Amazon business model

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1. Pragati Priya Radha December 2015 Business Models

2. The  Amazon logo  was created to represent the message that it sells everything from A to Z (the arrow connects the two letters) and also represents the smile that customers would experience by shopping on the Amazon .com Web site (the arrow becomes a smile).

3. Company Overview

4. Did you know? all these companies belong to Amazon…

5. Other Amazon Initiatives Companies with Mother brand name AmazonBasics Amazon-branded electronic products AmazonFresh sells and delivers groceries in Seattle Amazon Warehouse Deals offers discounts on refurbished products Amazon Studios online social movie studio Amazon Kindle E- book reader Amazon prime Prime membership program

6. Other Amazon Initiatives Companies with Mother brand name Amazon Cloud drive Cloud computing Amazon Appstore Interactive venue for developers and buyers Amazon Instant Video Video on Demand Service Amazon Cloud Player   lets you sync music and playlists across computers   Amazon Web Services Collection of web services giving cloud computing platform Amazon mp3 Online music store

7. Q1: How did Jeffrey Bezos build the “Amazon.com” brand? Bezos had vision of making Amazon as Earths biggest book store. Amazon was positioned as customer centric company Gave unique shopping experience to customers To promote goodwill Amazon upgraded many of its order to priority shipping Shipping at no extra cost.

8. Q2: What were the reasons for Amazon.com ’s early growth? Word of mouth such as testimonials from satisfied customers and media stories. It had top of mind awareness amongst the customer looking to buy products online. Trusted brand 60% of orders were from repeat customers

9. Q3: How did Amazon.com expand their business further? Expanded after success of bookselling Expanded into other product categories

10. Extended Products: CD’s Videos Gifts Baby Products Electronics Kitchen and Housewares Tools and hardware Toys Barbecues

11. How long do you stay @ ? St ic kin ess Holds customers and keeps them coming back for more! Measurement: *Time spent at a website *Number of visits per person *Number of pages viewed

12. 2 3 4 Variety 5 Speed & Delivery 1 Easy Navigation

13. VALUE CHAIN ANALYSIS

14. VALUE PROPOSITION

15. 2007 1995 2001 2000 1999 2002 2010 Auctions & zShops eBooks/Kindle E-commerce Platform/ Web Services Marketplace OnLine Book Retailing Partherships & Logistic Services Business Model Evolution

16. Business Model Canvas 9 building blocks Value Proposition (VP)

17. MARKETING TECHNOLOGY & CONTENT FULFILMENT SALES MARGINS AUTOMATED SERVICES & CO-CREATION (CUSTOMISED ONLINE PROFILES & RECOMMENDATIONS) AMAZON.COM (& OVERSEAS SITES) AFFILIATES IT INFRASTRUCTURE, SOFTWARE & EXPERTS GLOBAL FULFILMENT INFRASTRUCTURE FULFILMENT & IT INFRASTRUCTURE DEVELOPMENT AND MAINTENANCE Business Model Canvas GLOBAL MARKET (SELLERS & CONSUMERS) INTERMEDIATION SERVICES COMMISSIONS SELLERS (COMPANIES & INDIVIDUALS) AGGREGATION OF DEMAND (LONGTAIL) FULFILMENT COMPANIES (ONLINE & TRADITIONAL RETAILERS) LOGISTICS NETWORK PARTNERSHIPS & ALLIANCES DEVELOPERS MASS-CUSTOMISED WEB SERVICES APIs PORTABLE DEVICE PRODUCT DEVELOPMENT, AND PROMOTION HARDWARE MANUFACTURERS GLOBAL MARKET (CONSUMERS) LOW PRICES CONVENIENCE WIDE SELECTION CUSTOMER EXPERIENCE LOGISTIC PARTNERS AFFILIATES (PUBLISHERS, AUTHORS, BOOKSTORES…) Online Retailing Auctions & zShops Marketplaces Partnerships and Logistic Service Provider E-commerce Platform/Web Services eBooks/Kindle COMPANIES (ONLINE & TRADITIONAL RETAILERS)

