The internet has revolutionised the way people shop and electronic commerce has reshaped the retail landscape dramatically. It suddenly allowed small companies to reach out to millions of potential customers and lowered market entry barriers significantly in areas where once only big retail companies competed against each other. But the times when small companies could create online shops and compete with the big players are almost over yet again, and Amazon catalyses this change by seizing a growing share of the whole online retail market.
Every second dollar spent online in the US is already spent on the Amazon.com marketplace and the trend in the German market is going in the same direction. The fact that a significant number of overall online sales are generated on the Amazon marketplace impacts other e-tailers. They must react to market concentration and consider whether or not they want to sell their products on Amazon.
There are many opportunities and risks that can result from cooperation with Amazon but there is a lack of papers and books that consider both aspects at the same time, quantifying them, weighing each up against the other, and deriving conclusions from it.
The aim of this thesis is to close the aforementioned gap in available literature by presenting the current market situation in the e-commerce and analysing the signs of a further market concentration, in order to provide evidence of the problematic situation small and medium-sized enterprises (SME) are in. The thesis then examines the option of cooperating with Amazon as a possible solution to react on this trend and therefore researches the possible chances and risks that could arise through such cooperation. Those insights are thereafter incorporated into a strategic recommendation for e-tailers who consider selling on Amazon. Furthermore, a selling guide which was evaluated in practice, depicts how a company could sell products successfully on the marketplace.
In the end, this thesis should contribute to e-tailers’ knowledge about the current and future market situation in e-commerce. In addition, the insights presented should support e-tailers’ decision making process when they are confronted with the question of cooperating with the e-commerce giant or not.
Contents
Abstract
Foreword
Contents
List of Figures
List of Tables
1. Introduction
1.1 Problem Statement
1.2 Mission Statement and Leading Questions
1.3 Scope and Outline of Content
2. Related Work
3. Research Methods
3.1 Secondary Analysis: Literature and Data Research
3.2 Primary Analysis: Mixed Method
3.2.1 Case Study
3.2.2 Netnography
3.2.3 Survey
4. Results and Discussion of Secondary Analysis: Research on Amazon
4.1 Economic Context
4.2 The Rise of Amazon and the Market Concentration of the E-Commerce
4.2.1 The Rise of Amazon
4.2.2 The Market Concentration of the E-Commerce: Facts and Figures
4.3 Reasons for the Rise
4.3.1 Amazon´s Vision and Mission
4.3.2 Amazon´s Strategy and its Implementation
4.3.3 Theoretical Reasons for the Rise of Amazon
4.4 Discussion: Research on Amazon
4.4.1 Is there a Market Concentration in the German E-commerce?
4.4.2 What are the Reasons for the Market Concentration and will this Trend continue into the Future?
5. The Amazon Marketplace
5.1 Importance of the Marketplace for E-tailers
5.2 Ways of functioning
6. Results and Discussion of Primary Analysis: Research into Chances and Risks for Companies Selling on Amazon
6.1 Results of the Case Study
6.1.1 Chances
6.1.2 Risks
6.2 Results of the Netnography
6.2.1 Risks
6.3 Results of the Survey
6.3.1 Composition and Characteristics of the surveyed E-tailers
6.3.2 Chances Sellers on Amazon can take Advantage of
6.3.3 Risks Sellers experience when selling on Amazon
6.3.4 Reasons for Companies not to sell on Amazon
6.4 Discussion: Chances and Risks of Selling on Amazon
6.4.1 What are the Chances and Risks of selling on Amazon and how often do they affect E-tailers?
6.4.2 Do the Chances and Risks affect differently structured SMEs on Amazon to the same Extent?
7. Strategic Recommendation and an Online Selling Guide
7.1 Should SMEs sell on Amazon?
7.2 How can a company successfully sell on Amazon?
7.2.1 Gain Knowledge about the Platform and Stay informed about Changes
7.2.2 The Amazon Algorithm for Ranking and Measures to improve E-tailers’ Positions
8. Conclusion and Future Work
8.1 Conclusion
8.2 Future Work
References
Acknowledgements
Appendix
Appendix A: Netnography
Appendix B: Survey
Appendix C: Translation of Figures 22 & 23
Abstract
The internet has revolutionised the way people shop, and electronic commerce has reshaped the retail landscape dramatically. It suddenly allowed small companies to reach out to millions of potential customers and lowered market entry barriers significantly in areas where once only big retail companies competed against each other. But the times when small companies could create online shops and compete with the big players are almost over yet again, and Amazon catalyses this change by seizing a growing share of the whole online retail market.
