Critical Analysis of an Online Business Model - Amazon.com - Case Study Example

Critical Analysis of an Online Business Model Name: Institution: Date Critical Analysis of an Online Business Model (e-Marketing) Introduction With the advent of amazon.com as an electronic retailer in 1996, a new world of Ecommerce was created. Customers no longer needed to go to physical stores to make purchases of items such as books, electronics and jewelry, but could simply visit the online storefront of the retailer, select the item to be purchased and make payment via a credit card. The online store arranged to send the item purchased by the customer via courier and the sale was completed. Over time more and more products have been brought into the realm of online sales and more and more geographies and customer segments are being served by this new sales channel (Malczewski, 2011). An ecommerce business replicates shopping experience at a physical store with shopping experience online. The first business model introduce by Amazon was the simple merchant model, in which a retailer puts its catalog online and allows viewers to purchase the products. The customers make the payment via a credit card and goods can be delivered via a courier service. Yet another variant of a traditional business model on the Internet is the so called brokerage model in which the website involved serves as a middleman or broker and the buyer and seller access the website to buy and sell products or services. Background of the Organization Amazon is said to be the largest retailer available online in America. Initially, Amazon was introduced as an online book store. People all over the world got an opportunity to buy their favorite books and magazines quite conveniently from their homes with the most affordable prices and exciting promotions (Cossu, 2009). However, as time passed by and Amazon became recognized among the customers, it diversified itself into selling various types of DVDS, types of video games along with different kinds of software. Moreover, Amazon is also known for its cloud computing services. As of now, Amazon offers a really wide range of product portfolio. It is now an online retail store which offers its customers with furniture and various kinds of different accessories which include electronic items, household items and kitchen accessories at the same time. Considering the way Amazon progressed, one can easily realize the effort it had needed during its success journey. As far as the business model is concerned, Amazon follows the merchant model as well as affiliate model. It follows merchant model in the way that consumers can look at the variety of goods available and then shop by comparison. It follows affiliate model by sharing revenue too. It offers a percent-of-sale commission based on a user click-through in which the user subsequently purchases a product. The seven Ps of marketing mix: 1. Product: A well-known approach termed as ‘working backwards’ is used by the company that allows it to first take feedback from the customers and then start developing a product. In this procedure, the customer’s opinions and feedback are given priority and their wishes that what they wish to see in the Amazon’s site list, are considered. With the help of this, the company is able to develop those products that are already wanted by the customers and this reduces the chances of loss. Valuing customers when a product is to be developed in a company also helps the company to increase its customer attraction level providing a greater chance of earning higher revenue and also a higher customer preference level [How121]. 2. Place: As far as the market development strategy of Amazon is concerned, it already has a well-established market due to the high customer attraction; however, it has been taking several steps since its beginning. The company was confined to United States, the place where it was established, but with the passage of time, there have been several advances towards international shipment and market representation too [Dra14]. The company offers separate retail websites for United Kingdom, France, Canada, Italy, Germany, Spain, Brazil, Japan, India, China and Mexico and is also looking forward to open sites for South East Asian countries, Sri Lanka, Poland, Sweden and Netherlands. These strategic movements allow Amazon to open additional geographic markets and attract several more customers than usual. 3. Promotion: Attracting other market segments has also made evident and is also in progress as the company was only a bookstore formerly but now it has been a site that offers several products. Therefore, there are people who try to find something that are unique and there are people who just get the usual stuff from which they could do the work and leave anything behind. On the other hand, there are also such people who look for luxury and ease and foremost they need everything on their fingertips. This is what Amazon is already doing and also trying to find more ways to attract people. Since the youth as well as aged people are using smart phones, everything they require can be provided to them on their smart phones and even their smart phones can be purchased from the Amazon website that shows the company is attracting other market segments such as, electronics. Social networking and ecommerce The social networking model works well with the traditional advertising business model on the internet. Trust is a key variable in the customer’s decision of what to purchase and where to shop online. In social media marketing, products ads are placed side by side with the content of the site. In social networking sites, customers generate the content. Ads are provided by advertisers to target the interests of the consumers on the site. Social network marketing is based on the idea that the trust that is generated within a social network helps sales and profitability of ecommerce sites. The amount of trust depends on the degree of ‘embeddedness’ of an individual in a social network (Swamynathan et al, 2008). According to research done in the field of sociology, embeddedness in social structures can be as important as economic factors in generating purchase decisions by individuals. In order for businesses to fully harness the power of social networking, businesses should understand the entire process of online customer purchase, starting for product discovery to customer feedback (Rad et al., 2011). Then, they should identify how to tackle each step along the way to have the maximum impact. The authors identify six basic the stages of the ecommerce buying behavior and the role social networks can play at each stage, including: (1) Need Recognition: A basic way in which social networks can add value is through customer need recognition that is created when individuals see their friends use products they didn’t previously know they had utility for. For example, if some purchases a smartphone that allows them to check their email on the go, then their friends who were previously unaware of the utility of the product will think about purchasing it as well. Amazon was already doing a version of this by trying to put customers into sub-communities, from its “Customers who purchased this product also purchased” service, which generates recommendations. In this context, it is important to understand, that negative reviews by a customer can go against product sales as well. (2) Product Brokerage: Once the