MiniCase:

Omni-channel at Amazon

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 Background – Omni Channel
01
 Omni Channel

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 Omni Channel
Omni-channel retailing, i.e. combining mobile, bricksand-mortars and e-tailing, is the future of e-commerce. This requires e-tailers, bricks-
and-mortars and bricksand-clicks (bricks-and-mortars that also have an online presence) to rethink their strategies and to redefine their
business models. A single channel is no longer enough, which is why traditional retailers are looking to go online and why e-tailers are
looking at various options to establish a physical presence. The challenge is to find a seamless solution for both the customer experience
and internal processes.

Online channels have for many years been treated as a distinct, separate channel without integration to the overall bricks-and-mortar
business model. This is rapidly changing as customers demand information about stock levels, delivery times and shipping options
regardless of where within the retailer’s network they are situated. Whether the customers are in a physical store, on a computer or on a
mobile device, they require the same service levels and access to information throughout the entire shopping experience.

E-commerce is booming and retailers face many challenges and opportunities. The rapid development of the e-commerce industry has led
to traditional retailers moving into the online market. Retailers and e-tailers are facing pressure to adapt since a strategy focusing on a
single channel may no longer be sufficient to attract the demanding customers of the 21st century.

Conversely, several pure-play e-tailers are evaluating the benefits of adding a physical presence such as showrooms and pop-up stores,
either temporary or permanent, to respond to the changing marketplace and to meet growing customer demands. Succeeding online
relies on the ability to design and implement a thorough strategy for how to be present in the channels that customers desire, both now
and in the future. Retailers need to invest significant time in planning before executing. It is critical to do it right – if they establish
separate, disintegrated channels, it is difficult to move forward. It appears easier for pure e-tailers to develop physical presence than it is
for bricks-and-mortar retailers to increase their digital presence.
(Source: Omni-channel retail - A Deloitte Point of View – 2015 | Link)

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 Omni Channel

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 Omni Channel
Channels can include (but are not limited to):

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 Omni Channel

Omni-channel retailing means being

available at any time anywhere,
making it convenient for the customer

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 The case study of Amazon
02
 History of Amazon
In 1994, Bezos left his job at D. E. Shaw and drove across the country to Seattle, Washington. He chose Seattle for three reasons: its
technology cluster; its proximity to Ingram, the largest book wholesaler big; and its lack of sales tax.10 Wherever Bezos sent a book in the
States, he would not have to collect sales taxes, which put him at an immediate advantage over local bookstores. The sales tax varied from
state to state, but averaged around6% of sales. Bezos started Amazon from his garage. The company name reflected its ambitions for the
company: Like the Amazon River, it was intended to be the largest in the world. After a year of software development with a team of 10
employees, the Amazon website was launched in July 1995.

In the 1990s, the book retail business was highly fragmented, complicated, and prone to inventory and return issues. The traditional retail
market for books consisted of national chains and independent bookstores. The two main chains were Barnes & Noble and Borders. These
chains collectively had more than 2,000 stores throughout the United States and, therefore, they offered discounts of 10 to 30% on
popular books. There were also 5,500 bookstores independent in the United States operating 7,000 stores.6 This number had been falling
in the 1990s, partly as a result of price competition from chain stores. Mass merchants (for example, Wal-Mart and Kmart), wholesale
clubs (for example, Sam’s Club and Costco), grocery stores, and other non-book stores were other sources of main competitors,
accounting for almost half of book sales.

In July 1996, the company launched Amazon Associates, which allowed people to insert links to Amazon on their own websites, write
reviews or recommendations, and get a commission of 3 to 8% on the books purchased through these links. There was no cost to join the
program, and associates could sign up through Amazon and start selling products through your site in a matter of hours. This network of
sellers helped drive traffic to the Amazon. While the typical recently launched Internet company spent 119% of sales on advertisement
cost in the late 1990s, Amazon marketing was 10% of sales. In 1996, Amazon posted sales of $ 15.7 million and an operating loss of $ 6.0
million.
(Source: Harvard Business Case #718-S0 “Amazon.com, 2019” by John R. Wells)

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 History of Amazon
The Amazon.com business strategy was often met with skepticism. Financial journalists and analysts disparaged the company by referring
to it as Amazon.bomb. Doubters claimed Amazon.com ultimately would lose in the marketplace to established bookselling chains, such as
Borders and Barnes & Noble, once they had launched competing e-commerce sites. The lack of company profits until the final quarter of
2001 seemed to justify its critics.

However, Bezos dismissed naysayers as not understanding the massive growth potential of the Internet. He argued that to succeed as an
online retailer, a company needed to “Get Big Fast,” a slogan he had printed on employee T-shirts. In fact, Amazon.com did grow fast,
reaching 180,000 customer accounts by December 1996, after its first full year in operation, and less than a year later, in October 1997, it
had 1,000,000 customer accounts. Its revenues jumped from $15.7 million in 1996 to $148 million in 1997, followed by $610 million in
1998. Amazon.com’s success propelled its founder to become Time magazine’s 1999 Person of the Year.

