In many ways, Amazon.com is not a normal store. We have a deep selection that is unconstrained by shelf space. We turn our inventory over 19 times in a year. We personalize the store for each and every customer. We trade real estate for technology (which gets cheaper and more capable every year). We display customer reviews critical of our products. You can make a purchase with a few seconds and one click. We put used products next to the new ones so you can choose. We share our prime real estate our product detail pages with third parties, and, if they can offer better value, we let them. One of our most exciting peculiarities is poorly understood. People see that were determined to offer both world-leading customer experience and the lowest possible prices, but to some this dual goal seems paradoxical, if not downright quixotic. Traditional stores face a time-tested trade-off between offering high- touch customer experience on the one hand and the lowest prices on the other. How can Amazon.com be trying to do both? The answer is that we transform much of customer experience such as unmatched selection, extensive product information, personalized recommendation, and other new software features into largely a fixed expense. With customer experience costs largely fixed (more like a publishing model than a retailing model), our costs as a percentage of sales can shrink rapidly as we grow our business. Moreover, customer costs that remain variable such as the variable portion of fulfillment costs improve in our model as we reduce defects. Eliminating defects improves costs and leads to better customer experience. We believe our ability to lower prices and simultaneously drive customer experience is a big deal, and this past year offers evidence that the strategy is working. First, we do continue to drive customer experience. The holiday season this year is one example. While delivering a record number of units to customers, we also delivered our best ever experience. Cycle time, the amount of time taken by our fulfillment centers to process an order, improved by 17% compared with last year. And our most sensitive measure of customer satisfaction, contacts per order, saw a 13% improvement. Inside existing product categories, weve worked hard to increase selection. Electronics selection is up over 40% in the U.S. alone over the prior year, and we now offer 10 times the selection of a typical big box electronics store. Even in U.S. books, where weve been working for 8 years, we increased selection by 15%, mostly in hard-to-find and out-of-print titles. And, of course, weve added new categories. Our Apparel and Accessories store has more than 500 top clothing brands, and in its first 60 days, customers bought 153,000 shirts, 106,000 pairs of pants, and 31,000 pairs of underwear. In this years American Customer Satisfaction Index, the most authoritative study of customer satisfaction, Amazon scored an 88, the highest score ever recorded not just online, not just in retailing but the highest score ever recorded in any service industry. In ACSIs words: Amazon.com continues to show remarkably high levels of customer satisfaction. With a score of 88, (up 5%), it is generating satisfaction at a level unheard of in the service industry Can customer satisfaction for Amazon climb more? The latest ACSI data suggest that it is indeed possible. Both service and the value proposition offered by Amazon have increased at a steep rate. _ Second, while focusing on customer experience, weve also been lowering price substantially. Weve been doing so broadly across product categories, from books to electronics, and weve eliminated shipping fees with our 365 day-per-year Free Super Saver Shipping on orders over $ 25. Weve been taking similar actions in every country in which we do business. Our pricing objective is not to discount a small number of products for a limited period of time, but to offer low prices every day and apply them broadly across our entire product range To be sure, you may find reason to shop in the physical world for instance, if you need something immediately but, if you do so, youll be paying a premium. If you want to save money and time, youll do better shopping at Amazon.com.

QUESTION 1

Identify and discuss how Amazon has being able to create value for its customers and shareholders. (30 marks)

QUESTION TWO

Outline and discuss the key success factors for Amazon as described in the case above. (30marks)