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Learning from Amazon

Like eBay, Amazon.com was born in 1995. The name reflected the vision of Jeff Bezos, to produce a large-scale phenomenon like the Amazon river. This ambition has proved justified since just eight years later, Amazon passed the $5 billion sales mark it took Walmart 20 years to achieve this.

Amazon is now a global brand with over 76 million active customers accounts and order fulfilment to more than 200 countries.

According to founder and CEO, Jeff Bezos, technology is very important to supporting this focus on customer.

Their Annual Report starts:

To our shareholders: walk into certain Amazon meetings, and you may momentarily think youve stumbled into a computer science lecture. Look inside a current textbook on software architecture, and youll find few patterns that we dont 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 hasnt 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 dont 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.

From 1995 Amazons consistent vision was to offer Earths biggest selection and to be Earths most customer-centric company. Consider how these core marketing messages summarizing the Amazon online value proposition are communicated both on-site and through offline communications. Amazon.com adopts what it calls An Everyday Low Pricing strategy, where its objective is not to discount a small number of products for a limited period of time, but to offer low prices everyday and apply them broadly across our entire product range.

Of course, achieving customer loyalty and repeat purchases has been key to Amazons success. Many dot-coms failed because they succeeded in achieving awareness, but not loyalty. Amazon achieved both.

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 fulfilment 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.

Amazon defines what it refers to as three consumer sets: customers, seller customers and developer customers. Amazon describes the environment for its products and services as intensely competitive. It views its main current and potential competitors as: (1) physical-world retailers, catalogue retailers, publishers, vendors, distributors and manufacturers of its products, many of which possesses significant brand awareness, sales volume and customer bases, and some of which currently sell, or may sell, products or services through the internet, mail order or direct marketing; (2) other online e-commerce sites; (3) a number of indirect competitors, including media companies, web portals, comparison shopping websites and web search engines, either directly or in collaboration with other retailers; and (4) companies that provide e-commerce services, including website development, third party fulfillment and customer service.

Amazon believes the main competitive factors in its market segment include selection, price, availability, convenience, information, discovery, brand recognition, personalized services, accessibility, customer service, reliability, speed of fulfilment, ease of use, and ability to adapt to changing conditions, as well as our customers overall experience and trust in transactions with us and facilitated by us on behalf of third-party sellers.

You may have noticed that unlike some retailers, Amazon displays relevant Google text ads and banner ads from brands. The pandemic is accelerating growth in Amazons ad revenues, along with its ecommerce sales.

The e-commerce giant, with its seemingly endless selection and drive to deliver convenience and low prices, became the default retailer and an essential service for many consumers at the height of the coronavirus crisis.

Facing store closures and empty shelves, shoppers turned to Amazon first for products to protect them from Covid-19, like hand sanitizer, face masks and disinfectants. They stocked up on household products and groceries, then, as the crisis wore on, ordered office supplies and fitness gear to adjust to staying indoors.

Amazons pandemic- fueled growth isnt expected to slow down soon. In fact, Amazon is expected to exceed $100 billion in quarterly revenue for the first time ever in the fourth quarter, according to analysts surveyed by FactSet. That would make it one of the very few American companies ever to cross that threshold, alongside Walmart and Exxon.

Question:

How Amazon became a pandemic giant and why that could be a threat to e-commerce retailers?