From Source to Shore an Amazon Success Story Essay

From Source to Shore An Amazon Success Story By Ankit Shah Amazon is one of the first ventures that set out to tap the potential of web for retail business. It’s hard to believe that a business that started out of founder Jeff Bezos’ garage in 1994 has revenues of over $32 billion today. What is even harder to believe is that the company didn’t make any profit for first 5 years of its conception. Looking back, many leading business analysts see Amazon’s business plan as one of the soundest yet simple business plans, or virtuous cycle as it is more popularly known, of that era. Figure 1: Amazon’s Business Plan. A sharp customer focus was the key take away of the business plan. While the general market trend during the dot com boom was of aggressively fending off competition, Amazon remained faithful towards the simplest principle of the industry, â€Å"It’s a Customer’s Market†. Driven by his will to increase customer satisfaction, Bezos made hefty investments in research and technology which was also new to the market. Consistent upgrades to the web portal made it increasingly easy to use and opened up the market by introducing its customers to products that were not available at a regular retail store. Features like personal recommendations, search inside a book, wish lists were highly customer centric and quickly caught the attention of the e-shoppers. The high variety offered by Amazon enticed even more customers after the features like rating a product, reviews and discussions were added. Figure 2 shows the current customer satisfaction standing of Amazon and its competitors. Figure 2: American Customer Satisfaction Index (Internet Retailers). Feb 2011. Recognizing the importance of the long tail market has also played a part in Amazon’s increasing customer satisfaction scores. Being an online retailer, Amazon has the flexibility to offer obscure products to its customers. The ease of obtaining products and items, which are rarely available at regular stores, is a key USP of Amazon. It is also a major profit maker for Amazon. Figure 3: The Long Tail Phenomenon Consistent high scores on the customer satisfaction index and the sound business strategy reaped its first profit in 2001, by which time Amazon had become a household name. Customer satisfaction is identified as a leading contributor to a company’s profits by many leading industry experts. Figure 4: Contribution of various Business Performance Factors to Shareholder Value ‘Cost of attracting a new customer is almost 4 times the cost of retaining an old one’ is a statistic that is widely accepted in the industry. This translates to huge savings in Figure 5: Reason for customers to stop dealing with vendors operational costs as Amazon stands at over 81 million registered users today. As Amazon concentrated on building deeper customer relationships, it also came up with innovative ways to leverage these relationships to increase sales. Bill me later’ was introduced to increase the buying power of the existing customers. It allowed customers to buy a product instantly but be billed at a later date. Amazon Marketplace is a service that allows users to buy and sell used items. It is also a great example of how Amazon has leveraged its customer relationship to create new opportunities as the success of such a venture depends greatly on the customer relationships. The Brand Value of Amazon has also seen an upward movement similar to the customer satisfaction index. This has also helped Amazon attract more customers and increase its market presence. 2006 2007 2008 2009 2010 36 Amazon 65 62 58 43 Brand Index Figure 6: Amazon’s Increasing Brand Value [5] The increasing brand value and the saturating market in United States have urged Amazon to spread into international markets. Amazon began its European expansion by acquiring Bookpages. co. uk in 1997. The international market growth of Amazon has been steadily increasing in the new markets and off late has come at power with the US market in terms of contribution to the revenue stream. Figure 7: International Sales vs US Sales The categorical waterfall approach to international expansion coupled with religious adherence to the customer centric business model is the major contributor to Amazon’s success in international markets. The international expansion time line below shows that Amazon favors American market to introduce its new product lines and features. Also, the American market still remains Amazon’s favorite in terms of wide product line. Figure 8: International Expansion Timeline for Amazon. Amazon is now moving towards establishing itself as a global leader in e-tailing. In keeping with its sound business model, Amazon is still focused towards innovating customer centric features and targeting customer satisfaction as a primary goal. With an increasing presence in international markets, Amazon also faces increasing competition from local e-tailers. Entering a market by acquiring an existing player is a strategy that has worked for Amazon. Country Acquired Year UK Bookpages. co. uk 1998 Germany Telebuch. e in 1998 China Joyo. com 2004 Figure 9: Amazon’s International Acquisitions.   Amazon also offers many country specific features and variations to its product line. This differentiation approach towards international markets plays a key role in building a market value and capturing market share. Country Canada Features †¢ Choice of language between French and English on the web portal. †¢ Canadian website Amazon. ca which is fully managed from the USA and on which Canadian customers can place their orders. To avoid expensive exporting from the USA, Amazon has entered partnerships with publishers and wholesalers from which customers are directly supplied. †¢ Offers a separate UK product selection. †¢ Provision to pay through postal orders. †¢ The German subsidiary is also responsible for serving the Austrian market. †¢ Provision to pay using cheques. †¢ Pays a small fine for ignoring the 5% limit for discount on books. †¢ Reduced its French staff and outsourced some of its administrative functions to the UK. †¢ Used the existing delivery system established by joyo. com instead of nation wide couriers.