Almost every second dollar spent online in the US is already spent on the Amazon.com marketplace and the trend in the German market is going in the same direction. The fact that a significant number of overall online sales are generated on the Amazon.de marketplace impacts other German e-tailers. They must react to market concentration and consider whether or not they want to sell their products on Amazon.
Companies that use Amazon.de as their main or even only sales channel can enjoy a lot of advantages, but the increasing dependency also involves potential threats and problems. Research and analysis of the chances and risks that companies face when they sell through Amazon.de, as well as strategic recommendations for those companies, will be the main issues discussed in this thesis. To inform this discourse, secondary research was conducted to analyse Amazon as a company, which helps to understand its rise and its future position in the market. Thereafter, a primary analysis investigated the risks and opportunities companies face when selling on Amazon. Whether or not a company should consider Amazon as a sales channel depends on several factors which will be deduced thereafter from the initial research.
Keywords
E-Commerce, Amazon, Marketplace, Online Sellers, Opportunities and Risks, Online Selling Guide, E-tailer,
Foreword
This paper is the result of my master’s thesis, researching “E-commerce in Times of Amazon – Chances and Risks for E-tailers” which I elaborated for the Web Science Master’s Program at the Cologne University of Applied Sciences. I developed the idea for this topic because of its significance for my work and its strong relation to various Web Science lectures.
I am personally motivated for this topic because I am working in the e-commerce field, in a small company which has decided to use Amazon as a sales channel, and it wouldn´t have grown as much as it did without the online marketplace. However, with growing sales the company is also becoming more and more dependent on Amazon. The company I am working for is only one seller amongst thousands, and many of them are facing the same problem as us and are increasingly dependent on the e-commerce giant. As a consequence, a certain significance arises for me but also for other companies that sell online and already sell or are thinking about selling on Amazon.
Besides my personal motivation, the topic also is also relevant to Web Science (see Table 1):
Abbildung in dieser Leseprobe nicht enthalten
Table 1: Topic´s Relation to the Course
List of Figures
Figure 1: Seller Community Page (Amazon Sellers 2017)
Figure 2: Twitter Post IHK Frankfurt
Figure 3: Facebook Post Plentymarkets
Figure 4: Newsletter Onlinehaendler-News
Figure 5: Amazon.com in 1995 (Lutz 2013)
Figure 6: Net Sales Revenue of Amazon from 2004 to 2016 (Statista 2017b)
Figure 7: E-commerce Market Share of Leading E-retailers Worldwide in 2016 (Statista 2016a)
Figure 8: B2C-E-commerce Revenue in Germany from 1999 to 2017 (Statista 2017d)
Figure 9: Amazon´s Online Retail Market Share in Germany from 2008 to 2015 (Statista 2016b)
Figure 10: Amazon´s Strategy (Nejo 2016)
Figure 11: Letter to Amazon´s Shareholders 1997 (Blodget 2011)
Figure 12: Net Income of Amazon.com from 2004 to 2016 (Statista 2017a)
Figure 13: Market Capitalisation of selected U.S. Retail Companies (Statista 2017e)
Figure 14: Amazon´s Cash Machine (Fox 2015)
Figure 15: CCC of Amazon, Walmart and Costco (Fox 2015)
Figure 16: Exemplary Product on Amazon
Figure 17: Percentage of Paid Units sold by Third-Party Seller on Amazon (Statista 2017c)
Figure 18: Product Detail Page on Amazon.de
Figure 19: Commission rates for E-tailers on Amazon.de
Figure 20: Exemplary Product on Amazon.de
Figure 21: Development of Beautycorp´s Turnover
Figure 22: Beautycorp´s Insights into Performance Factors
Figure 23: Information about a Product of Beautycorp being suspended by Amazon
Figure 24: Exemplary Amazon Seller Community Post
Figure 25: Exemplary Amazon Seller Community Post
Figure 26: Exemplary Amazon Seller Community Post
Figure 27: Exemplary Amazon Seller Community Post
Figure 28: Exemplary Amazon Seller Community Post
Figure 29: Industries E-tailers are selling in
Figure 30: Number of Employees the E-tailers have
Figure 31: Turnover generated Online in 2016
Figure 32: The kinds of Products E-tailers sell
Figure 33: Number of E-tailers selling on Amazon
Figure 34: Number of Years E-tailers are selling on Amazon
Figure 35: The different Marketplaces the E-tailers are selling on
Figure 36: Percentage of total Online Revenue that is generated on Amazon
Figure 37: Fulfilment methods deployed by the E-tailers
Figure 38: Opportunities that E-tailers realise by selling on Amazon