18. eBooks/Kindle >450 000 books available for download Newspapers, magazines and blogs subscription Amazon keeps 65% of the revenue from all eBook sales for Kindle eBooks downloaded from Amazon not exclusive to Kindle Kindle eBooks add 35% to a physical book’s sale on Amazon Amazon reported 80% of eBook market "Our vision is to have every book ever printed, in any language, all available in tinder 60 seconds .“ - Jeff Bezos, Amazon.com CEO

19. Source: www.meettheboss.com

20. BRAND DIAGNOSTICS

21. Target Group Basic Outlook on TG Internet users – Primarily those who are comfortable with e-commerce All internet users. Almost all internet users are in one way or other a paid or non paid customer of Amazon. For different customer segments different products have been launched. Ex. IMDB, Alexa , A9, fabric, Zappos , instavideo etc Both male and female, mostly in the age group 35 – 49. More importance to females as they are the predominant customers for Amazon. Amazon’s acquisition of Zappos was also for getting detailed insights about young woman as an online customer From all over the world. Amazon is a global company and looks for customers all around the world. They have got tie-ups with third party sellers for international coverage Tech Savvy users and Early technology adopters. Separately designed products like Amazon mp3, Amazon kindle, Amazon Appstore for them. Those who yearn on convenience shopping Seller customers. Amazon’s primary objective is to bring maximum number of reliable sellers under it. App developers. New TG. Started targeting through Amazon Appstore

22. Competitors Classification Amazon Inc being a multinational e-commerce company and due to its presence over various e-commerce categories have a lot of competitors in various categories For example rottentomatoes.com is a competitor for IMDB.com and Google App Engine is a competitor for Amazon Web Services. These two in actual becomes competitor for Amazon Inc but not amazon.com Here we are considering only the online retailing/retailing division of Amazon.com and have classified the competitors accordingly Competitors of Amazon can be classified into Category Example 1 online mass retailers Myntra.com, ebay.com, jabong.com, flipkart.com 2 Online specialized retailers Apple.com, Dell.com. Staples.com 3 book retailers (As this is the main revenue source of amazon.cm) flipkart 4 Brick and Mortar retailers Wal-Mart, and other retailers 5 E-book readers (As kindle is a main revenue generator for Amazon.com through both its own sales and induced e-book downloads ) Kobo e-reader, Apple i-pad, Barnes and Nobles Cybook 6 Social buying sites Groupon , flipkart , jabong .

23. Consumer Insights (1/2) Insights that shaped Amazon.com Building Trust When Amazon started they found out that their main issue was the doubtfulness inside the customers towards e-commerce and amazon.com. From this insight Amazon came up with the idea of customer reviews . When people see other people’s review they feel more confident to do the purchase. Increasing Sales Amazon found out from their database that there is a relation between the next purchase and current purchase. Based on this they developed a recommendation module which suggested a set of customized products to the customer. Faster Process It was found out that the customers who come to an online shop are there basically because of the ease of shopping . They like the reduced hassle and no-queue process. Based on this insight Amazon developed a process called one-click ordering and patented it. Prime Customers From the insight that many customers feel that delivery charges are non value adding items and felt looted for paying that Amazon came up with the idea of Amazon prime. For a subscription price the subscriber gets one year free delivery. This also induced brand loyalty.

24. Consumer Insights (2/2) Insights that shaped Amazon.com SEO Soon after Google became a leader in online search Amazon identified that many of the potential customers search in Google for landing into a page for online purchase . Amazon strengthened its search engine optimization (SEO). Amazon has 248,000,000 pages stored in Google's index. Each of these pages has the opportunity to rank for any number of keywords in search engines. Affiliate Marketing Amazon found out that when there is more involvement with the brand, the consumer himself will act as a brand ambassador. Amazon thus started affiliate marketing. People loved to recommend the books they love to others and get an income out of it. Acquisitions Amazon found out lately that its customers mostly belong to age group of 30-50. So they wanted to get to know more about young customers. Rather than changing the current image they acquired company’s which were targeting youth such as Zappos and woot . Also they found that customers to digital camera and books go to specified sites and communities to discuss and search products. With this insight they acquired dpreview which is the leading review site on digital camera and shelfari for book community

