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Amazon.com – Portfolio Assignment BUSN-‐2380-‐W01 Principles of Marketing

Instructor: Dr. David Gerth

By: Excellent Student

Table of Contents

Firm Identification 3

Sustainable Competitive Advantage 4

Mission and Objectives 5

Situation (SWOT) Analysis 6-‐7

Segmentation, Targeting, and Positioning 8-‐9

Marketing Mix Strategy 10-‐13

Portfolio Analysis 14-‐15

Future Growth Strategy 16-‐18

What is Amazon.com? Amazon is fastest growing e-‐commerce company. It has vast product diversity. They not sell but also produce some consumer products and are also providers of cloud computing services. Amazon also has dedicated retail websites for different countries. They also ship worldwide.

All above mentioned reasons show that they are one of the leaders in innovation and customer service.

Amazon's mission statement sums it all.

“To be Earth’s most customer-‐centric company, where customers can find and discover anything they might want to buy on line, and endeavors to offer its customers the lowest possible prices.”

Sustainable Competitive Advantage New business model developed by Amazon.com creates value for customers by offering a synergistic combination of the following benefits:

• Shopping convenience • Ease of purchase • Speed • Decision-‐enabling information • A wide selection • Discounted pricing • Reliability of order fulfillment.

No single aspect of Amazon.com's business model is sufficient to create a sustainable competitive advantage. It is the synergistic combination of all of these information services and logistical processes that creates value for customers and comprises Amazon.com's competitive advantage.

Competitive advantage as Customer, Operational, Product, or Locational Excellence

Largely due to their commitment to customer satisfaction and the convenience that online shopping affords, purchasing through Amazon has become a habit for many customers and Amazon has achieved the distinction of being recognized as a global brand.

The marketing principles and concepts utilized when discussing the sustainable competitive advantage are:

Customer excellence: Online customer experience is a complex term involving many facets of online shopping, including website design, usability, and personalization, web page load times, customer support, payment acceptance, order fulfillment, etc. I have combined two elements that Amazon’s CEO described as value propositions (customer service and convenience) into the generalized concept of online customer experience.

Operational excellence: Maintaining and improving operational efficiencies is the key to sustainable competitive advantage of Amazon.com. The ability to offer shopping convenience, ease of purchase, speed, decision-‐enabling information, a wide selection, discounted pricing, and reliability of order fulfillment are all tied directly to the company's logistical competencies.

Product excellence: Amazon Marketplace sellers, third-‐party businesses who offer their products through the Amazon.com interface, also contribute to the overall product selection of Amazon.com. By integrating third-‐party sellers into its business model, Amazon.com effectively increases its inventory of products while taking a commission of the sales revenues of its marketplace “employees”.

Mission and Objectives Amazon’s mission statement – “To build a place where people can come to find and discover anything they might want to buy online.

Objectives: To continuously offer quality products and services using the best technology available and at a reasonable price. This results in highly loyal customers, while maintaining shareholders interest and company profits in mind. Amazon also want to expand geographically, increasing the number of customers and to keep improving their main competitive advantage -‐ infrastructure. By working hard and having fun they seek to offer the best working environment to their employees, promoting career opportunities, and to increase their responsibility towards environment and the society.

The marketing principles and concepts utilized when defining the mission and objectives.

Creating Value: Value varies from customer to customer based on each customer’s needs. Amazon’s marketing concept requires that Amazon’s marketers seek to satisfy customer wants and needs. Amazon operates with that philosophy. It’s process of collaborating with suppliers and customers to create offerings that have value.

Communicating: Communicating means that customers get a chance to tell the company what they think. Today Amazon finds that to be successful, they have more interactive dialog with their customers. In broad it means, describing the offering and its value to your potential and current customers, as well as learning from customers what it is they want and like.

Delivering: Getting those offerings to the consumer in a way that optimizes value. Amazon communicate the fulfillment promise in several ways including presentation of latest inventory availability information, delivery date estimates, and options for expedited delivery, as well as delivery shipment notifications and update facilities.

Exchanging: Trading value for those offerings. Amazons Associates program directs customers to their websites by enabling independent websites to make millions of products available to their audiences with fulfillment performed by Amazon or third parties. Amazon pays commissions to hundreds of thousands of participants in their Associates program when their customer referrals result in product sales.