The company expanded rapidly in other areas. Its Associates program, where other Web sites could offer merchandise for sale and
Amazon.com would fill the order and pay a commission, grew from one such site in 1996 to more than 350,000 by 1999. Following
Bezos’s initial strategy, the company quickly began selling more than books. Music and video sales started in 1998. That same year it
began international operations with the acquisition of online booksellers in the United Kingdom and Germany. By 1999 the company was
also selling consumer electronics, video games, software, home-improvement items, toys and games, and much more.

(Source: Harvard Business Case #718-S0 “Amazon.com, 2019” by John R. Wells)

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 History of Amazon
To sustain that growth, Amazon.com needed more than private investors to underwrite the expansion. As a result, in May 1997, less than
two years after opening its virtual doors to consumers and without ever having made a profit, Amazon.com became a public company,
raising $54 million on the NASDAQ market. In addition to the cash, the company was able to use its high-flying stock to fund its
aggressive growth and acquisition strategy.

Although offering more types of goods broadened its appeal, it was Amazon.com’s service that gained it customer loyalty and ultimate
profitability. Its personalization tools recommended other products to buy on the basis of both a customer’s purchasing history and data
from buyers of the same items. Its publishing of customer reviews of products fostered a “community of consumers” who helped each
other find everything from the right book to the best blender.

Bezos claimed that Amazon.com was not a retailer but a technology company. To underscore the point, in 2002 the company
launched Amazon Web Services (AWS), which initially offered data on Internet traffic patterns, Web site popularity, and other statistics
for developers and marketers. In 2007 Amazon.com began to sell its own Kindle e-readers, which helped energize the e-book market. In
2011 the company introduced a related low-cost tablet computer, the Kindle Fire, and by 2012, the Kindle Fire was estimated
to constitute 50 percent of the tablets sold that used Google’s Android mobile operating system.

In 2009 the company introduced its first publishing line, AmazonEncore, dedicated to popular self-published and out-of-print books. It
also let individuals publish their own e-books. In 2011 its e-book ambitions led to the launch of Amazon Publishing with the intent to
develop and publish its own titles. That year Amazon.com announced that Kindle e-books were outselling all printed books. In 2017
Amazon.com announced that it had agreed to buy the supermarket chain Whole Foods Market, Inc., in a deal valued at more than $13
billion.
(Source: Briticana “Amazon company” article by Mark Hall)

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History of Amazon

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 The Challenges
03
 The Challenges
Every omnichannel merchant faces a trilemma: meeting or exceeding customer expectations for pace of delivery, product selection
and price while turning a profit. This is a balancing act, because while every customer wants the greatest product selection, delivered as
quickly as possible for the best price, so far retailers can only satisfy two of the three expectations and remain profitable.

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 The Challenges
Pace: now versus on the way home
Amazon leads in rapid delivery, with one-hour Prime Now delivery in many markets and same-day or next-day delivery available on millions of
products. This rapid delivery is possible because the company has spent years and millions of dollars creating a network of local distribution
points as well as offering Fulfilment by Amazon (FBA).

Price: convenience versus lower cost

However, Amazon can not compete with many local stores in term of price. Walmart’s free in-store pickup options appeal to price-sensitive
shoppers who don’t mind dropping by the store while running other errands or on their commute. Meanwhile, Amazon Prime customers are
willing to spend $119 a year on membership fees in order to get their items as quickly as possible.

Product selection:
When it comes to product selection, Amazon’s online marketplace model allows it to offer many more items than Walmart or any other
competitors (Note: as it’s not cost-effective for Walmart to stock hundreds of millions of SKUs in its stores and warehouses, Walmart focuses
on the items its shoppers want most.) However, as Amazon is moving towards the “brick-and-mortal” model with its acquisition of Whole Food,
it is now facing the capacity limitation like any other in-store shopping competitors.

Other issues:
- Growing scrutiny: Regulators around the world are examining Amazon’s business practices, specifically the way it looks at information from
businesses that sell goods on its site and uses it to create its own Amazon-branded products. Amazon has been subject to federal and state
antitrust investigations. That's in addition to European Union regulators filing antitrust charges in November, accusing Amazon of using its
access to data from third-party sellers to gain an unfair advantage over them.
- Worker unrest: The pandemic has exposed how Amazon treats its workers who pack and ship boxes inside vast warehouses. Many have
protested a lack of masks and protective equipment while others say the company isn't forthcoming about how many people are getting
sick.
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 Amazon’s Mission

We aim to be Earth’s most customer centric company. Our

mission is to continually raise the bar of the customer
experience by using the internet and technology to help
consumers find, discover and buy anything, and empower
businesses and content creators to maximise their success.

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 The questions

Amazon declares to enter Vietnam in 2021 and aims to become the

largest retailer in the country in 5 years.

As a group of consultants hired by Amazon, you will now review the

Amazon’s business model, especially its omni-channel strategy, as well as
other challenges the company is facing in other markets.

Derive a strategy to support the above-mentioned business objective.

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THANK YOU

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