A Study On Amazon | Essay

A Study On Amazon | Essay E-commerce business Amazon.com is widely praised for having pioneered web-based customer relations, setting an industry benchmark in market-leading technological infrastructure. Kotler et al (2008) recognise that ‘the technology boom has created exciting new ways to create products and services tailored to individual customer needs (p.33). Amazon.com first entered the US e-commerce trading arena in 1995 under the ownership of Jeff Bezos, operating, as many do, from the comfort of home. As part of an emergent growth strategy, within ten years Amazon expanded at an alarming rate and penetrated the markets of several countries, basing fulfilment centres in the US, Europe and Asia with the aim of managing the product distribution process from supplier to consumer. Quarterly sales revenue has consistently grown year on year, to a current $5.45 billion in the third quarter ended September 2009 of this year a growth of 28% over the same period in 2008 according to Amazons investor press release (phx.corporate-ir.net). Further financial reporting presented in the press release shows Amazons US market exceeds total international income. The $5.45 billion consists of $2.84 billion in North America, and $2.61 billion from the UK, German, Japanese, French and Chinese sites. It has remained unscathed by the recent global economic downturn; quite the contrary, Amazon has capitalised on the reduced disposable income of consumers. ‘The research area is potentially fruitful since, even in recession, e-shopping volumes in the UK, for example, are continuing with double-digit growth, whereas traditional shopping is languishing in zero growth or less (Dennis et al, 2009: p.1122). Since commencing operations those years ago selling second-hand books in small volume, Amazon has vastly diversified its product portfolio. ‘You can find beauty supplies, clothing, jewellery, gourmet food, sporting goods, pet supplies, books, CDs, DVDs, computers, furniture, toys, garden supplies, bedding and almost anything else you might want to buy (money.howstuffworks.com). There are a number of ways in which the site operates. It stocks and sells its own products from reputable branded suppliers in fulfilment centres; allows stores to use Amazon as their portal for marketing both new and used goods; invites the public to join and sell their items in online auctions. However the true beauty of Amazons internet service lies within a highly innovative, targeted and versatile customer interface. The Oracle Corporation (an agent of the database design and implementation) has constructed a diagram of the database system as shown in Appendix 1. This study aims to demonstrate the concept of customer orientation as part of a marketing strategy and its effectiveness as a constituent of the holistic practices of Amazon. One may think, at first glance, that the concept of customer orientation seems obvious. Its basic definition confirms this, affirmed by Kotler et al (2008) as ‘a company that focuses on customer developments in designing its marketing strategies and on delivering superior value to its target customers (p.372). However, the extent to which a business devotes resources to the customer is often difficult (but not impossible) to distinguish at a contextual level. Marketing forms the foundation of our very livelihoods. Blink and its there right in front of you. Post-modern society dictates that organisations no longer navigate consumer trends merely by the commodities that they make competitive business has evolved in the realisation that ‘nowadays, ever more emphasis is placed on the importance and nature of the relationships that an organization has with its customers (Jones et al, 2007: p.106). The fruits of economic growth have no doubt spurred the strengthening of (both consumer and business) purchasing power and with it, variety-seeking opportunity. The opportunity presented by marketing (or rather customer) orientation opens up the potential to extrapolate future demand before the consumer even demands it. Here it is about identifying gaps in the norm, and, driven by innovation, manifesting those undiscovered wants into tangible demand. The marketing sphere has become highly complex, giving rise to certain implications. How does a marketer adequately identify profitable market dynamics in this day and age? Is it even possible to satisfy the needs of every targeted consumer? Amazons marketing strategy will be discussed in relation to its handling of customer needs, or rather, how the company perceives its customers needs are best served through the online innovator. Donaldson and OToole (2002) identify four marketing strategies; Amazons being the â€Å"high-tech, high-touch quadrant†. Porters (1996) â€Å"Five Forces Analysis† model can influence the 7 Ps of the â€Å"Marketing Mix† and the value a company can create for the consumer. It is a useful model for presenting the intensity of external market pressures from different angles. See Appendix 2. ‘If management wants to change how the firm connects with its customers, it has to change the organisation (Molineux, 2002: p.109). The culture behind Amazon since emerging online in 1995 as a simple bookstore has taken rapid progression in-line with its marketing strategy. The company has evolved through its heedfulness of the rising effectiveness of relationship marketing electronically around the end of the 1990s, so that ‘the dominant approach to IT and relationship research is being replaced by a relationship strategy rather than a transaction strategy position, focussing on information as opposed to