Situation (SWOT) Analysis Strengths

• Cost leadership strategy: For Amazon to succeed with the cost leadership strategy it has to provide the widest range of products to achieve the economies of scale and benefit from the low costs of displaying those products on its online marketplace.

• Superior quality services and products: Amazons services and products are reliable, convenient, offer one of the lowest and fastest shipping, the lowest price, and many free additional features with its services and have the widest selection of goods.

• Strategic acquisitions: Amazon has been successfully acquiring new firms to bring the new products, services, capabilities, assets and skills to the business. Due to these strategic acquisitions Amazon is now capable of offering cloud services, has developed its information management (IM) and customer relationship management (CRM) skills.

• Efficient distribution chain and logistics: Amazon has a number of fulfillment warehouses in each market it operates. The warehouses are geographically spread in each country so the goods could be dispatched faster and with lower cost.

• Economies of scope: Amazon experiences economies of scope by using its superior IT skills to offer the largest range of products online. It also uses excess server capacity to provide cloud computing services.

Weaknesses

• Only online presence: Amazon lacks physical presence like retailers such as Wal-‐Mart and Target. People can see and touch the purchases there and buy them instantly.

• Selling at zero margins: Most of the products sold by Amazon are sold at zero margins to gain the market share and push the competition out of the market. In the long run it will hurt firm’s profits. Competitors will adapt and can easily gain their market share back by pursuing differentiation strategy.

• Negative publicity: Amazon has recently attracted much negative publicity due to its tax avoidance in the countries (UK and US) where it earns most of its revenues. Amazon is also criticized for poor warehouse conditions for workers, anti-‐competitive actions, price discrimination and etc.

Opportunities

• Online payment system: Amazon could extend its current payments system and introduce the service similar to PayPal. Such service could be used by many other online retailers for a small fee.

• Release more its own brand products and services: With an access to such large market, Amazon could benefit by releasing more of its own brand products.

• Increase services and product portfolio through acquisitions: Amazon has already acquired many companies to successfully extend its products and services offering.

• Open more online stores in other countries: To sustain current growth levels, Amazon could open its online marketplaces in other large and growing economies in Asia and Europe.

• Physical presence: The business could establish some physical presence in the markets it operates. Stores where customers could pick up their purchases. Amazon’s brand presence would be significantly improved.

Threats

• Online security: Amazon stores its online shoppers’ personal information, such as bank account details, which is a target for online thefts.

• Lawsuits: The business has already attracted much negative attention from UK and U.S. authorities for tax avoidance and is subject for litigations and fines.

• Strategic alliances: Although Amazon is a massive online shopping mall and can’t be easily surpassed by small competitors; it faces serious challenges from strategic alliances.

• Legislation against tax avoidance: Eventually, governments will pass a legislation requiring that all companies would pay a fair share of taxes. In this case, Amazon’s profits would be significantly affected.

• Regional low cost online retailers: Regional low cost online retailers could outrival Amazon on faster and cheaper shipping, localized product offering and better knowledge about home market.

Segmentation, Targeting, and Positioning Market Segmentation

Demographic segmentation

1. for those who have access to internet

2. When income increases, so does the number of online purchases (E&Y Study).

3. 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 4. Recently increased focus to younger class (20-‐ 30 year old)

Geographic segmentation

1. Appeals to customers all over the world

2. Sell digital products where their merchandise sales are difficult (e books)

3. US still main revenue generator.

4. Has seven international websites for Japan, China, Canada, UK, Germany, France and US

5. Have not started direct sales in India. Uses sending which adds extra charges to customers

Psychographic segmentation

1. Focuses on personalization and customer loyalty

2. Keep a modern and dynamic image by renovating site design frequently.

3. Quality customer service department to build long term relationships with customers

4. Helps customers find and recommend things they enjoy, rather than push products

Situation segmentation

1. Most online purchases done for convenience

2. Keeps on adding categories for catching every customer and every situation

3. Sale inducing gold box deals everyday

4. Attractive offers with video on demand

5. Low pricing also an encouraging factor for online purchases

Targeting

The major target groups of Amazon include:

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-‐ Started targeting through Amazon Appstore.