25. Customer Care Services that increase brand loyalty “If you make customers unhappy on the Internet, they can each tell 6,000 friends” Jeff Bezos (CEO Amazon) . Amazon’s customer service was ranked No 1 in 2009 and 2011 by American Customer Satisfaction Index Following a bottom-up approach , every decision at Amazon is driven by the customer's needs. Every employee , even the CEO , spends two days every two years on the service desk to answer calls and help customers Amazon introduced many of the current ubiquitous best-practices to e-commerce industry. Below are a list of innovations bought by them Year Innovation 1995 Customer reviews 1997 Recommendations & bundles 1997 1-Click Ordering 2001 Look inside the book 2001 Where's my stuff 2002 Free Super Saver Shipping 2003 Search inside the book

26. Increasing seller & customer base Basic Strategy

27. Handling Complaints Easy Return of goods (no questions asked) Can return own purchases Can return gift items Sell online after return date Fast refunds and replacements Heavy focus on customer service Provides an easy interface for customers to register their complaints All queries and complaints are addressed immediately Customer feedback on products and packaging Liberal return and replacement policies

28. Customer Retention Strategies followed to retain the current customers Vertical Integration Kindle became another reason for customers to come back to Amazon. Huge seller base A customer base of 137 millions makes it impossible for any seller to neglect Amazon and they joins in which in turn increases customer base due to large collection of items Lock in Amazon made it difficult for customers to switch platforms for reading their e-book through their proprietary format Special Offers everyday Plays with various offers in Amazon instant video, the video on demand service. Personalized store Personalized pages tracking past purchase behavior and using modern algorithms to give recommendations. Also the look and feel of the page keeps on changing to give a modern outlook Amazon Prime Annual subscription saving schemes for loyal customers

29. Brand Portfolio Analysis BCG Matrix STARS Amazon Kindle Amazon Fresh Amazon.com Instant Video QUESTION MARK Pinzon- Private Label Amazon Web Services CASH COW Audible.com Createspace DOGS Amazon mp3 Amzon Cloud Relative Market Share Market Growth Rate HIGH LOW LOW HIGH ?

30. Brand Life Cycle Innovation Introduction Growth Maturity Decline Innovation Growth Online bookstore Largest catalogue, home delivery of books Diversification: Electronics, apparel, CD, DVD etc. Spinoffs: A9, Lab126, endless.com etc. Acquisitions : Joyo, IMDB . MobiPocket etc. Amazon web services, publishing MAC downloads, MP3s, International expansion

31. Emerging Trends Internet Retailing Performance and Growth prospects by Category 2010-15 Source: Euromonitor

32. Customer Profiling WALKING WOUNDED Some of the current users who are dissatisfied about shipping delays Customers who faced technical glitch and their cash got locked in CHAMPION Repeat purchasers Customers who give reviews and ratings to different services Early adopters of technology Those who enrolled for prime membership program MISSING IN ACTION Registered inactive users Loyal customers of other competitors Customers who are doubtful towards online payment modes TERRORIST Dissatisfied customers spreading their opinion through social media sites Hard core I pad fans creating disruptive blogs against kindle

33. Pricing Strategy Cost Leadership New Opportunities: Revenue opportunities through bundling or products. Amazon prime : Next day shipping > Customer switch from other sites. Average of 5-6% of revenue comes from shipping

34. Advertising, Sales and Promotion Strategies Attractive Advertising and Selling Plans available on Amazon.com Upload product catalog and set budget Customers see seller’s product ads on amazon.com Customers click to product pages on seller’s website Seller’s are charged a cost-per-click Customers purchase products from seller’s website

35. BRAND PLAN

36. Vision and Mission "Our vision is to be earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.“ All the activities including promotions, marketing campaigns, acquisitions etc. are aligned towards this common vision of the company.

