E Commerce

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Haseeb Hassan
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Fahad Zafar
FA17-BBA-103
Adeel Asif
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Khuram iqbal
Amazon Business Model: Three customer
value propositions
Jeff Bezos, CEO and Founder of Amazon, has once, famously drawn up
Amazon’s virtuous cycle. Selection and lower prices drive customer
experience. Selling products at lower prices was Amazon’s key objective from
day 1. But Amazon’s competitors already had scale and low unit costs as
Amazon was just starting out. While Amazon had no scale but they had a low
cost structure mainly driven by the fact that they saved on the costs of brick-
and-mortar stores.
 Je
ff Bezos’ famous virtuous cycle napkin sketch
Amazon has the choice to translate their lower cost structure into higher
profits and give some of the profits back to the shareholders via dividends. But
Amazon passes it onto customers via sustained low prices and reinvests the
rest of their surpluses into growth. A fair chunk of these growth investments
go into their fulfilment and delivery network as shown last time. This, in turn,
helps to further lower their unit costs which amplifies the subsequent elements
of the virtuous cycle. And so it goes round and around.

Amazon’s key customer value propositions

Jeff Bezos regularly points out Amazon’s three customer value propositions:
 1. Low prices
2. Fast delivery speed (often same day and with options of free 2-hour
delivery) and a
3. Vast selection (“Earth’s biggest selection”)

Today, we are going to look at these elements, starting with the mind-boggling
amount of selection, moving onto the prices and then covering the customer
experience (with fast delivery being an important element thereof).

Je
ff Bezos’ assessment of their key value proportions aligns well with what
people say are the reasons they purchase on Amazon [source: Statista]

Amazon business revenue model its Value Proposition

Comfort, aggressive evaluating, mark acknowledgment, and the sheer scope of

products loaded are for the most part vital to Amazon’s esteem.

The simplicity with which shoppers can purchase an extensive variety of

merchandise on Amazon is a critical factor in Amazon’s prosperity. Customers
realize that Amazon is an all around supplied, intensely estimated, protected,
dependable and proficient stage for shopping, so they continue returning. This is
delineated by one review which found that 44% of American buyers said that,
when shopping, they would go straight to Amazon to scan for what they need
without taking a gander at different sites. No other online retail stage can gloat
very this level of omnipresence, and this is a basic piece of Amazon’s esteem.

Originator Jeff Bezos accentuates that the Amazon mark has been vital to the
organization’s prosperity. Taking note of that “there’s nothing about our model
that can’t be recreated”, he guarantees that the brand name “Amazon”, implying
thoughts of something fascinating, differing and colossal, has itself been vital to
the organization’s prosperity. Amazon has numerous online business rivals,
however few appreciate anyplace close to a similar level of worldwide brand
acknowledgment. Everybody has known about Amazon, thus for some, it is the
primary spot they look when they need to purchase something.

As Amazon formed and spread out into computerized media spilling and the offer
of ebooks, restrictiveness has turned into an inexorably noteworthy incentive.
Nowadays AmazonStudios even makes unique TV shows and motion pictures
which shape an unobtrusive, yet developing piece of Amazon’s aggregate esteem.

Amazon business revenue model its Channels

Amazon’s biggest channel is its site amazon.com. It likewise keeps up fourteen

distinct renditions of its site for clients from different nations crosswise over five
landmasses. Items are additionally bought through the Amazon advanced cell
application, which works as an undeniably critical deals channel.

Some outsider gadgets stores stock Amazon’s Kindle scope of buyer hardware,
giving an extra channel

Amazon business revenue model its Key Partners

Makers, outsider dealers, distributers and advanced substance makers are for the most part enter
accomplices in Amazon’s operations.

Producers of the physical merchandise that are loaded in Amazon’s stockrooms are the
conspicuous key accomplices. Notwithstanding, not every single physical great sold on Amazon
are put away in their own distribution centers, and a generous level of income originates from
outsider venders who Amazon permits to work on their online stage.
The general population who claim the protected innovation that Amazon offers by means of the
Kindle biological system and gushing stages are additionally key accomplices.

