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Amazon Your Industry

Amazon Your Industry. Management Analysis Summer 2001. How To “Amazon” An Industry. Fundamentally transform the entire industry value chain Analyze the economics of each player in the industry – what drives profits for each player? Identify the linchpin of the supply chain

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Amazon Your Industry

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  1. Amazon Your Industry Management Analysis Summer 2001

  2. How To “Amazon” An Industry • Fundamentally transform the entire industry value chain • Analyze the economics of each player in the industry – what drives profits for each player? • Identify the linchpin of the supply chain • Replace physical retail shelf space with virtual shelf space • Eliminate need to forecast consumer interests – allow true demand to drive the supply network • Reduce product return-rate

  3. How To Amazon An Industry • Develop more efficient methods of distributing the product • Consolidate the industry to gain greater efficiency and economies of scale • Use technological innovations to transform the supply web by eliminating steps in the model • Develop reputation for high on-time delivery in order to establish first-mover advantages – market share and economies of scale • Deliver goods in a cost-effective and timely way • Invest wisely in information systems that monitor customer demand and product flow

  4. How To Amazon An Industry • Hire and retain distribution expertise • Develop strong national and regional distribution centers to optimize supply economics • Excel at getting products from distribution centers to ultimate customers • Potential to provide delivery services for other retailers, offer installation services • Gather and use customer information effectively – track and analyze ordering patterns – develop deep insights into customers • Use customer information and insights to guide product development

  5. deFigueiredo’s Model • Discriminate between types of e-commerce using the product continuum • Where do Amazon.com’s products fit on the continuum? • Understand role of product quality, information transmission, reputation and risk in context of market structure and company capabilities • Segment market into industry and product characteristics that drive profitability • Develop segment specific strategies to reach above average profitability

  6. Amazon’s Place on the Product Continuum • Quasi-Commodity Products • Considered differentiated, not commodities • Once specific product is selected by consumer, it is identical across vendors • Consumers make choices in two-step process • Find the specific product • Select lowest priced vendor

  7. Appropriate Market Strategy? • Differentiate in the search process • Information technology • Search engines that match consumer preferences • Data base management tools • Make web site sticky – keep shoppers on the site • Offer one-stop shopping • Seek first mover advantages • Establish e-commerce branding

  8. Appropriate Market Strategy? • Insulate from price competition in the purchase stage • Take advantage of economies of scale • Seek preferential treatment from wholesale suppliers • Ensure that delivery of product is reliable and timely • Offer additional customer services such as chat rooms, affinity programs, and other web-site stickiness technologies • Offer site-specific customer loyalty programs • Develop strong e-commerce brand to signal quality in reliability of delivery, security of personal information, dependability of return policy, general customer service

  9. Incumbents VS. New Entrants? • Who has the advantage? • Traditional retailers (incumbents) have advantage in look and feel products • At the commodity end of the continuum, traditional retailers’ brands and brick-and-mortar stores provide little advantage • Theoretically, Amazon might have an advantage, but they have not been profitable yet • Amazon has an advantage over new e-commerce entrants – brand name recognition and reputation

  10. Amazon’s Challenges? • Win the search process • Continue to use customer information to guide product development • Improve ability of search engines to match customer preferences • Continue providing high quality product information • Develop proprietary product comparison database to replace Productopia • Find new ways to make web site sticky – selling space to advertisers might generate revenue, but will it keep customers on the Amazon site? • Continue efforts to develop the e-commerce brand

  11. Amazon’s Challenges? • Insulate from price competition • Continue to reduce costs • Increase efficiency • Develop preferential relationships with suppliers – quit buying products through retail channels and reselling them • Continue to improve delivery reliability • Develop site-specific customer loyalty program

  12. Amazon’s Challenges? • Mobilization and Motivation of People • Improve relationship with customer service reps and warehouse workers • Do a better job of listening to employees • Increase compensation • Reduce amount of overtime • Create better incentives • Design the Appropriate Organizational Structure

  13. Recommendations • Continue to add quasi-commodity products to virtual portfolio • Make sure the market strategies are aligned with the type of product, market structure, and company capabilities • Continue to increase efficiency • Find new ways to streamline the supply chain – eliminate unnecessary costs • Continue to invest in state of the art information systems and inventory management and distribution systems • Treat your employees better – greatest resource

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