E-commerce Strategy - Competitor Analysis - Assignment Example

E-commerce Strategy: Competitor Analysis 2008 Executive Summary Amazon is the pioneer and the leader in e-commerce. It began with e-tailing books in 1995 but over the decade since then has grown to be a multi-product retailer, selling online consumer products like books, music, video, apparel, shoes, accessories, computers and mobile phones. The key differentiators that have been responsible for Amazon’s success are low costs, speed, customer orientation, decision-enabling information and reliability of order fulfillment. Amazon has a number of patented technologies like personalized recommendations, one-click shopping and so on that other retailers have successively followed. Amazon has been able to offer low costs and discounted prices to customers because it keeps its operation costs low. Besides, it has agreements with search engines like Yahoo and Google by which customers are directed to other sites for products that do not feature on Amazon sites. The company has an efficient customer-tracking system that allows it to be in touch with customers like small local merchants do. Amazon has an efficient inventory management system although it buys most of the products from the suppliers and stock in its warehouses. Recently, it has also begun to employ other distribution companies for stocking and shipping products like computers, mobile phones and books other than bestsellers. For a multi-channel retailer like V G Jones, which sells through ecommerce as well as brick-and-mortar retail stores, the website is an additional channel for selling. However, it can use the website to gain insight on customer preferences and to provide information on discounts, etc. However, it has to evolve a viable inventory system and business model that would be cost-effective. We propose a vendor-driven inventory system, in which the suppliers keep track of the stock movements and forecast product sales rather than the retailer. This would reduce costs of inventory hold-ups at the retailers while also keeping control over the order fulfillment. Introduction E-commerce is growing in most consumer products, particularly in consumer electronics, apparel, books, music, etc. E-commerce has changed the global retail scenario, with Australian shoppers able to buy from American retailers products shipped by British manufacturers. Although most of the revenue opportunities for online retailers are derived from low price, it is not essential for the retailer to offer the lowest price in each segment. It is also necessary that the price is consistent and fair as perceived in the market. Besides prices, convenience, promotions and variety are the other determinants for driving online sales. The demographics of online shoppers have changed over the decade of existence of e-commerce. The first generation of online shoppers was tech-savvy, affluent, typically male. Of late, more middle class men and women are taking to online shopping. Hence, while earlier, specialized e-tailers like Amazon and eBay dominated 60 percent of the online global retail market in 2003, the share has come down to 52 percent and is expected to fall even further, with multi-product e-tailers increasing their market share (Liss, 2006). Online shopping has grown on the basis of more people going to the internet. People are also getting confident to transact online with websites introducing technology for payment security and personal information protection. This paper will analyze the website of the leader in e-commerce, Amazon, and its business model in detail. Analysis of Amazon.com website Amazon became the pioneering ecommerce company when Jeffrey Bezos launched the website in 1995. Beginning as a internet version of the already popular catalogue selling of books, CDs, DVDs, apparel, shoes, computers and toys, Amazon has gradually evolved as a multi-product retailer with innovative characteristics. While other prominent brick-and-mortar retailers like WalMart, Barnes and Noble, Toys R Us, L.L. Bean followed with their own websites, Amazon has remained the most popular one. The company’s customer interface begins on the home page hence this is the most critical page. The focus is “frictionless shopping” experience and the company has used advance searching capability to the hilt in order to enable customers to search according to titles, authors, subject, publication date, keyword (for books), configurations for computers and styles, colors, sizes (for apparel) across the Internet (Spector, 2000). Various functional tools have been developed, including registration, shopping cart, security, credit card approval and one-click shopping. The registration process allows the customer to login and also the company to know its customers. The shopping cart allows the customer to make immediate purchases or keep the products on the cart for a period of 30 days. Credit card approval follows a security and authorization process while one-click shopping makes it easier for the customer to enter credit card and other information once and for all. Through collaborative filtering software, Amazon customizes the customer interface. The website also encourages customer communities by providing readers to post responses on books, music and video and enable discussions on read books. The interactive customer facility generates more content as well as result in a sense of belonging with the website among the customers. The most interesting aspect of Amazon is the personalization possibility on the website. Amazon has a patented recommendation technology by which it tracks customers’ buying habits and recommends with the line “Customers who bought this…. Also bought….” (Young, 2005). Amazon offers a number of surprise offers that the company continuously innovates in order to increase brand loyalty and customer delight. For example, it offers free gift-wrapping, upgraded shipping and coupons for customers who have not visited the website for some time (Young, 2005). Amazon is not only a specialized e-tailer offering consumer products but a portal that connects consumers with other retailers through the “Shop the Web” service. Through the product search engine available on Amazon website, many of its over 10 million customers first search for the product on the website from where it is directed to other websites. In 2007, Amazon launched a specialized website, Endless.com, that sells handbags and shoes. The separate website was triggered on finding that these products have a dedicated market from women shoppers