Figure 39: Opportunities that E-tailers realise by selling on Amazon
Figure 40: Opportunities that E-tailers realise by selling on Amazon
Figure 41: Risks that E-tailers face by selling on Amazon
Figure 42: Risks that E-tailers face by selling on Amazon
Figure 43: Risks that E-tailers face by selling on Amazon
Figure 44: Reasons for E-tailers to not sell on Amazon
Figure 45: Amazon Ranking Factors (Own Depiction)
Figure 46: Exemplary Search Results on Amazon.de for the Keyword "Haargel"
Figure 47: Exemplary Prompt of Products being often bought together as appears in the Product Description
List of Tables
Table 1: Topic´s Relation to the Course
Table 2: Additional Opportunities given by the polled E-tailers
Table 3: Additional Risks given by the polled e-tailers
Table 4: Other reasons for not selling on Amazon
1. Introduction
The development of the World Wide Web (WWW) was initiated in 1989 through a project conducted at the CERN (Conseil Européen pur la Recherche Nucléaire) in Switzerland. At that time, nobody could predict the impact this system, connecting hypertext documents via standardised protocols, would have on the human race. Since the day the first domain was registered, the internet has not stopped growing and because of its increased use, size, reach and impact, it has become the defining technology of the 21st century. It is changing the way people socialise, how they create and share information, the way they work and organise the flow of ideas and objects around the world. The Internet is the enabling technology of the industrial revolution 4.0, and it accounts for growing contribution to the GDP in western countries, powering growth and creating jobs (Dean et al. 2012).
The WWW and its lack of centralisation has a democratic and collaborative basis. The internet relies on a distributed and decentralised network and each node, corresponding with every single user, plays a role in it. Not only can large enterprises and national economies harness the benefits of this technological revolution, but individuals can also connect through the network, and share and receive information. Consumers and upstart entrepreneurs are among the biggest beneficiaries from the WWW´s empowering influence.
The internet has also massively changed people’s shopping behaviour. E-commerce is booming and while some people were underestimating the new technology, others saw opportunities and used the new technology to reach unprecedented numbers of customers. The internet disrupted market entry barriers and overnight, small entrepreneurs could build web shops and compete with the big retailers, avoiding high listings fees in retail stores and expensive marketing efforts through traditional media. Today an online shop most often belongs to a collection of big and small companies and makes up an important share of their overall turnover.
But the e-commerce is a fast-changing market and rules and strategies that were appropriate yesterday can change overnight. The times when a small company could create an online shop and compete with the big players are almost over yet again.
1.1 Problem Statement
Even though e-commerce in Germany is booming and bigger online companies have outstanding growth rates, small online shops are losing ground. The growth rate in 2016 of the biggest thousand e-tailers amounted to 11%, resulting in almost 40 billion euros overall turnover in Germany. 40% of this turnover is generated by the ten largest companies, compared to 27% in 2008. For smaller online shops however, the German market is becoming more difficult. The 500 to 1000 largest online shops have registered an average decline in turnover for the second year in succession. And this trend is intensifying, leading to an increasingly concentrated market in which smaller companies are losing ground (tht/dpa 2017).
Amazon is the main driver of this change, seizing a growing share of the whole online retail market. In Germany, the company is and remains the undisputed market leader with more than 8 billion euros in sales in 2016. The fact that a significant number of the overall online sales are generated on the Amazon marketplace affects other SMEs selling online, or e-tailers, as they will also be called in the thesis, now more than ever before in times of e-commerce. This is because they in turn are confronted with the problem of sinking turnovers and must ask themselves how to react to the growing monopolisation of e-commerce and a market consolidation. Moreover, since Amazon is not only an online retailer but also huge marketplace where third party sellers can offer their goods, SMEs must decide if selling their products on the platform can counter the threat of sinking turnovers.
