Read the case thoroughly and answer all the questions given.

SCENARIO: AMAZON.COM

Amazon.com opened its virtual doors in July 1995. Since then, the retailer has served millions of customers in 16 countries and grosses more than $20 in sales per second on its Web site. Many people regard Amazon.com as the golden child of the internet.

The company is the concept of Jeffrey Bezos. The young CEO started Amazon with the intention of establishing a strong brand name that he could leverage into other products. He marketed books first, because he believed they are ideal cyberspace products. Customers do not need much physical interaction with the product or with a salesperson to purchase books. Books, therefore, are well suited to marketing over the web.

A key success factor for Amazon.com is that it captures market share and fosters brand loyalty by focusing on customer needs. Bezos believes that paying too much attention to short-term gains means forgetting about long-term customers satisfactions. This long-term customer focus comes at a price. Despite impressive sale growth, Amazon did not turn a profit quickly, but that hasnt stopped Amazon from becoming a dominant force in online retailing. The Amazon Web site now includes products and services such as music, software, toys, and online auctions.

Amazons Guiding Force The Customer

Amazons guiding philosophy is to provide superior service to its customers. Bezos and his management team spent one year creating the web site and to create a friendly site that would not demand a high level of computer literacy.

Bezos recognized that internet commerce would shift the balance of power toward consumers. Consequently, Amazon.com builds customer relationship by customizing its service, involving its Web site visitors in the service, and creating a communal spirit. Focus on the consumer is the cornerstone for developing customer loyalty.

Customers as Coproducer and Service Customization

Amazon.com integrates customer into the service delivery process in several ways. Customers may participate in the Discussion Board service. This service present an opportunity to read comments from readers about books of interest to the customer. The customer also can chat with other Discussion Board participants. The wish list is another service that Amazon.com offers. A customer can enter titles of books he or she would like to have in a personal wish list. Someone who wants to give a friend a book as a gift, for example, can make a selection from the friends wish list.

Amazon also makes personalized recommendations to individual customers. Some of these recommendations are based on the customers past purchases, and other customers who have made purchase similar to those of the customers. If a consumer purchases a book on Amish quilts, for example, Amazon.coms software will search for all the people who purchased this same book. Using a mathematical process called collaborative filtering, the software determines what others books are popular with people who read the Amish quilt book. It then develops a list of proposed titles for the customer to read based on this information. Amazon.com uses this technique to provide the same friendly and personalized reading advice that a local bricks and-mortar bookstore operation can, but it achieves greater accuracy and convenience at a fraction of the cost.

One flaw of early collaborative filtering was its inability to distinguish gift purchases. Someone buying his or her mother a book on quilting, for example, would receive recommendations on this topic despite a lack of personal interest. Recently, Amazon.com solved this problem by including a check box on the order page so the customer can indicate if the item is a gift. Another problem can arise because the power of collaborative filtering is based on the customers history. If a person changes e-mail addresses frequently and uses a new Amazon.com identification, all of the data are lost.

In addition to collaboration filtering, the company uses other strategies to achieve its mission. When repeat customers log on to the Web site, a personalized Web page greets the customers by name allows him or her to view the new recommendation made by the collaborative filtering tool, Bezos compares this personalized front page with walking into your favorite store and finding only items that you want on the shelves near the door. Amazon also allows customers to store information on the companys secure server. Customers can authorize Amazon.com to keep a record of their credit cards and mailing addresses, for example. This technology, called, called 1-Click, streamlines the service so that customers dont have to reenter the information every time they make purchases.

Amazon.com doesnt wait for customer to come to its site to provide its service. If a customers doesnt visit the site in a certain length of time, Amazon sends an e-mail encouraging him or her to visit Amazon.com, and gives a list of recommendations on books to check out on the next visit.

Other Unique Uses of Technology for the Customer

Amazon.com not only has used technology to personalize the customer experience, but it also has designed its site with customer in mind. The pages are easy to understand and use. The Web site avoids large graphics, which can take a long time to load. According to Keynote systems, Amazon is one of the fastest and most accessible sites on the Internet.

A powerful search engine is another unique feature of Amazon.com. The company employs a do what I mean (DWIM) search function. The site recognizes the misspellings that customers frequently make and changes the search function to account for these mistakes. If a customer misspells Fitzsimmons as Fitsimmons, for example, Amazon.com displays the book Service Management.

More Than Just Friendly Technology

Amazons technology has helped to create loyal customers who not only visit the site, but as we have noted, also interact with it. Amazon.com is an active virtual community that involves the customer. Another feature of its Discussion Board service is the Authors Corner, which sometimes allow readers to engage in question-and-answer sessions with their favorite writer. The company also encourage visitor and customer to post reviews of any book on the site. This review process involves the customers in developing the content on the Web site, and also creates an information tool for other Web site visitors. Amazon also allow users to form reading groups where customers can post comment to one another about specific books. The library of reviews is an important barrier to entry in a digital environment where entrepreneurs can easily copy this business model in a week.

Amazon.com employees go to great length for the customers and consider them as part of a community. One customer reported with joy that a copy of his fathers book, 20 years out of print, had been located for him by Amazon. The Associates Program expands this community beyond the Web sites under Amazons direct control. Amazon.com allows registered websites, such as Yahoo!, to recommend specific books, CDs, videos, and other Amazon products to their visitor using a hyperlink. If customers follow the hyperlink and purchase the product on Amazon.com, these associates receive a commission. A 15 percent commission is given on more than 400,000 titles and 5 percent on more than 1.1 million additional Amazons presence and publicity on the Web, but it also means that Amazon could lose some control of its brand and image.

Amazon has encountered some other problems. A reporter revealed that Amazon was selling space to publishers on a list of favorite books. Amazon also has been accused of selling aothors extra e-mail support on the Web site for various titles. The company was flooded with outraged e-mails and has since stopped all paid promotions. This incident raises the question, will the loyal customer base of Amazon.com or any other electronic service tolerate being used for financial gain?

As Amazon Looks to the Future Will it Become the Wal-Mart of the Internet?

Amazon.com has been very successful turning a profit in 2004. Amazons personalized customer service and online community strategy work well. The company claims 85 percent of online book sales, and it is the largest seller of videos and music on the Web. An impressive 64 percent of Amazon.coms business is from repeat customers. Retention rate is crucial to any business, but especially to internet retailers. Early skeptics suggested that price-sensitive buyers would constantly search the net for lowest prices and leave companies without any pricing power or brand loyalty. Amazon has not observed this predicted pattern.

Amazon.com has aggressive plans to duplicate this community for other products. Its already has expanded into the online retailer also. For example, Amazon.com purchased a 50 percent ownership stake in Pets.com and has a minority stake in Drugstore.com

Fast expansion into other retailing areas reinforces Amazons goal to be a one-step shopping site on the Internet. This Wal-Mart strategy has its dangers, however. Amazon runs the risk of expanding too rapidly, which could damage or dilute its brand image. Time will tell if this long-term growth strategy will be successful.

QUESTIONS

1. How would you contrast Amazons business with that of Barnes & Nobles before Barnes & Nobles went online? From a customers perspective, what are the advantages and disadvantages of each design? (25 marks)
2. Will Amazon continue to be successful against click-and-mortar competitor, such as Barnes & Noble? (20 marks)

3. Is Amazon.com a model for the future of retailing? (15 marks)

(Total: 60 marks)