in particular who want speedier search on particular designs and colors of shoes and accessories. Endless.com is unique in that it aims to offer products at the lowest price. The website has different navigational search engines on price, size, brand, color and style. The website has forayed into the highly competitive online market for shoes and handbags by offering to refund the customer 110 percent of the difference in price if the customer is able to find a lower price for the same product in two weeks and if Endless.com itself lowers the price within 14 days (ecommercenews, 2007). Recommendations for the website Layout and navigation options of the web site are the most crucial aspects of website design. For a successful e-commerce website, the product should be available with the minimum number of clicks. Every aspect of the online platform should be measurable, unlike the traditional platform. For example, V G Jones should be able to know how many customers visit the site and particular pages daily, how many items are loaded on to the shopping cart, how many sales are converted and the specifications of the products sold. This will enable the company to introduce promotions effectively as well as place advertisements in accordance to demand of products. The website should be easy to navigate so that it can draw a larger number of customers than one that is jumbled even when it stocks a larger number of items. Website design in terms of color, layout, fonts, arrangement of products, signage and availability of items are crucial for the success of the online retail platform (Misra). Personalization is the key to increase traffic to the e-commerce website. Personalization can be static, dynamic or intelligent. In static personalization, content is presented according to demographic preferences; in dynamic personalization, content is altered according to customer’s past buying habits; and in intelligent personalization, content takes into account consumer preferences with merchant’s offerings as well as the time, budget and other constraints. For example, if the customer is looking for a black cotton golf shirt for the tournament in 2 days and if the website is out of stock, it can direct the customer to another website that has the shirt in stock. This would not only allow cross-selling advantages but also increase customer loyalty (i2exchange). Amazon’s Business Model Amazon’s business model is continuously evolving since the launch of the website in 1995. From being an online bookseller, it has expanded into e-books, music, video, computers, apparel, shoes and other accessories retailing. Through its cross-selling strategy, Amazon’s customer acquisition cost is the lowest among all global retailers because of its large mass of loyal customers. The main differentiation of Amazon is the price advantage that customers have from this site. The critical focuses that Amazon has are 1) product, 2) customer, 3) technology and 4) distribution. Amazon continuously introduces new products on its websites through the “store in store” concept. Customer focus is maintained through the various strategies like discounts, coupons and so on to increase customer delight and loyalty. Before the age of the internet, only small local service providers and sellers could keep track of customer preferences. Amazon has developed sophisticated technology to keep track of customers’ buying habits and customize product offerings accordingly. The company innovates on the technology to solve real-time problems as well as to increase personalization of the website. Among its many technological innovations is the patented “1-click shopping” by which the customer can preset credit card information and shipping details so that she does not have to enter the details every time she makes a purchase. This function needs to be highly secure to gain customer confidence. The function has become enormously popular so that competitors like Barnes an Noble have copied the ordering system. In order to increase business, Amazon has to increase the number of distribution centers. It now sells in many markets other than the United States while it has the highest market share in the home country. The brand of the company, named after the largest river in the country, is extremely strong and has grown from being an online bookseller to an online retailer through the power of the brand. That is why the company has not distinguished its different divisions – books, music, video, apparel, computers, accessories – because it wants to harp on the brand rather than the products. The logo, with the line curves connecting the A and Z to form a happy face, sends the message that the store sells A to Z of products anywhere in the world (Saunders, 2001). Rather than spending on traditional advertisements, Amazon concentrates on online advertisements, mostly through offering coupons and discounts to customers besides free shipping for orders above $25. Besides, it partners with search engines like Yahoo and Google through link sharing. It also has an agreement with Google to enable greater access for Amazon customers to products not featuring on Amazon sites. Amazon has focused on a direct model by which it ships 95 percent of the orders on the day the customer has placed the order. For this, Amazon has invested in setting up warehouses to stock the products since it buys directly from the sellers. In order to maintain reliability of distribution, Amazon has invested in forecasting of customer purchases. Of late, however, it also allows suppliers to open individual stores on Amazon. The company can afford to spend on the warehouses since it does not need to maintain retail stores like most of its competitors. However, the company has outside distribution for computers, mobile phones and books other than bestsellers. In this model, known as “drop shipment” logistics companies that have expertise in shipping the particular products are employed. The main competitive advantages of Amazon are shopping convenience, ease of purchase, reliability of order fulfillment, decision-enabling information, speed, selection and discounted prices. However, no one of these criteria provides Amazon its competitive advantage but all of these together do. Amazon’s business model, besides the customer focus, has been in the frugal operations. Beginning its journey from a garage with minimum furniture, the company has continued to spend little on advertisements but a lot on technological updation. Besides, its location in Seattle has provided it with the advantage of a