Companies that use Amazon as their main, or even only sales channel can benefit from a wide range of advantages, but increasing dependency also involves risks. It can be tempting because the use of this sales channel can offer the e-tailers incredible access to customers that are loyal to the platform as well as an advanced logistics network one can then rely on. Scaling sales on Amazon seems to be much easier than scaling sales on other channels. But once a company starts selling on Amazon because of the benefits, it usually does not take long until the e-tailer will feel the huge power imbalance and the resulting subordination under the e-commerce giant, its policies, and its hunger for data.
There are more chances and risks that can result from cooperation with Amazon but there is a lack of papers that consider both aspects at the same time, quantifying them, weighing each up against the other, and deriving conclusions from it.
1.2 Mission Statement and Leading Questions
The aim of this thesis is to close the aforementioned gap in available academic literature by presenting the current market situation in German e-commerce and analysing the signs of a further market concentration, in order to provide evidence of the problematic situation SMEs are in. The thesis then examines the option of cooperating with Amazon as a possible solution to react on this trend and therefore researches the possible chances and risks that could arise through such cooperation. Those insights are thereafter incorporated into a strategic recommendation for e-tailers who consider selling on Amazon. Furthermore, a selling guide which was evaluated in practice, depicts how a company could sell products successfully on the marketplace.
In the end, this paper should contribute to e-tailers’ knowledge about the current and future market situation in e-commerce. In addition, the insights presented should support e-tailers’ decision making process when they are confronted with the question of cooperating with the e-commerce giant or not.
The research questions answered in the thesis are:
1. Is there a market concentration in the German e-commerce?
2. What are the reasons for the market concentration and will this trend continue into the future?
3. What are the chances and risks of selling on Amazon and how often do they affect e-tailers?
4. Do the chances and risks affect differently structured SMEs on Amazon to the same extent?
5. Should companies sell on Amazon and how can a company successfully sell on the marketplace?
1.3 Scope and Outline of Content
The thesis comprises eight chapters. It starts with an introductory chapter where the topic is outlined, and the problem statement is presented. Moreover, the mission statement and the research questions are posed, to give the reader guidance for the following chapters, which then look for answers to these questions. The Second chapter presents the current research status in the topic´s domain. Thereafter, the applied research methods are presented and justified.
The fourth chapter places the topic into an economic context. Moreover, indications and reasons for a market concentration of the online retail market with the help of statistics and an analysis of Amazon, the company which seizes a growing market share, are elaborated with a secondary analysis. This gives an initial impression of the potential cooperation partner for e-tailers. The fifth chapter explains the Amazon marketplace, the platform which e-tailers can use to cooperate with the e-commerce giant.
The sixth chapter then presents the results and the discussion of the primary analysis. A case study about a company selling on Amazon gives qualitative and detailed insights into a company which is using the Amazon marketplace and thereby discloses the possible chances and risks. These discernments are complemented with experiences made by multiple other sellers which are gathered and worked up with a netnography. These extensive and qualitatively collected insights are used to create a questionnaire for a quantitative survey among sellers to enhance the validity of the uncovered risks and opportunities by reinforcing them with figures and with probabilities of occurrence.
The outcome of the research is then incorporated into the seventh chapter, which develops strategic recommendations and an online selling guide for those companies who chose to sell on Amazon. The eight chapter concludes the findings of the thesis and emphasises the aspects of interest. It also gives an outlook for possible future work on the topic.
Due to the focus of the thesis on Amazon´s dominance in the German market and the resulting chances and risks for SMEs, other sub-areas, markets and industries Amazon is active in are only peripherally discussed or not covered at all. This also applies, for example, to competitors who directly compete with Amazon on a global scale, but who are not yet or not any longer a threat to Amazon in the German market.
2. Related Work
Work related to the monopolisation and the future position of Amazon in the online retail market
Several related works were identified which will be used to assess the monopolisation of the e-commerce and the future position of Amazon in the market which, amongst others, include the following literature:
Ulrich Heimeshoff et al. describe the general characteristics of electronic markets. They relate these characteristics to competition theory and explain the driving factors of competition on the internet with direct and indirect network effects, switching costs, reputation effects and economies of scale. Furthermore, an analysis of competition in three crucial online markets with a high level of market concentration is conducted: search engines, online auction platforms, and social networks. These insights are then used by the authors to examine whether the big players in these markets have lasting market power and, based on that analysis, whether any specific market regulation is warranted in these three online markets . The authors also concluded that it is important to emphasise the role of network effects from a competition policy perspective, because even if network effects play a role in a specific online market, it is not obvious in advance whether a dominant position in the market will correlate with high efficiency (Haucap & Heimeshoff 2014).