37. Target Group Market Segmentation Demographic segmentation For those who have access to internet When income increases, so does the number of online purchases ( E&Y Study). 41 percent of online shoppers between the ages of 35 and 49. 55 percent male and 49 percent female internet users prefer Amazon.com for online purchases Recently increased focus to younger class (20-30 year old) Geographic segmentation Appeals to customers all over the world Sell digital products where their merchandise sales are difficult (e books) US still main revenue generator. Has seven international websites for Japan, China, Canada, UK, Germany, France and US Have not started direct sales in India. Uses sending which adds extra charges to customers Psychographic segmentation Focuses on personalization and customer loyalty Keep a modern and dynamic image by renovating site design frequently. Quality customer service department to build long term relationships with customers Helps customers find and recommend things they enjoy, rather than push products Situation segmentation Most online purchases done for convenience Keeps on adding categories for catching every customer and every situation Sale inducing gold box deals everyday Attractive offers with video on demand Low pricing also an encouraging factor for online purchases

38. Brand Identity (1/2) Brand Identity Planning Model

39. Brand Identity (2/2) The Brand identity prism Physique Personality Reflection Relationship Self-Image Culture Online Shopping Giant World's largest online retailer Established separate websites in different countries Acquired multiple organizations and websites Punctual Environment-friendly Offers international shipping to certain countries for some products Accessible Customer centric Exclusive products Internet-based Started as an online bookstore Sells a wide range of products now Attractive Prices Buy everything at the click of a button Easy shopping in less time

40. Distribution Strategy Digitally driven distribution network Amazon understood that sustainable massive growth can be obtained only through developing distribution network. They poached 2 of Wal-Mart's critical employees. Richard Dalzell as its Chief Information Officer Jimmy Wright as its Chief Logistics Officer They were responsible for Wal-Mart's computerized supply chain and impressive supply-and-distribution network . Wal-Mart filed a suit in 1998 which was settled outside the court.

41. Distribution Strategy Digitally driven distribution network With the help of Richard and Jimmy Amazon started its process of developing a world class distribution network and circumvent other distributors They massively used IT for developing their supply chain and logistics. This was copied after seeing the success of Wal -mart. In 2000 70% of Amazon’s software development concerned about distribution centers. As a part of completely controlling its distribution, Amazon Fresh implemented its own delivery network Started in-sourcing the value chain to have more control over distribution Ex. Acquired book surge (now createspace ) which was a print on demand company. This helped Amazon to reduce their dependence on suppliers and also inventory level. Now entered digital distribution through kindle, Amazon mp3, instavideo etc. This means every book/song is available in 60 seconds.

42. Shopping cart technology By: Amazon.com Search box Adding to cart Proceed to payment 1-click system Confirmation

43. SWOT Analysis For Amazon.com in Retailing industry largest online retailer Robust brand image enhances bargaining power Diversified into product lines other than books to strengthen customer reach   Free shipping offers would be a challenge in the long run . Acquisitions extend product line and strengthen technical platform . Foreign exchange fluctuation. STRENGTHS WEAKNESSES OPPURTUNITIES THREATS

44. Marketing Strategies of Amazon Amazon.com bases its marketing strategy on six pillars. It freely proffers products and services. It uses a customer-friendly interface. It scales easily from small to large. It exploits its affiliate’s products and resources. It uses existing communication systems. It utilizes universal behaviours and mentalities. Much of its marketing is subliminal or indirect – it does not run $1 million dollar ads during Super Bowls nor post flyers in mall marketplaces (unlike Groupon ). Amazon.com relies on wily online ploys, strong partner relations and a constant declaration of quality to market itself to the masses.