Amazon business revenue model its Cost Structure

Amazon’s primary online retail exercises are taken a toll driven, implying that they work on a
model whereby economy of scale is imperative. Warehousing and circulation contain Amazon’s
most noteworthy cost drivers as the organization works countless distribution centers
internationally. Amazon is chipping away at driving these expenses around computerizing
stockroom preparing and conveyance where conceivable. Other critical cost drivers incorporate
the running of various programming advancement focuses and client benefit bases on the world.

Another key cost driver is the underlying expense of acquiring the merchandise they offer,
nonetheless they can remain aggressive in this field by economies of scale.

Amazon’s protected innovation resources are esteem driven, with the encourage environment
and Amazon’s different gushing administrations working on the standard of making esteem as
opposed to limiting expenses.

Amazon business revenue model

Online retail remains Amazon’s biggest income stream. Amazon stocks a tremendous scope of
physical items, the online offer of which still records for the greater part of their income.
Advance income is made by taking commission from outsider retailers who utilize the Amazon
stage.

Offer of E-books and gushing of advanced substance has been a developing wellspring of
income for Amazon in the course of the most recent decade.

Other, littler income streams incorporate the Amazon Prime supporters’ charge, and the offer of
Amazon’s own Kindle scope of hardware.

Amazon Marketplace
Items purchased on Amazon from third-party sellers are either fulfilled by the merchant (FBM)
or by Amazon (FBA). FBM goods are kept in the third-party seller's inventory, and shipping and
customer service are handled by the third-party merchant. FBA goods are stored in Amazon's
fulfillment centers, and shipping and customer service are handled by Amazon.

Amazon charges its third-party merchants a referral fee for each sale which is a percentage of the
sales price. Additionally, sellers using FBA must pay additional fees which include a pick, pack
and weight charge.
Third-party sales on Amazon account for around 31% of Amazon's annual sales.[1] In 2016
Amazon.com aided more than 10,000 sellers[2] to generate more than $1 billion of annual sales.
The incredible ease of creating an Amazon account has led to massive increases in third-party
sellers joining the platform, with over 1,000,000 sellers joining in the year 2017 alone.[3]

There are three major paths third-party sellers can take on Amazon. Wholesale, private label and
retail arbitrage.[4]

The Amazon Seller Central help section provides sellers on the Amazon Marketplace with
guidelines and answers to frequently asked questions.[5] Despite the existence of this help section,
a recent study has shown that 50 percent of surveyed sellers incorrectly believe that it was not
possible to directly ask buyers for product reviews.[6]

If an Amazon Seller has an active registered trademark for their brand that appears on their
products or packaging and can verify themselves as the rights owner or the authorized agent for
the trademark, they can apply for Amazon Brand Registry.[7]

Top Amazon Competitors

The following are the top Amazon Competitors.

Amazon Competitors In E-commerce Segment

1) Alibaba

Amazon Competitors - 1

Alibaba, a top e-commerce company, has its origin from China and it was founded in the year 1999. It is
a platform for wholesale trade. Alibaba.com caters to many buyers and sellers across the
world.Alibaba.com has bought a change in businesses activities for its operations, sales, and marketing.
This top e-commerce company provides the services that are technology enabled. It enables the
merchants and other business to influence the usage of internet to communicate and deal with their
customers and users.

Alibaba.com is a one-stop platform which focuses on many products across various categories that
include electronics, clothing, machinery, home and garden and many more. This top e-commerce
company is accessible anytime and anywhere through the technology platform that they provide to the
users. Due to its core commerce and usage of technology like cloud computing and digital media in the
business, it is considered as Amazon competitors.
2) Walmart
Amazon Competitors – 2

Also regarded as a top competitor for Amazon, Walmart is like the normal Walmart store. Walmart.com
provides a wide range of products that are of supreme quality. Apart from products they also provide
friendly service and have daily offers at low prices.