Coopetition or the collaboration between competing firms is a phenomenon with increasing importance in business practice and which is successfully adapted by Amazon. Arash Golnam et al. contribute to the research by explaining “how the potential advantages of coopetition strategy can be realised over time as a part of individual firms’ business models” (Golnam, Ritala & Wegmann 2011, p. 1) They focus on understanding the evolution of the coopetition strategy of Amazon.com over time as well as how that strategy is executed by the company through the business model. They analyse three coopetitive business models including the Amazon Marketplace, Amazon Services and the collaboration between Apple and Amazon on digital text platforms. Their results include multiple propositions on how companies can harness potential advantages of coopetition strategy by involving competitors into their own business models, and what these advantages are. This contributes to the general understanding of how business models can be designed to take advantage of a close collaboration with competitors (Golnam, Ritala & Wegmann 2011).
Roberta Greenspan applied various methods to assess Amazon and its strategy, as well as its ability to stay ahead of competitors in the future. With a SWOT matrix she analysed internal and external strategic factors of Amazon that influence the business and came to the conclusion that the company has the necessary strengths to maintain its dominant position in the online retail market (Greenspan 2017c). She also concluded that Amazon continues to lead the online retail market because it has integrated the issues identified in her Porter Five Forces Analysis into the firm´s strategies (Greenspan 2017a). Amazon is the largest firm in the market and the company has the benefit of high revenues. However, R. Greenspan found out with her PESTLE Analysis that the online market is very dynamic, which creates new challenges for Amazon over time. To dominate online retail in the long term, Amazon must maintain resilience and competence in addressing such challenges. From her PESTLE analysis she concludes that Amazon remains the top player in e-commerce when addressing the key issues she identified through this method (Greenspan 2017b). In summary, all three methods applied by R. Greenspan indicate that Amazon has the necessary strengths and competencies to maintain their position in the market.
To further assess the current situation in the e-commerce and the future position of Amazon in the market, a thorough analysis of Amazon is conducted with a secondary analysis, relying on and combining existing literature related to the topic.
Work related to the chances and risks that e-tailers face when selling on Amazon
During the research for this thesis over one hundred books, papers and articles were identified covering the topics e-commerce, e-tailers or Amazon, but there is a lack of literature, especially academic literature, considering the current state of e-commerce in the Amazon era and the resulting chances, or opportunities, and risks for e-tailers. The topic is receiving more attention recently and several articles in business magazines and non-academic newspapers have addressed the e-commerce giant´s impact, mainly individual opportunities or risks for other e-tailers from a qualitative and individual perspective:
Amazon’s online platform is on one hand a consumer paradise, with the largest selection of products at the best prices, fast and free delivery, and the option, if the customer doesn’t like the goods, to return them without being charged or having to give reasons for the return. But this, on the other hand, makes the marketplace a hell for sellers because they must comply with Amazon’s guidelines and have to send the goods out quickly, pay for shipping fees for returned products, and often don’t even know why goods have been sent back (TUS 2017).
Another article described which risks and opportunities two individual companies faced when selling on Amazon. For one e-tailer, selling on Amazon was a success story with an increased turnover. For the other one in contrast, selling on Amazon ended in a fiasco, because the account was suddenly suspended leading to a sudden downturn of turnover and cash-flow complications, which almost resulted in an insolvency of the whole company (Bergermann 2017).
There were several articles covering the risk induced by unfair competition on Amazon. One company, which was at first successfully selling their patented product on Amazon, was brought to the brink of collapse because competitors copied the product and sold knock-offs for a cheaper price on Amazon using the company’s branding, photos, and intellectual property (Levy 2016). Besides the fact that many sellers, especially those from China, do not honour patents, trademarks, and copyrights, there exists another problem; “The counterfeiters who sell their goods on Amazon (…) can hide behind their national fortifications, fully immune to legal prosecution, as they freely sell illegal and potentially dangerous items to unsuspecting consumers around the world” (Shepard 2017, p. 1).
Amazon meanwhile, enables companies to report intellectual property infringements, but this option leads to another problem. Unfair competitors make use of this tool to make false infringement claims which enables them to remove their victim’s products from being listed on Amazon. An article on one company showed that their best-selling product was removed from the marketplace by Amazon, because a fake law firm reported a false intellectual property infringement. It took the affected e-tailer two months to reinstate its listing on Amazon, resulting in a huge loss in turnover. This long time period meanwhile allowed competitor to replace the best-selling listing with their own products on Amazon (Kim 2017).