Positioning

When Amazon.com started, it sold only books and its positioning statement was: -‐

“To people who like to read, Amazon.com is the online bookstore that is the best place to purchase books because of its selection”

But with huge diversification, the current vision statement of Amazon is:-‐

“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.”

Positioning itself as the most customer-‐centric company, Amazon differentiates itself and claims to cater to the customer’s needs rather than the suppliers’ needs. Amazon claims to provide the best customer service at the lowest price with high margin.

Marketing Mix Strategy

Amazon corporate the marketing mix (The 4P’s of marketing) Marketing decisions generally fall into the following four controllable categories:

Product

Amazon.com’s product line falls under 3 broad categories – Media, Electronics and Other General Merchandise, and Others. Media includes books, DVD rentals, music etc. Electronics and Other General Merchandise includes all electronic items, toys, apparel, kitchen and house-‐wares, health care etc. Others include mainly co-‐branded credit card programs.

Price

For retaining its vast customer base, company applies Penetration pricing strategy offering lowest price possible for high quality products and services.

Place (distribution)

Company concentrates on fully online business where products will be displayed and sold directly via company’s global website versions (country specific) or through affiliates.

Promotion

The marketing mix of Amazon is one of the reasons that the online E commerce giant is so powerful in the E commerce sector. Amazon’s marketing mix in detail below.

Product in the marketing mix of Amazon

Amazon is a prominent online player because of the vast portfolio of products that are offered on its online portal. From the very beginning the study and research of Amazon has been focused on the needs of those people, who were busy and tied to a desk, and preferred to save their time by buying online. However, soon this attitude of buyers changed, and now besides convenience, price and comparisons are some of the reasons that consumers buy online.

Amazon’s analysis revolved around the fact most people have a very limited time to go to market places, thus it started buying electronics, home appliances, white goods, brown goods, fitness equipment’s, so on and so forth online. Slowly but surely, Amazon became to be known “THE” online portal for all things electronics. Amazon differentiated itself with books. Soon, it received rave reviews and high response from the market in general. Within a couple of years the product portfolio increased in size, and the portal grew as an all in one stop for shopping of any kind, and now offers products across segments, range, categories and types.

Salient features of products in the marketing mix of Amazon

• Main focus on Electronics • Fantastic user interface • In depth product portfolio

Price in the marketing mix of Amazon

Price is a major function in deciding the fate of a particular business, and is undoubtedly considered one of the most important factors. The complete E commerce industry operates on Competitive pricing because customer switching is very high and purchases can happen in minutes. The advantage that Amazon has in this direction is that it gives a detailed analysis of a particular product, availability in market, and the best price on its portal. In this function, where customer is buying online, it is understood that the individual has access to other online retailers who also make prices and specifications available and are easily accessed. Thus, the prices have to be kept in a rational range, and Amazon has been doing the same till now.

A low price means the customer stays with you, a high price means that the customer might move on to another portal. Thus, Amazon has had to keep a sharp eye on price at all times. However, the advantage of online portals is that due to the nature of business, expenses and overheads are generally lesser than returns on investment. Thus, online retailers are often seen to drop prices and attract customers. Amazon too, at all times has sales promotions and trade promotions as well as offers to attract and retain customers.

Salient features of price in the marketing mix of Amazon.

• Competitive pricing • Good margins for Amazon • Attractive price offers always in place on the site. • Place in the marketing mix of Amazon

As discussed before, one of the advantages of online portals is on the cost because they do not have to spend on retail setup or real brick and mortar setup. Amazon is practically present on any computer which has an internet connection. Thus, the distribution of products is optimum. Customers can use the site to compare products, specifications, price and looks of the product. Thus, customers get everything that can be obtained in a retail showroom.

Another part of distribution where online retailers are really competing in the market is delivery time. Amazon has distribution centers located strategically and it can distribute within 2-‐3 working days anywhere. In metros, Amazon even offers single day delivery at some extra cost. Most importantly, just by entering your pin code, it will give you the precise time when you can expect your delivery. What more do you require from a distribution setup?

The word of mouth for Amazon has been built over time, because even after shipping lacks of orders every month, the packing of orders is such that there is hardly any complaint from the customer. They even offer replacement guarantees so that the customer is happy at all time. Thus, the distribution is a strong point for Amazon marketing mix.