customer has established need for a product, their next step is to search for product, based on past experience and knowledge. In this stage, social networks can have an impact by providing reviews of the product and recommendations from a friends’ network. A positive comment from a friend about a product is likely to have more impact than positive comment from an anonymous source. This can also lead to synchronous shopping by friends, which can replicate the experience of friends shopping together. (3) Merchant Brokerage: This stage refers to the choice customer has amongst competing merchants. The key variables in this regard are awareness and exploration. Merchants can also send their offers directly to the customers’ social networking profiles which active social network users visit more than their email accounts. (4) Purchase Decision: This can work in the form of product bundling, or recommending product accessories based on experience of others in the social network. This can also be reflected in group purchase, whereby customers use their combined buying power to lower prices. (5) Purchase: Customers can display purchases made on their social media profiles. They can also display merchants or restaurants frequently visited on their profiles in exchange for loyalty points. This can have an impact on the purchasing pattern of others. (6) Evaluation: This is the most important stage of a product sale in a social network. At this stage, the customer reviews his or her satisfaction with each of stages 1 – 5 and then gives an overall recommendation or rating, or both, which can be viewed by all others in their social profile. It has been suggested that customer generated reviews of a product are more influential than expert reviews and sponsored reviews. 4. Pricing: Amazon provides a variety of price options for its consumers spanning around different levels of quality. The customer can decide how much he or she wants to spend. That flexibility is what made Amazon what it is today. It also offers everyday low pricing as well as subsidized shipping. 5. People: Talking about management, the founder of Amazon summarizes the management of the organization into four effective strategies. These strategies sum up the management operations that take place in Amazon and clearly justify the rapid growth the organization experienced lately. Information Secrecy The very first strategy was that Amazon always followed the concept of information secrecy. Necessary information was conveyed to the staff, clients and business partners. Apart from that necessary information, significant information was always kept confidential (Capriles, 2000). Keeping of Small teams – Two Pizza Rule Amazon always divided its staff into small effective teams. Amazon believed that small teams are more effective to manage the operations and activities rather than too many people being a part of the same team or activity (Rigby, 2001). Bezos has named this strategy as “Two Pizza Rule”. Bezos is well known among management professionals for his Two Pizza Rule: No group ought to be bigger than could be encouraged with two expansive pizzas. Less Talk – More Walk Amazon followed this management technique which highlights the importance of actions being more important than discussions. Amazon believed in taking practical actions rather than just carrying out verbal annual meetings and discussions. Adversarial Atmosphere "The individuals who do well at Amazon are frequently the individuals who flourish in an ill-disposed environment with practically steady rubbing.” This was composed by Brad Stone who is the founder of “The Everything Store”. Brad Stone is said to have a very significant role in the development of Amazon. Why? Bezos always stood against social union. That affection of verbal confrontation — where individuals are compelled to promote their points of view — is imbued as seen in the management of Amazon. Business week informs that Amazon's initiative standards are: Have Backbone; Disagree and Commit. Therefore, Amazon’s management welcomes all its staff members and executives to come forward and put in their opinions and ideas which make it possible for them to improve their management culture and operations for long term success. 6. Process: It is the way in which a service is delivered to the end user. Amazon lets the consumer decide what he or she wants by giving them a variety of options. They can then get it shipped at the convenience of their homes. It is saving and convenience all in one. Who would mind that? 7. Physical Evidence: This can be taken in two ways: one is the reviews left by experienced users that help prospective buyers make a choice. And the other is the arrival of product at your doorstep at the designated time. Both are guaranteed by Amazon. Recommendations Amazon should continue to increase web sales in emerging international markets, especially in Eastern Europe and Asia. This is signified by its current success in other markets and its strong brand equity. It should also support web access to those countries that don’t have it. That refers to third world countries wherein e-commerce has still not paved way. It could also push for regulations to allow automated deliveries, through automated delivery vehicles and drones. The company could productize its web based technologies like the payment system in order to add to the profit margin. The company can also offer web based offerings to magnify its low cost leadership there. Having a physical site, like a delivery centre or ‘depot’ can help consumers get the ‘Amazon experience’. It will not only establish the notion of a ‘real company’ amongst consumers but also bring down the need for brick and mortar buildings if tied with their current delivery centers. References Baer, D., 2014. 5 Brilliant Strategies Jeff Bezos Used To Build The Amazon Empire. [Online] Available at: http://www.businessinsider.com/the-strategies-jeff-bezos-used-to-build-the-amazon-empire-2014-3 [Accessed 15 December 2014]. Capriles, R., 2000. Leadership and Local Structures in the Amazon Region. Leadership & Organization Development Journal, 21(4), pp. 194-200. Cossu, R., 2009. Driving Forces in National Waste Management Strategies. Waste Management, 29(11), pp. 2797-2798. Davis, E., 2012. How To Develop A Strategic Plan. [Online] Available at: http://www.bizmove.com/general/m6c.htm [Accessed 15 December 2014]. eMarketer, 2011. Social media marketing. eCommerce Guide. Magento go. White Paper.. Optimizing the Ecommerce Experience. Trends for 2011. Lee, C. & Fung, S., 2007. Online Social Networks and E-Commerce. Malczewski, B., 2011. Amazon in Overdrive: Is there more to the Overdrive/Amazon Deal than Just the Kindle? . Journal of Electronic Resources Librarianship, 23(4), pp. 404-408. Qiao, Y., 2008. Social networks and E-commerce. s.l.:Helinsky University of Technology.. Rad, A. e. a., 2011. A model for understanding social commerce. Journal of Information Systems Applied Research, 4(2). Rappa, M., 2014. Business models on the web. Digital Enterprise. [Online] Available at: http://digitalenterprise.org/models [Accessed 16 December 2014]. Rigby, D., 2001. Management Tools and Techniques: A Survey. California management review, 43(2), pp. 139-160. Swamynathan, G., Wilson, C., Boe, B. A. K. & Zhao, B. Y., 2008. Do social networks improve e-commerce?: a study on social marketplaces. In Proceedings of the first workshop on Online social networks, pp. 1-6. Read More