Besides counterfeited products, e-tailers also risk competing with Chinese sellers on Amazon, 99,8% of which do not have a sales tax ID number and consequently do not pay German sales tax. German finance authorities are, as of yet, unable to cope with this VAT fraud (Kartschall & Pohl 2017). This is leading to a competitive advantage for Chinese sellers, who are able to offer lower prices when avoiding sales tax, which then results in an existential threat for local, law-abiding e-tailers (Ramthun 2017).
Moreover, security risks on Amazon were recently thematised in business magazines. Hackers are increasingly targeting third party sellers on Amazon. Stolen password credentials of seller accounts are used to change the bank account information on the accounts resulting in payments being transferred directly to the scammers. In addition to that, fake shops on Amazon are also becoming an increasing problem. Hackers use non-active seller accounts to sell non-existent products in exchange for real money to customers on Amazon. When the customers now buy such a product, they are left waiting in vain for it to be delivered. In the meantime, the hackers can withdraw the payed funds. The precise scope of the hacks was not disclosed but it strains the confidence of buyers and sellers in the security measures of the marketplace (Stevens & McMillan 2017). Amazon’s reaction to the fake shop problem then resulted in measures that threatened the existence of several real sellers again. They could now suffer account suspensions just from changing their bank account information. In some cases even logging into the account from a different location than usual led to an account suspension, excluding the sellers from further offering their products on Amazon (Pohlgeers 2017).
The fact that Amazon not only offers a platform on which companies can sell their goods but that they are also selling those goods themselves results in another risk. Feng Zhu et al. are studying the platform model of Amazon. During their research, they contacted third-party sellers and unearthed a specific concern. The sellers expressed their worries about the marketplace´s course of action which, according to several of them, included not only matching buyers and sellers, but then using sales data to offer competing products themselves. Following this indication, Feng Zhu et al. identified 164.000 products sold exclusively by third parties on the Amazon marketplace and not by Amazon itself. Ten months later, Amazon had begun directly selling 3% of those products, amounting to about 5000 products within quite a short time-frame. Through this the researchers found a possible indication that Amazon may move into competition with a growing number of third party sellers over the long term, which is a major risk for e-tailers selling on the platform (Zhu & Liu 2015).
The risk of competing with Amazon is also described in the article by Angel Acocella et al. which presents an individual case about the brick and mortar store X Fire Paintball & Airsoft, which decided to sell on Amazon.com. Starting with the early beginnings of the company, the article describes the reasons behind their decision to sell on the marketplace as well as the first years of an e-commerce success story in which the company was able to improve their revenue until Amazon ultimately became a direct competitor, selling the same airsoft products. The concerns of the X Fire owners and their brainstorming about possible solutions for this problematic situation are then presented. Besides this case Amazon´s retail revolution and the Amazon marketplace, the platform which connects buyers and sellers, is also described (Zhu & Acocella 2017).
The papers and articles presented mainly describe the individual perspectives and experiences of single companies, neither giving comprehensive insights into the risks and opportunities e-tailers face when cooperating with Amazon, nor into quantitative data, resulting in a lack of literature assessing the risks and opportunities in a comprehensive, quantitative, or academic way. This thesis tries to fill this gap and therefore uses insights from the identified literature, complementing it with new qualitative and quantitative insights gathered through various research methods, which are presented in the next chapter.
3. Research Methods
To accomplish the goals of the thesis, the research questions are answered using information and data gathered through various research methods. To find evidence for further market concentration in e-commerce and to get an impression of the partner an e-tailer would cooperate with, Amazon is analysed by conducting literature and data research. Thereafter, the risks and opportunities associated with selling on Amazon are researched with a primary analysis, combining qualitative and quantitative research methodologies.
3.1 Secondary Analysis: Literature and Data Research
In the secondary analysis, already existing data is used to verify hypotheses and to answer research questions. This research method is used to set the thesis into the context of the current research. Furthermore, it is applied in finding evidence and reasons for a further market concentration in the e-commerce, thereby validating the problem description and giving initial insights into unequal cooperation e-tailers would be exposed to with the e-commerce giant.