large technical manpower pool. The company has always encouraged its employees with creative freedom. Recommendations for the business model For V G Jones, we recommend a supply chain model based on a modified Vendor-Managed Inventory (VMI) system in which the supplier, usually the manufacturer, decides on inventory replenishment of the multi-firm retailers. Wal Mart and Proctor & Gamble made this model popular by in the 1980s (Waller et al.). In this model, the vendor (or the supplier) monitors the buyers’ (retailers’) inventory through regular physical or electronic messaging system and based on this decides on the order shipments, quantities and timing. Hence, the traditional mode of the buyer initiating purchase orders is turned around with the seller initiating the process. Hence, the buyer gives up the financial responsibility of inventory management while setting some sort of stock target. In this model, the suppliers’ costs are reduced through reduction of volatility in the supply chain and demand uncertainties while buyers can provide a higher level of customer service with replenished inventory at the beginning of the month. In the recommended business model, supply arrangements will be tied up with the sellers and the frequency of replenishment may be daily, weekly or monthly, depending upon the type of the product. Since the supplier tracks the supply of overstocks at its physical outlets as well as the demand for the online sales of these products through the web site, resources for transportation of products from the retailers to the distribution centers of the suppliers as well as ours in the various cities can be optimally used. At the same time, V G Jones will be able to monitor the supplies from alternate retailers through VMI than we could with any other model since the frequency and scheduling of supplies from multiple retailers are unlikely to match. VMI enables improved customer service since product availability is better with scheduling through this model. A non-critical delivery may be delayed over a critical delivery. In particular, during crucial shortage in certain distribution centers, inventory balancing may be done through this method. Stock balancing may also be achieved across distribution centers when there are return products from one center that may be diverted to another in the fastest possible time. To develop an effective VMI supply chain for online retailing of overstock items purchased from big retailers, various technology requirements need to be met. A successful implementation of the model depends on an efficient communication, product identification and tracking system. Software systems that take care of replenishment quality and timing, safety stock levels, transportation routing and inter-distribution center transshipments are required. There are many commercial software systems available but V G Jones needs to choose the system judiciously in accordance to the systems available with the suppliers that it ties up with. The locations of the distribution systems will also depend upon the retailers and the VMI networks available. For effective communication system, Electronic Data Interchange may be an enabler. Bar coding for product identification will be helpful for warehouse management while uniform communication standards will make supplier replenishment easier. Besides the technology required for the supply chain, it is essential to design the website effectively and introduce ways that can monitor sales leads and advertiser interest. Retail task management and store management software are essential for tracking online sales. The website itself should be secure from intrusion. This may be put in place through data encryption and passwords. Other security systems like firewall, secure socket layers, public key infrastructure, a certificate authority and authentication should be utilized to make the website secure as well as to gain customer confidence (austrade). Conclusion Amazon has been the most successful ecommerce company. Launched in 1995, the pioneering company has become the largest globally, even when many companies that followed the Amazon example in the late 1990s have fallen by the wayside. The competitive strengths of the website are the speed, wide selection, discount offers, customer focus, decision-enabling information and search technologies. The business model of the company has focused on the customer and the technology, by providing lowest costs through discounts that the company can afford because of its low costs of operation. The elimination of the requirement of retail outlets and traditional advertisements has enabled the company to focus on technology and distribution. Although the company uses the drop-shipment inventory model in some of the divisions, it operates a number of warehouses and distribution centers that are efficient in making order fulfilling a reliable process. For V G Jones, a multi-product retailer, we recommend a website that will be similarly focused on the customer. The website should be user friendly, attractive and clean while providing a wide selection. The website can garner more content by making it interactive with discussion boards and so on. It can tie up with the suppliers for their own stores on the website while also selling directly from its own stocks. For the distribution process, we recommend the Vendor-Managed Inventory, by which the suppliers forecast, replenish and manage stocks. Works Cited Liss, Jonathan, Online Retail Marketplace Shifts Away From e-Tailers Like Amazon and eBay, retrieved from http://www.feedsfarm.com/article/81515593fb208f989622827cee313000aa7c6d55.html Plunkett Research, E Commerce Industry Overview, http://www.plunkettresearch.com/Industries/ECommerceInternet/ECommerceInternetTrends/tabid/168/Default.aspx Kanbay, Four Critical Elements of Retail Supply Chain Success Misra, Manav, Lessons Learned from Online Retailing, April 5, 2006, chainstorage.com Powerhomebiz, http://www.powerhomebiz.com/092006/ebay.htm Ecommerce News, Amazon.com builds and launches new Web site, January 5, 2007, http://www.ecommercenews.org/e-commerce-news-009/0253-010507-ecommerce-news.html Young, Ken, Amazon patents shoppers analysis system, Vnunet, 30 June 2005, http://www.vnunet.com/vnunet/news/2139162/amazon-patent-buying-history I2exchange, Three Keys to Success in Building an eCommerce Strategy in Softgoods, http://www.techexchange.com/thelibrary/ThreeKeys.html http://www.austrade.gov.au/Security1509/default.aspx Waller, Matt, M. 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