Walmart, headquartered in San Francisco in the year 2000 is a controlled by Walmart stores, Inc. The
main goal of this top e-commerce company is to get their customers a unique approach to shopping on
the internet.

Walmart.com caters to many products across various categories. This company also provides various
kinds of the gift card which can be redeemed at Walmart stores. The Walmart gift cards can be managed
through their website itself. Due it its various unique features, Walmart is considered as one of the top
Amazon competitors.

3) Otto
Amazon Competitors - 3

Otto, being rated as one of the successful e-commerce company in Europe, is well-known for its
innovation and has been reinventing itself since it has been originated.Otto is a trading company that
sells products of other brands through the internet.

Otto.de is a one-stop shopping for customers who can find the products and order them with ease by
making use of their technology friendly interface. It makes use of various digital tools that make the
customer navigate to their purchase. The customer can select the product and place the product in the
online shopping cart and then proceed for payment.

Otto provides products in categories like fashion, sports, electronics and home & living. They provide the
best products and offer a wide range of product categories to the shoppers. It is estimated that Otto has
generated around 80 percent of their revenues through online. Due to its partnership with the external
brands and its excellent services, Otto is considered as one of the top Amazon competitors.

Amazon strategy

In their 2008 SEC filing, Amazon describe the vision of their business as to:

“Relentlessly focus on customer experience by offering our customers low prices, convenience, and a
wide selection of merchandise.”

The vision is still to Consider how these core marketing messages summarising the Amazon online value
proposition are communicated both on-site and through offline communications.
Of course, achieving customer loyalty and repeat purchases has been key to Amazon’s success. Many
dot-coms failed because they succeeded in achieving awareness, but not loyalty. Amazon achieved both.
In their SEC filing they stress how they seek to achieve this. They say:

"We work to earn repeat purchases by providing easy-to-use functionality, fast and reliable fulfillment,
timely customer service, feature-rich content, and a trusted transaction environment.

Key features of our websites include editorial and customer reviews; manufacturer product information;
Web pages tailored to individual preferences, such as recommendations and notifications; 1-Click®
technology; secure payment systems; image uploads; searching on our websites as well as the Internet;
browsing; and the ability to view selected interior pages and citations, and search the entire contents of
many of the books we offer with our “Look Inside the Book” and “Search Inside the Book” features. Our
community of online customers also creates feature-rich content, including product reviews, online
recommendation lists, wish lists, buying guides, and wedding and baby registries."

In practice, as is the practice for many online retailers, the lowest prices are for the most popular
products, with less popular products commanding higher prices and a greater margin for Amazon.

Free shipping offers are used to encourage increase in basket size since customers have to spend over a
certain amount to receive free shipping. The level at which free-shipping is set is critical to profitability
and Amazon has changed it as competition has changed and for promotional reasons.

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.

This focus on customer has translated to excellence in service with the 2004 American Customer
Satisfaction Index giving Amazon.com a score of 88 which was at the time, the highest customer
satisfaction score ever recorded in any service industry, online or offline.

Round (2004) notes that Amazon focuses on customer satisfaction metrics. Each site is closely
monitored with standard service availability monitoring (for example, using Keynote or Mercury
Interactive) site availability and download speed. Interestingly it also monitors per minute site revenue
upper/lower bounds – Round describes an alarm system rather like a power plant where if revenue on a
site falls below $10,000 per minute, alarms go off! There are also internal performance service-level-
agreements for web services where T% of the time, different pages must return in X seconds.