It is crucial for academic works to conduct thorough literary research and to have a detailed overview of the topic. The literature and research data were also used to extend my own knowledge base. The literature utilized has been chosen and assessed according to its quality. The secondary analysis makes use of academic papers, books and compilations but also of popular scientific journals and newspapers, and statistical databases because they can offer up-to-date information in such a fast-changing market as e-commerce. To find appropriate literature, a systematic literature search was conducted by using topic-related keywords in online libraries and professional databases. In addition to that, the method of concentric circles was used to identify relevant literature (Weimar 2017).
3.2 Primary Analysis: Mixed Method
The mixed method, and more specifically the Multistrand Mixed Method Design (MMMD), is a research paradigm that applies different research methodologies, both qualitative and quantitative, to combine them in the data collection phase (Buber & Holzmüller 2009). Each approach should provide something different but complementary, resulting in more robust research with more resilient findings than a single methodology would enable (Sheppard 2004). Furthermore, higher objectivity, reliability and correctness of gathered and analysed data can be attained. In this thesis, the sequential approach of a MMMD is applied which means that the research questions are pursued by collecting qualitative data with the case study and the netnography first, which should disclose the possible risks and opportunities of selling on Amazon for e-tailers, and this data is then incorporated into the main research method, the survey, and ensures asking the polled e-tailers target-aimed questions. The survey thereby validates the insights gathered in the case study and the netnography and allows the risks and opportunities to be underlined with figures, assess their severity and proves that certain risks frequently occur to e-tailers. The results of the MMMD is then discussed and summarised (Buber & Holzmüller 2009).
3.2.1 Case Study
A case study is applied to investigate one instance of an entity in its real-life context. It does not test a hypothesis, but from studying a specific instance, insights are gained, and knowledge is obtained that could also be relevant for other situations or entities. Case studies are characterised by focusing on depth and not on breadth and garnering as much detail as possible from one instance of the analysed phenomenon. Furthermore, the entity is examined in a natural setting instead of an artificial context. and from a holistic viewpoint. In addition to that, it is also common for a case study to consider multiple sources (Oates 2005).
In the case study for this thesis a real company is investigated to gain insights into the risks and opportunities that the company faces by selling its products on Amazon. All relevant sources of information and relevant data were accessible in the research. This case study is an exploratory one, which was used to define questions for a subsequent research method because there was little academic literature available on the topic and it consequently helped to work out which questions to pose in the questionnaire for the survey.
The specific company was selected as the object to be investigated because it is a typical amongst many others and can therefore stand as representative of the whole class of SME, at least to gather initial data about risks and opportunities of selling of Amazon. The e-tailer falls among the ones depicted in the problem description which at a point of time could not further increase the turnover of its web shop. The analysed company also uses a professional seller account and consequently has similar access to the Amazon marketplace as other sellers do.
The case study only investigates one object and to complement the risks and opportunities experienced by this single entity, a netnography is conducted.
3.2.2 Netnography
The netnography is an interpretative method which investigates online communities. It is mainly a written documentation resulting from field operations which are based on data gathered from an online communication processes. It is used as an explorative means to investigate more general topics. The web has allowed people to exchange information about their experiences and the netnography harnesses those communication processes and uses that information as a data basis by directly accessing the community. The netnography allows a researcher to collect thick descriptions which depict the individual world of experience and it enables to access communities which are difficult to analyse with other methods. Besides a close relation to the research topic, an appropriate online community should manifest high user traffic to improve the richness of information (Buber & Holzmüller 2009).
Many e-tailers, especially those selling on Amazon exchange their experiences on seller communities and consequently offer an adequate source for a broad variety of information. This broad variety of shared experiences is of importance because they should complement the experienced risks and opportunities of the company analysed in the case study and thereby give a data-extensive foundation for the creation of the questionnaire for the survey. To guarantee a broad variety of information and highly frequented community, one of the biggest seller communities was accessed, the Amazon sellers group, with over 26,000 members from all over the world. Within this community hundreds of seller posts from the October 2016 to October 2017 were read and those corresponding to chances and risks of selling on Amazon were extracted.
Abbildung in dieser Leseprobe nicht enthalten
Figure 1: Seller Community Page (Amazon Sellers 2017)
An international community was chosen over a German one (see Figure 1), even though the German market is focused on in the thesis, because this international community has more members and thereby offers a broader variety of experiences, and the survey is thereafter used to verify the significance of the risks and opportunities identified in the German market. The data collection and analysis are conducted in a multi-methodical way using direct copies of text-based communication between community members but also documentation deduced from the observation of the community. Furthermore, this netnography is conducted in a qualitative way and as a non-participating observation, enabling appropriate insights for the creation of the survey.