Promotions in the marketing mix of Amazon

Online marketing

Amazon Mainly concentrates 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

EMAIL MARKETING

Amazon.com engages in permission marketing, where customers give the company permission to send them e-‐mails detailing product promotions

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.

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

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

PROMOTION

Events

Online buying experience

Online games

Free delivery on special occasions

EVENTS

Shopping Malls: competitions like reading speed challenges

Helps in customer experiencing the product (Kindle)

OTHERS

Sponsored T-‐shirts pens, mugs etc

Portfolio Analysis BCG MATRIX

BCG matrix is an approach to corporate level strategy advocated by the Boston Consulting Group. It focuses on three aspects of each particular business unit; its sales, the growth of its market and whether it absorbs or produces cash in its operations.

Its goal is to develop a balance among business units that use up cash and those that supply cash.

It has 4 quadrants:

1. Stars (high market growth, high market share)

2. Cash Cows (low market growth, high market share)

3. Question mark (high market growth, low market share)

4. Dogs (Low market growth, low market share)

BCG MATRIX FOR “AMAZON”

Amazon.com, Inc. is an American international multibillion dollar electronic commerce company with headquarters in Seattle, Washington, United States. It is the world's largest online. The companies associated with Amazon included in the BCG matrix are given below: STARS: E-‐books business and tablets, Amazon Fresh, Amazon.com, Daiper.com QUESTION MARK: Amazon Web Services, Zappos.com, Pinzon | CASH COWS: Video and Online Streaming unit, Tangible books DOGS: Cell Phones, PET.com, Amazon Cloud Evaluations of these Options in the context of the overall Company

By eliminating some products sections like cell phone, company will be able to concentrate on sections which bring more benefit to the company. As online services are in progress, company should focus on improving its market in other parts of world like Asia, as countries in that region would bring increasing in economy to the company. Through foreign acquisitions of media companies Amazon can reach a larger audience and market such as that of China, where it only has 2.3 % market share. Also penetrating countries such as India with huge populations and media and Bollywood are increasingly growing is an option. The current video and music online market is highly competitive and it has hard to compete only on price as quality of content is a major market requirement.

By treating e-‐books business and tablets manufacturing as two different business units, Amazon should reinvent itself as an electronics company. It is already a technology company since they are experts in building systems for order processing, inventory and catalogue management. However, they need to become an end-‐user technology product company in order to develop an operations strategy that matches customers’ requirements

Based on financial review and online retail performance, Amazon established a good CRM in the market and online retail experience.

Amazon’s insistent focus is on treating customer based on their experiences from the past which lead to achievement of one of its key success factor, customer loyalty. Therefore, Amazon needs to keep its current strategy. However, following are some recommendations for the company: -‐

• Amazon needs to eliminate some of its sections in order to be able to increase its profitability more.

• One of the important strategies which company should focus on is developing the retail services in countries such as China and India as these regions are in highly economic growth nowadays.

• Another strategy may Amazon need to look at, is starting a system of ‘’post-‐transaction’’ like offering warranty to the consumers. This will bring customer’s attention more to the company and also will increase reliability which is an important factor in today’s business world.

• Amazon may consider starting franchises and not only focusing on customers. As this will bring more clients to the market and so on affects cost-‐effectiveness of the company.

Future Growth Strategy Amazon.com has plenty of opportunity to continue growing revenue at double-‐digit rates for the foreseeable future. However, it is important to acknowledge the significant challenges that exist in Amazon.com's pursuit of further market share gains from established retailers such as Wal-‐Mart and Target. Profitability pressures have forced Amazon.com to consider price increase to its wildly popular Prime service, and this could be the first of many challenges facing the company in the near future.

GROWTH STRATEGIES

Product Development strategy

A growth strategy that offers a new product or service to a firm’s current target market.

The last few years, a lot of the electronics categories have really dominated the consumers' wish lists and have pressured margins. And while they've been good for revenue numbers, they've actually hurt margins. I think we'll see a shift there towards more content related to those electronics purchases already made and also a shift back into some of the other categories like apparel that have not performed terribly well over the last couple of years. So the mix shift should certainly benefit margins.

Growth in Kindle Shipments Will Attract More Online Traffic

The growing popularity of Android devices can help Amazon promote its Kindle Fire device range. These devices can help the company capture a major share of Internet traffic as the traffic’s source shifts from desktops to mobile devices such as tablets and smartphones. Amazon had launched a revamped range of Kindle devices with features closely matching those of tablet device pioneer Apple’s iPad in September 2012.