The importance of technology and an increased focus on Artificial Intelligence and Machine Learning

According to founder and CEO, Jeff Bezos, technology is very important to supporting this focus on the
customer. In their 2010 Annual Report (Amazon, 2011) he said:

“Look inside a current textbook on software architecture, and you’ll find few patterns that we don’t
apply at Amazon. We use high-performance transactions systems, complex rendering and object
caching, workflow and queuing systems, business intelligence and data analytics, machine learning and
pattern recognition, neural networks and probabilistic decision making, and a wide variety of other
techniques.

And while many of our systems are based on the latest in computer science research, this often hasn’t
been sufficient: our architects and engineers have had to advance research in directions that no
academic had yet taken. Many of the problems we face have no textbook solutions, and so we —
happily — invent new approaches”… All the effort we put into technology might not matter that much if
we kept technology off to the side in some sort of R&D department, but we don’t take that approach.
Technology infuses all of our teams, all of our processes, our decision-making, and our approach to
innovation in each of our businesses. It is deeply integrated into everything we do”.

The quote shows how applying new technologies is used to give Amazon a competitive edge. A good
recent example of this is providing the infrastructure to deliver the Kindle “Whispersync” update to
ebook readers. Amazon reported in 2011 that Amazon.com is now selling more Kindle books than
paperback books. For every 100 paperback books Amazon has sold, the Company sold 115 Kindle books.
Kindle apps are now available on Apple iOS, Android devices and on PCs as part of a “Buy Once, Read
Anywhere” proposition which Amazon has developed.

Some of the more recent applications of AI at Amazon are highly visible, for example, the Amazon Echo
assistant and technology in the Amazon Go convenience store that uses machine vision to eliminate
checkout lines.

In their 2017 report, they describe the increased use of machine learning and AI ‘behind the scenes’ at
Amazon:   

"much of what we do with machine learning happens beneath the surface. Machine learning drives our
algorithms for demand forecasting, product search ranking, product and deals recommendations,
merchandising placements, fraud detection, translations, and much more. Though less visible, much of
the impact of machine learning will be of this type – quietly but meaningfully improving core operations".

Amazon Organizational Structure

Amazon organizational structure can be classified as hierarchical. Senior
management team include two CEOs, three Senior Vice Presidents and one
Worldwide Controller, who are responsible for various vital aspects of the
business reporting directly to Amazon CEO Jeff Bezos. There are seven segments
such as information technology, human resources and legal operations and heads
of segments also report to Amazon CEO.

Hierarchical structure at Amazon has developed due to the immense size of the
business. The largest internet retailer in the world by revenue employs 560,000
people worldwide[1] and it has more than 300 million customers globally.[2]
Amazon organizational structure integrates many small teams that deal with
various aspects of the business. Amazon founder and CEO Jeff Bezos is credited
with the introduction of ‘two pizza rule”. According to this rule, meetings should
be held in teams small enough that could be all fed with only two pizzas.

The figure below illustrates Amazon organizational structure:

Amazon Organizational Structure

It is important to note that despite its large size, unlike many other companies
with hierarchical organizational structure, Amazon remains highly flexible to
adapt to frequent changes in the external marketplace. Moreover, the online
retail giant leads changes in external business environment, it has caused
disruptive innovation in e-commerce and currently it is about to cause a
disruptive innovation in global logistics industry. This is mainly due to visionary
and efficient leadership by Amazon founder and CEO Jeff Bezos.

It can be forecasted that with the acquisition of Whole Foods for USD13.7 billion
in 2017, Amazon organizational structure is going to change in the foreseeable
future.  Moreover, due to the company’s adherence to business diversification
strategy in an aggressive manner, its organizational structure will remain
dynamic, being subjected to certain changes in a regular manner.

Amazon Inc. Report 2018 contains a full analysis of Amazon organizational

structure. The report illustrates the application of the major analytical strategic
frameworks in business studies such as SWOT, PESTEL, Porter’s Five Forces,
Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Amazon.
Moreover, the report contains analyses of Amazon leadership, business strategy
and organizational culture. The report also comprises discussions of Amazon
marketing strategy, ecosystem and addresses issues of corporate social
responsibility.