technical (Donaldson and OToole, 2002: p.181). Dibb (1998) states ‘increasing evidence suggests that businesses have problems operationalising segmentation (p.394). Harvesting different segments with universally positive outcomes is often troublesome for organisations. ‘For most businesses it is simply unrealistic to satisfy the entire diverse customer needs in the marketplace (Dibb, 1998: p.394). Amazon is one of the few that can, or at least makes great attempts to. Many other online companies have only recently followed suit. Amazons system breaks the contemporary rules of market segmentation. Each customer is his or her very own segment, targeted by one versatile, adaptive system able to meet their personal characteristics by recommending a set of products at a variety of prices from low, second hand to brand new. The system epitomises customer relations management, catering for any socio-economic status, music taste, literature-lover, and so on. Amazon is a target marketer, for marketers. ‘Each customer is assigned a unique number Companies have databases for sales, marketing, service, inventory, payments, and so on (Buttle, 2009: p.103). Amazon utilises a complex, controversially patented Relational Database Management System (RDBMS) which the site draws from to personalise its content toward the customer and supplements functions such as the â€Å"one-click†. Contrary to the norm of a consumer initiating a purchasing process, Amazon acts as the initiator with its variety-fulfilling interface, performing a dual-class role as the â€Å"middle man† between the business and consumer market. Kotler et al express how Amazon leverages the benefits of electronic B2B relationships through ‘E-procurement [which] gives buyers access to new suppliers, lower purchasing costs and hastens order processing and delivery. In turn, business marketers can connect with customers online to share marketing information, sell products and services, provide customer support services and maintain ongoing customer relationships (p.307). McBurnie and Clutterbuck (1988) justifiably assert ‘until competitors copy or segment your segmentation, you have a competitive edge, even if you serve the segment with a standard product or service. If the product or service is specific to the segment then your competitive advantage is multiplied (p.23). Such is t he unique selling point of Amazons personalised service. Consumer behaviour is encapsulated within a set of layers that range from the collective culture right down to pinpoint developments in individual characteristics. Although identified separately, each layer bears a holistic influence on the outcome of one another. For example, a consumer might be into the skating subculture, meaning they believe DC shoes are the best buy in the market. However, as they grow older, they may grow out of skating and take interest in a different culture, likely to make a new trend of purchases. A consumers culture is therefore not set in stone, and as the learning process of life progresses, so too may the views and values of the individual. Career progression is equally important since it determines the level of disposable income. ‘There is evidence for the importance of social interaction and recreational motives, as demonstrated by virtual ethnography (webnography) of â€Å"Web 2.0† blogs, social networking sites and e-word of mouth (Dennis et al, 2009: p.1121-22). Amazon allows end users to share reviews and ratings of products so that future potential buyers are able to make a more influenced, informed choice. However everyone is unique and therefore what may appeal to one customer may be disliked by another. This is therefore contingent upon the orientation of the particular traits of a customer, which dictates the degree to which a person evaluates and therefore heeds the information he/she comes across. ‘Intention to shop with a particular e-retailer will be positively influenced by past experience (p.1124). Amazon does exactly that. It harnesses the past purchases of the customer and extrapolates correlations in the form of recommendations based on what the system recognises as the buyers personal characteristics and therefore purchasing influences from within. The system aims to successfully delineate a person and even interacts like a person itself, acting in a rather paternalistic manner, knowing what is best for the consumer. In a retail store staff are not likely to draw upon past purchasing trends for a particular customer and therefore cannot offer the sort of tailored service that Amazon.com does. Amazon offers a variety of convenient functions, not least the â€Å"Sign in to turn on 1-Click ordering† option at the checkout. Dennis et al couple with this the notion of â€Å"web atmospherics† ‘Graphics, visuals, audio, colour, product presentation at different levels of resolution, video and 3D displays are among the most common stimuli (p. 1128). Visit the Amazon website and you will see that administrators have decided to implement a festive header, the promotion of gift e-vouchers customers can send to family via the internet, wish lists based on categories of relationship (for example husband, granddaughter, and so on) to name but a few of the sites seasonal customisations. ‘Customers have shown they dont want to be hunted like prey. They dont want to be managed; they just want companies to make their lives easier and less stressful (Newell, 2003: p.7). One of the implications for Amazon is, as shown by internet banks, that ‘online banks are finding that they also need an on-ground presence if they want to compete successfully (Zinkhan, 2002: p.414). Many