partnership
– Form strategic alliance
– Online advertising
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.
7.1) Product Line
The Largest Selection of Select Retail Categories Amazon.com seeks to be the world’s most customer-centric company, where customers can find and discover anything they may want to buy online. Amazon.com’s All Product Search scours the Web to help customers find merchandise that is not available at Amazon.com, Amazon.com’s Auctions, or Amazon.com’s zShops, making Amazon.com the shopping destination to find anything. Amazon.com needs to decide on boundaries for its product lines to prevent unprofitable maintenance of merchandise rarely purchased online.
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. 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.
7.3) Price Now
Amazon.com is using low price but profitable margin strategy. Many times what attract customer to buy is the price of the item and its availability. Each item has a price and availability listing on 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. 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.
Advertising has probably been its key to growth, exposure, and name branding. This form of advertising is called affiliate programs. These 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. 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.
To ensure customer safety and satisfaction, Amazon has instilled three company policies throughout the organization. These policies concern privacy 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, credit card information, e-mail address, purchase history, products viewed by customers, and shops visited. This information is used to improve the company’s communication with the customer. All information is protected on the website using various methods in order protect its customer’s privacy.
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.
To develop Amazon.com’s marketing strategies. I will suggest that the organisation to adopt Porter’s generic strategic. The three strategic are Cost leadership, differentiation and Focus. In this case, cost leadership is suitable strategy for Amazon.com.
There is no denying that Amazon has a vast inventory, consumer base and reputation for quality; but, with the changing economy, low-price mentality, and awareness to people of the limitlessness nature of internet shopping, price can be a leading determining factor in someone’s purchase. To maintain cost leadership position can capture more market share and increase sales.
Ansoff’s Matrix Existing Product New Product Market Penetration
– Increase brand recognition by free email and sponsor
– Improve distribution management
– Low price strategy
– Product Development
– Expand the travel services item
– Develop a partnership with key auto manufacturer to provide auto parts item
– Market development
– Global expansion by establish website in potential countries
– Build a real world store
Recommendation In order to expand
Amazon.com’s position successful, following recommended alternative action plans involves:
A) Brand recognition
B) Global expansion
C) Build a real-world store
D) Product development
E) Improve distribution management
In an effort to expand the Amazon.com brand name we recommend that Amazon.com become a free e-mail provider. This service will benefit Amazon.com in two primary ways. The first way Amazon.com will benefit is customers that use the service will be forced to pass through Amazon.com’s advertising space when reading or sending their mail. A user will logon to the Internet, go to the Amazon.com home page, where they login and check their e-mail. While they are checking their e-mail, they will see a banner that will display current promotions offered at the web site.
Amazon.com mail service they are essentially providing a positive word of mouth advertisement endorsing the retailer. This feature should be rolled out immediately to existing customers, by allowing them to create an account automatically when they make a purchase.
Another way to increase Amazon.com’s name recognition would be to sponsor Internet radio broadcasts. The same way people listen to regular radio, computer users attached to the Internet can listen to a radio broadcast that comes over the computer. The broadcasts are generally “talk radio” instead of music broadcasts but cover a very wide variety of topics. Sponsors are needed to fund the production of the Internet radio just as in traditional radio.
B) Global expansion The second recommended alternative is global expansion. On the international front, Amazon.com has established websites in the United Kingdom, Germany, France and Japan. According to America’s growing market opportunity, the company has had great success overseas and 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 China. These sites have more profit potential than those in the United States. Amazon’s goal of expanding overseas should greatly benefit the company.
C) Build a real-world store Expand the accessibility of Amazon.com to include people that do not have Internet access or even a personal computer. To expand this market reach we recommend building a real-world store. These stores will provide Amazon.com a presence in the off-line environment.
These stores will not carry the goods that are available at the online store, but rather provide a portal to which customers can use PC’s provided by Amazon.com to browse the Internet aisle in a user-friendly environment, including snacks, beverages and coffee that can be purchased while the user is browsing the web site The shops will be located in high foot traffic areas, such as local malls.
These shops will also sell Amazon.com specific merchandise, such as T-shirts and coffee cups with the Amazon.com logo. These shops will also provide a real-world place for consumers to return merchandise. It helps to solve one of the largest complaints of Internet shoppers is the inability to return items to a real-world store. Also, it provides Amazon.com with the opportunity to compete directly with their “real-world” competitors – Barns and Noble and Borders Bookstores.
D) Product development Amazon.com’s goal is to become the largest online retailer and needs to continue to expand the product lines even further to include auto parts and travel items. To do this they will need to merge and/or acquire several other companies, as well as develop key partnerships with suppliers to provide a greater number of choices to their customers.
The first area of expansion should be into the auto parts industry. Develop a partnership with key auto manufacturers including GM, Honda, Toyota and Ford that will allow Amazon.com to track the inventory of their parts. Amazon.com can then develop a page where consumers can search for available auto parts by manufacturer, model and year built. Customers will then be able to purchase factory parts for any car through Amazon.com’s web site.
Customers will be able to locate hard to find parts using Amazon.com’s extensive database of parts and have the parts shipped directly to their home without having to drive all over town in search of them.
Finally, the last area that Amazon.com should branch into is the travel industry. The travel industry is one of the hottest fields currently available on the Internet. There are several hundred sites available to Internet users that lists travel specials and packages. However, one of the big complaints by Internet shoppers is that web sites are too difficult to find. By bringing travel services into the Amazon.com home page, it will provide an easier way for consumers to find the deals they are looking for.
E) Improve distribution management Amazon.com needs to create strategic alliances with its suppliers and shipping companies. Consumers have certainly stated that the number one improvement for E-commerce is the price of shipping goods. They do not accept any additional charges when purchasing online.
To this end, Amazon.com must aggressively pursue cheaper alternatives to delivering its goods and services. Begin by contracting with a greater number of distribution centres in the countries that have the greatest number of people using the Internet. Having more suppliers also means the customer is less likely to have to wait longer for a popular product purchased online.
Book sales for Titanic, after the movie came out, were definitely above average and that caused longer wait times for the customer. Had there been additional suppliers in a more distributed area around the country, customer satisfaction for this product and Amazon.com’s service would have been higher.
With the use of quick delivery services Amazon.com can ship merchandise anywhere in the world, but having more suppliers will reduce the chance of backorders and shipment delays 10) Evaluation and Control In an effort to ensure the Amazon.com action plans are providing a substantial benefit and are accomplishing the objectives identified, each plan will be monitored. The global criteria applied to track each action plan’s success includes monitoring the volume of orders, orders over time, random surveying and a specific termination threshold for each action plan.
Amazon.com is a publicly owned company, which focuses on employees and excellent services. It is team-oriented organized by product. Amazon’s web site offers the ability to present a broad range of merchandise. Well organized and easy to navigate help and FAQ pages make the difference in smooth shopping experience. Building a customer community helps to keep customers coming back to the site.
It also helps shoppers identify with the brand. Amazon has built a loyal customer base of millions, thanks to a highly efficient web buying experience and outstanding customer service. With some controlling interest in popular Web sites, word-of-mouth from users, the ease of communication using e-mail and options such as gift certificates, Amazon.com has created one of the most popular home-shopping sites today.
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