Amazon Your Industry

1. Amazon Your Industry Management Analysis Summer 2001

2. How To “Amazon” An Industry • Fundamentally transform the entire industry value chain • Analyze the economics of each player in the industry – what drives profits for each player? • Identify the linchpin of the supply chain • Replace physical retail shelf space with virtual shelf space • Eliminate need to forecast consumer interests – allow true demand to drive the supply network • Reduce product return-rate

3. How To Amazon An Industry • Develop more efficient methods of distributing the product • Consolidate the industry to gain greater efficiency and economies of scale • Use technological innovations to transform the supply web by eliminating steps in the model • Develop reputation for high on-time delivery in order to establish first-mover advantages – market share and economies of scale • Deliver goods in a cost-effective and timely way • Invest wisely in information systems that monitor customer demand and product flow

4. How To Amazon An Industry • Hire and retain distribution expertise • Develop strong national and regional distribution centers to optimize supply economics • Excel at getting products from distribution centers to ultimate customers • Potential to provide delivery services for other retailers, offer installation services • Gather and use customer information effectively – track and analyze ordering patterns – develop deep insights into customers • Use customer information and insights to guide product development

5. deFigueiredo’s Model • Discriminate between types of e-commerce using the product continuum • Where do Amazon.com’s products fit on the continuum? • Understand role of product quality, information transmission, reputation and risk in context of market structure and company capabilities • Segment market into industry and product characteristics that drive profitability • Develop segment specific strategies to reach above average profitability

6. Amazon’s Place on the Product Continuum • Quasi-Commodity Products • Considered differentiated, not commodities • Once specific product is selected by consumer, it is identical across vendors • Consumers make choices in two-step process • Find the specific product • Select lowest priced vendor

7. Appropriate Market Strategy? • Differentiate in the search process • Information technology • Search engines that match consumer preferences • Data base management tools • Make web site sticky – keep shoppers on the site • Offer one-stop shopping • Seek first mover advantages • Establish e-commerce branding

8. Appropriate Market Strategy? • Insulate from price competition in the purchase stage • Take advantage of economies of scale • Seek preferential treatment from wholesale suppliers • Ensure that delivery of product is reliable and timely • Offer additional customer services such as chat rooms, affinity programs, and other web-site stickiness technologies • Offer site-specific customer loyalty programs • Develop strong e-commerce brand to signal quality in reliability of delivery, security of personal information, dependability of return policy, general customer service

9. Incumbents VS. New Entrants? • Who has the advantage? • Traditional retailers (incumbents) have advantage in look and feel products • At the commodity end of the continuum, traditional retailers’ brands and brick-and-mortar stores provide little advantage • Theoretically, Amazon might have an advantage, but they have not been profitable yet • Amazon has an advantage over new e-commerce entrants – brand name recognition and reputation

10. Amazon’s Challenges? • Win the search process • Continue to use customer information to guide product development • Improve ability of search engines to match customer preferences • Continue providing high quality product information • Develop proprietary product comparison database to replace Productopia • Find new ways to make web site sticky – selling space to advertisers might generate revenue, but will it keep customers on the Amazon site? • Continue efforts to develop the e-commerce brand

11. Amazon’s Challenges? • Insulate from price competition • Continue to reduce costs • Increase efficiency • Develop preferential relationships with suppliers – quit buying products through retail channels and reselling them • Continue to improve delivery reliability • Develop site-specific customer loyalty program

12. Amazon’s Challenges? • Mobilization and Motivation of People • Improve relationship with customer service reps and warehouse workers • Do a better job of listening to employees • Increase compensation • Reduce amount of overtime • Create better incentives • Design the Appropriate Organizational Structure

13. Recommendations • Continue to add quasi-commodity products to virtual portfolio • Make sure the market strategies are aligned with the type of product, market structure, and company capabilities • Continue to increase efficiency • Find new ways to streamline the supply chain – eliminate unnecessary costs • Continue to invest in state of the art information systems and inventory management and distribution systems • Treat your employees better – greatest resource