businesses find equilibrium in their marketing strategy through the balance of both tangible and web-based enhancement of the Marketing Mix. Does Amazon seem challenged by the lack of localised Amazon service outlets? Its financial performance figures suggest not. The company strives on passing on the overhead saving to the consumer. As the SWOT analysis in Appendix 3 displays, outlets are nonetheless an opportunity for Amazon to grow, particularly where the consumer prefers to make a tangible purchasing decision in items such as clothing. ‘It is about creating an experience, personalizing the interaction with individual customers in ways directed by the customer, and thereby developing relationships (Newell, 2003: p.7). There is a fine line between assisting the customer through recommendations and effectively spamming them with products they might not like. Newell states that Customer Relationship Management (CRM) is inferior to a new strategy of Customer Management of Relationships (CMR). Looking closely at the ways of Amazon, it is possible to identify mixtures between the two, and therefore in the eyes of Newell, a conflicting and inefficient combination. On the one hand, there Amazon treats customers as individuals and understands their unique needs as part of the CMR mechanism. On the other hand, Amazon seems to know too much for its own good, since it is merely a computer system making the decisions. As Newell distinguishes under CRM, customers are likely to feel â€Å"stalked† and in some ways may feel forced into making a purchase. Against the positive, praising grain of this study thus far it is possible to suggest Amazons system contradicts the very foundation of ‘good marketing practice that is, to make people buy things they do not actually need and therefore want. Amazon makes them believe they want the product. Herein lies a fundamental implication Does the Amazon system really get to grips with an individual? Is it at all likely that a person can feel cared for by a computer? Donaldson and OToole (2002) affirm ‘the debate continues on whether e-relationships will reduce the inter-personal/social bonds prevalent in relationships (p.177). Keller (2003) in his study on Strategic Brand Management suggests ‘service firms should allocate fewer resources to traditional quality programs, productivity programs, and efficiency programs and allocate more resources to service-orientated revenue initiatives such as customer satisfaction programs, customer retention and loyalty, CRM and customer equity programs (p.245). Effectively he asserts a need for heavy weighting towards customer orientation, however the degree to which capital should be leveraged in favour of the customer and away from vital operational functions of the organisation is unclear and potentially adverse if perceived as unbalanced as it sounds. A company may well listen to the needs of the consumer wholeheartedly, but if process efficiency and output quality are neglected, the company will not succeed. In the case of Amazon, it remains a predominantly service-orientated company, combining the strong brand images and separate marketing strategies of the c ompanies it markets for, with its own e-market leading online interface aimed at maintaining high levels of brand equity. Amazon is not known exclusively for the products it markets, but the way it markets them. Any good book store will stock a copy of the latest J.K. Rowling fiction. The importance is this ‘Because of associations to product assortment, pricing, and credit policy, quality of service, and so on, retailers have their own brand images in consumers minds. Retailers create these associations through the products and brands they stock, the means by which they sell them, and so forth (p. 358). Although separate resource-consuming entities, the perceived quality of the Amazon service indirectly reinforces the marketing efforts of the brands and the products that it stocks and sells from its fulfilment centres. This is not to say, however, that efficiency is not of upmost importance. A fast, responsive inventory database is in action with the aim of delivering (for f ree!) to customers and managing stock replenishment with minimal downtime particularly important for seasonal demand such as Christmastime. Amazons pricing strategy is to minimise the cost to the consumer, through simple but nonetheless effective marketing communication. Customers incentive for their word-of-mouth marketing efforts is a manifested in highly competitive, low pricing since the profitable costing and mark-up of products does not need to earn a return on advertising investment. Remaining a sole e-tailer negates the need for a skimming strategy on the part of Amazon. The aim is simple minimal overheads and marketing expenditure, attractively low pricing, profitable mark-ups. Amazon has done remarkably well where other companies often underrate the power of the consumer as a communications tool. Dorward (1987) cites Doyle (1968) who ‘claimed that persuasive advertising will be more effective either when products are relatively cheap, as consumers will not expect to gain much financially from an extensive market search or when it would be difficult for consumers to evaluate the product prior to purchase (p.155). In the case of Amazon such factors are satisfied by the sharing of previous purchasers as influencers of the decision process, whereby it is much easier to read reviews than to, for example, visit different book or music stores to evaluate the product effectively. The relatively low cost product types that Amazon e-tails enforces the idea that person to