45. Marketing Plan (1/2) Online marketing Amazon Mainly concentrate on Online marketing through adsense , affiliate marketing and online community building. Compared to their online spend, their offline spend is meager. PAY PER CLICK ADVERTISING Purchases PPC ads on Google to direct browsing customers to their websites. Buys space on the left side of Google’s search listing results, and pays a fee for each visitor to Amazon.com who clicks on their sponsored link AFFILIATE MARKETING Links to various products in Amazon.com is kept in the websites of third parties or of other retailers. Amazon.com pays a certain fee for each customer visit through these links. EMAIL MARKETING Amazon.com engages in permission marketing, where customers give the company permission to send them e-mails detailing product promotions ONLINE ADS In various social networking sites such as Facebook, Orkut etc In various communities and discussion forums for specific products and services such as dpreview , goodreads etc

46. Marketing Plan (2/2) Offline marketing Amazon’s offline spent is very less (below $10 dollar. Amazon.com’s strategy is simple: since customers shop online, online is where they will be found. ) MEDIA TV – ads showing benefits of products like Kindle Radio – sponsoring various radio programs EVENTS Shopping Malls: competitions like reading speed challenges Helps in customer experiencing the product (Kindle) PROMOTION Events Online buying experience Online games Free delivery on special occasions OTHERS Sponsored T-shirts pens, mugs etc

47. Marketing Plan Diagram : ______ Strong CRM ‘1-Click Shopping’ Convenience Low Costs Diversification Partnering Network Externality Brand Image Product Review Information Customer Base Fixed Merchants Product Recommendations Cross-selling Distributed Web Services Money-back Guarantee Email Marketing Loyalty & Advocacy Merchant Advantage : Automatic Re-Ordering, etc Associates Program Association Repeat Purchases Positioning: Online Shopping Order Fulfillment Buyer S eller

48. Competitors Amazon Vs Ebay Even though the business models of Amazon.com and EBay.com are different EBay is one of the major competitor for Amazon. Normal retailing model of business Faster search and transaction speed More trusted brand by customers Products are on an average cheaper than any other site Late in global entry and not fully utilized global distribution Best in the industry in customer service Simplicity due to one listing per product More repeat purchase Auction model of retailing More number of sellers and buyers Lesser inventory cost Better reach and global presence (Amazon still doesn’t have a specialized unit in India where as ebay.in is doing well) Good customer service and very less error rate Multiple listing per product. Better margins for sellers

49. Competitors Amazon Vs Walmart As Wal-Mart has entered into online retailing it poses as a major threat to Amazon.com. The increasing presence of amazon in web space was the reason which made Wal -mart jump into online retailing at the first place. Amazon is supposed to overtake Wal-Mart in total revenues by 2025 Largest online retailer No store presence Online sales of 34 billion in 2010 40% growth in 2010 Better prices than walmart !!! (cheaper by almost 19 %) Diversified portfolio with futuristic outlook Customer base of 137 million Subsidiaries in 7 countries Customer service ranking is 1 28 acquisitions till date Largest retailer Online sales of 4 billion in 2010 Store sales around 400 billion in 2010 Better brand value due to store presence 17% growth in 2010 Low profit margin Customer base of 200 million Subsidiaries in 14 countries Customer service ranking is 10 14 acquisitions till date

50. Conclusion BM Evolution B2C and B2B Amazon’s BM evolution followed a logical path taking advantage of the resources, channels and knowledge previously built to create and/or innovate Expansion of product range Enter different markets, use the strength of the brand to expand, “easy” to replication over different products (using same resources) and geographical areas Better margins Generate revenue and sustainability at its core “Earth’s biggest selection ”

51. Conclusion

52. References http://en.wikipedia.org/wiki/Amazon.com http://en.wikipedia.org/wiki/Walmart http://en.wikipedia.org/wiki/EBay http://www.amazon.com/ www.slideshare.net http://www.brandz.com/upload/Top_25_Retail_Report.pdf http://www.theacsi.org/index.php http://360.datamonitor.com http://7pillarsofsellingonline.com http://www.onlinemba.com/walmart-vs-amazon/ http://www.internetretailer.com/top500/list/ http://www.marketingplan.net/amazon-com-marketing-strategies/