U.S. tablet users spend $50 or more per month and 9% spend $100 or more – much higher than the spending levels observed for smartphone users. The growing popularity of Amazon’s Kindle Fire range could mean that a major share of this spending will be re-‐directed to Amazon’s online storefronts. Since Kindle devices are optimized to run on Amazon’s services, we expect them to drive greater adoption of Amazon’s services. We believe that the content business comprising eBooks and movie/music streaming will be the biggest gainer from the trend.

Market Penetration strategy

A market penetration strategy employs the existing marketing mix and focuses the firm’s efforts on existing customers.

Deeper penetration of the company's international markets

On average, the company's international Web sites have half the product selection that their domestic Web site does. This is achieved simply by rolling up those new products, which they already have some

domestic experience with into these other markets. There is a large opportunity to capture both additional share of wallet and also additional customers in those markets. With the U.S. being about 5% of the world population, granted a larger proportion of GDP, there is a large opportunity for Amazon to really grow its international business at a fairly healthy clip simply by introducing those new product categories.

Getting back to sort of the digital content front, we've had Apple (AAPL) dominating the music front for some time now, and there it seems to be no clear leader on other media. And I think Amazon is actually doing a very good job in building all of its media categories, be it static categories like books or music, and video downloads and rentals. And that's an area where I think we'll see a lot of focus over the next couple of years, given that it has not been a very competitive marketplace in the past and now there are a lot more devices capable of receiving these downloads, and a lot more consumer interest in having the portable content.

Market Development strategy

A market development strategy employs the existing marketing offering to reach new market segments, whether domestic or international.

Growth in E-‐Commerce Market

Amazon.com's core strengths and significant room for growth are unparalleled. Without the baggage of brick-‐and-‐mortar store costs, Amazon.com has been able to maintain a high growth rate for years. Until there is strong evidence that a competitor can create a more compelling value proposition for customers in terms of selection, price, and fast and free shipping, and overall experience, it is likely that Amazon.com will continue on its growth trajectory

Although the online channel accounts for just 8% of total retail sales in the U.S., the future growth is going to be healthy with Amazon leading the way. This growth will be further complemented by traditional stores investing in web businesses to support a multichannel strategy as well as the global adoption of Internet and mobile devices. As per research firm forecasts a compounded annual growth rate of 9% for the next 5 years.

Diversification strategy

A diversification strategy, the last of the growth strategies, introduces a new product or service to a market segment that currently is not served. Diversification opportunities may be either related or unrelated.

The Amazon Web Service (AWS) offering, built from the company’s core technology infrastructure, makes web-‐scale cloud computing cheaper and more accessible. Leveraging Amazon’s vast experience, AWS is an entirely new business model that created a first-‐mover advantage, and the high growth that goes with it, for the company.

Part of Amazon’s strategy in selling ecommerce services is to leverage its economies of scale to bring greater efficiency and lower prices to the market. Amazon has extended this strategy beyond its ecommerce technology platform to a whole slew of other platform services within the cloud computing industry. Bundled as Amazon Services, these offerings include Fulfillment by Amazon (lets sellers outsource the fulfillment of their sales by shipping their products in bulk to Amazon’s warehouses so that Amazon can handle fulfillment to the customer), Web Store by Amazon (lets sellers use Amazon’s technology to power their own independent online stores), and the Pro Merchants platform (provides small businesses with tools to help them sell their products on Amazon.com)

Although Amazon’s diversified product portfolio and growing e-‐commerce business will support its strong revenue growth. There are other factors that suggest there could be margin pressure going forward. The company, which is in the middle of setting up a number of fulfillment centers to roll out same day delivery, is battling growing competition in the cloud/web services front and is spending heavily towards the development of its content library. All of these activities are cost-‐intensive and will negatively impact its already thin margins. This suggests that it may try to control its revenue growth and focus on becoming more profitable.

As economies of scale grow, the company should be able to further manage its pricing against margins, offering an attractive value proposition to consumers, while also benefiting the bottom line for shareholders. As the company continues to leverage its infrastructure, additional capital investment needs slow, yet the barriers to entry heighten.