person advertising is sufficient and that customers are more likely to take notice of the recommendations Amazon offers. In an interview with Jeff Bezos, wired.com (2005) uncovered why Amazon.com does not utilise media such as television as a form of marketing communication. ‘More and more money will go into making a great customer experience, and less will go into shouting about the service. Word of mouth is becoming more powerful. If you offer a great service, people find out (wired.com). Therefore to communicate its service the company simply relies on the conveyance of its high brand equity through personal communication channels, which Kotler et al recognise as ‘a major reason for Amazons success in growing sales per customer. You have probably made an Amazon purchase based on another customers review or the â€Å"Customers who bought this also bought† secton (p.708). ‘In most cases, it turns out that the most workable solution is often a hybrid, integrating the new e-tail channel with the traditional ones, so customers can purchase items through either e-tail channel or retail channel (Yao and Liu, 2005: p. 236). It is much more difficult to ensure performance gaps between expect and actual quality of service are minimised when dealing with tangible assets such as a group of employees. It is simply not as easy as a programming code alteration in the database system or interface design. Contemporary management practices would inevitably need to be implemented, and since the very heart of Amazon is based online, does it have the competency and experience to manage the working capital utilised for tangible outlets? Although fulfilling the human-human personal interaction function that online service lacks, there is the implication for Amazon as a brand to meet Kellers brand extension disadvantages. A store will most likely be unable to accommo date for the vast array of products that Amazon can deal with so efficiently online. If customer service does not live up to the tailored specification of the renowned e-system, there could be detrimental effects to Amazons customer-centric image. In-store service may override the comparatively low-overhead, low-pricing online service, drawing attention away from Amazon.com and therefore reducing sales. Perceived highly customer-focused service image could be tarnished with a more general retailer image, removing a key selling point for Amazon. ‘In 1988, building on their early research, PZB [Parasuraman, Zeithamal and Berry] published a multiple-item scale for measuring consumer perceptions of service quality, named SERVQUAL (Baron and Harris, 2003: p.23). There is a distinct lack of implementation in the Amazon system for a customer-to-management feedback approach. The â€Å"vibe† of the site emits an overly paternalistic, Amazon-knows-best interface without much functionality devoted to Total Quality Management-style input from the customer. Perhaps Jeff Bezos takes the view that the sharing of customer reviews between one another effectively deems the site a self-maintaining organisation one could perhaps interestingly compare Amazons values to the general outlook of the Conservative government in the 1980s in its approach of free market enterprise, de/self-regulation and cost-cutting efficiency with the ultimate aim of maximising value for society. Effectively Amazon supports what could be coined C2C Mark eting, a phenomenon hardly touched by academics in its own right. So where does the future lie for Amazon? Well it does not take long upon scanning the internet to find companies cottoning onto the customer-orientated ways which Amazon mastered a decade ago. Its year-on-year financial success displays itself how the companys brand equity is firmly embedded in the consumer market. ‘Amazon Services is building complete e-commerce solutions for companies that are potential Amazon competitors, leaving open the possibility that Amazon will ultimately head in the direction of technology service over retail sales (money.howstuffworks.com). This provides the opportunity to effectively control its competitors by leveraging its famous CRM patents and driving forward an Amazon-era of e-commerce which has proven so successful. The concept of customer orientation is prevalent in the case of Amazon.com. Right from the very outset the company sought to delineate the customer as an individual, and not merely a group with similar needs a segmentation strategy so many companies use and even then, some fail. This is not to say, however, that Amazon neglects other concepts in its mission to maximise brand equity. The other key aspect relevant to the context of the company, bearing in mind that the self-selling characteristic of Amazons customer orientation has already been mentioned (effectively deeming the conventionally separate selling concept unusually intertwined within it), is the production concept, controlled by an efficient RDBMS and strong B2B relations with its suppliers. Referencing: http://amazon.co.uk/About-Amazon/b?ie=UTF8node=203038011 http://money.howstuffworks.com/amazon.htm http://money.howstuffworks.com/amazon1.htm http://money.howstuffworks.com/amazon3.htm http://phx.corporate-ir.net/phoenix.zhtml?c=97664p=irolnewsArticleID=1345412highlight= http://www.wired.com/wired/archive/13.01/bezos.html Jones, D., Bichard, M., Thompson, D., Green, A., Bilmoria, K., Peppitt, E., and Tusa, J., 2007. Six of the Best: Lessons in Life and Leadership. Hodder Arnold Publishers Ltd. Kotler, P., Armstrong, G., Wong, V., and Saunders, J., 2008. Principles of Marketing. 5th European Edition. 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