3.2.3 Survey
The core of the research is a questionnaire, in this case with predominantly quantitative characteristics and closed questions, seeking to ascribe numbers to the findings from the preliminary qualitative research methods. The questionnaire is developed from clear empirical evidence, and it allows a basis to be provided to identify the frequency with which certain opportunities and risk are experienced by e-tailers when selling on Amazon. The questionnaire appraises comprehensiveness using the main information gathered in the preliminary research, but it also pays attention to efficiency by designing the questionnaire in such a way that respondents can complete it within 5 minutes. The rules for standardisation were considered when creating the questionnaire by asking specific questions and avoiding ambiguity. Furthermore, when choosing the language for the questionnaire, the respondents being studied were kept in mind and consequently the questions were worded in a way that communicates through the respondent’s own language. To guarantee proper standardisation, the questionnaire was tested beforehand by several members of its target group to approve the comprehensibility of the questions (Sheppard 2004).
The questionnaire was created with Google Forms because, after comparing several survey tools, this was the only one which had all necessary features included - converting the gathered data into an excel file, for example - and it enables the creator to design easy-to-use polls for personal computers and mobile phones leading to high convenience for participants, which can reduce the bounce rate. Microsoft Excel was then used to evaluate the collected data and to plot the corresponding graphs.
The entities targeted with the survey were SMEs (e-tailers), preferably those already selling on Amazon, to gather quantitative data about the risks and opportunities involved. To attract enough respondents, different strategies were used to distribute the questionnaire. The first one was to share it on various seller communities and online seller fora, but through that only around 5 companies participated in the poll. The next strategy was to convince the Chambers of Industry and Commerce in Frankfurt, Stuttgart, Cologne and Bonn to share the survey. The one located in Frankfurt for example shared the survey on their Facebook page and on Twitter (see Figure 2).
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Figure 2: Twitter Post IHK Frankfurt
Furthermore, other service providers for e-commerce companies were convinced to share the post. Plentymarkets, a company that offers cloud-based e-commerce solutions to e-tailers for example posted a link on Facebook (see Figure 3).
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Figure 3: Facebook Post Plentymarkets
Those distribution strategies lead to around 35 companies participating in the study. To further increase the number of participants, 250 of the biggest sellers on Amazon were researched based on the number of reviews they receive per month. Those resellers were contacted via email or LinkedIn and asked to participate in the survey, resulting in around 10 more participants. The highest number of participants were attracted by drawing the interest of the company behind Onlinehaendler-News.de to the survey. It is one of the biggest online news portals for e-tailers and they agreed to share the questionnaire twice in their newsletter which increased the number of overall participants to 143 small and medium sized e-tailers, and of those companies 131 sell their products on Amazon.
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Figure 4: Newsletter Onlinehaendler-News
4. Results and Discussion of Secondary Analysis: Research on Amazon
In this chapter the results of the secondary analysis, the research on Amazon, are presented and the first two research questions are answered.
First of all, the topic is placed in an economic context. The level of market concentration is then depicted. By presenting the reasons for the rise of Amazon, including the strategy and a theory-grounded explanation for its growth, information is disclosed that helps to assess the sustainability of Amazon´s growth and their future position in the market. This supports the overall problem description and underlines the problematic situation SMEs are increasingly confronted with, the threat of losing market share.
Furthermore, this chapter gives insights into the business practice of the company, which is crucial for understanding the chances and risks of cooperating with Amazon as an e-tailer.
4.1 Economic Context
To set the economic context, current trends in the e-commerce are aligned with prevalent economic paradigms.
On one hand, today’s e-commerce seems to be completely interwoven with market capitalism, the prevailing economic system. The internet has sped up commerce and consequently reinforced the economic system of market capitalism. On the other hand, it also supports a different upcoming economic system, called collaborative commons, which will increasingly transform the way people live. Initial indications of a shift from capitalism to collaborative commons can already be observed: Capitalism; which contextualised our lives for so many years and provided an organisational framework for all areas of people’s lives, attaching a price tag to goods and services and requiring profits; is now confronted with a new arbiter of economic life, the collaborative commons. The latter is fuelled by prosumers sharing green energy, physical goods, services, and even education in vast networks. The Internet, as an important enabling technology for the collaborative commons, is managed by a global common with the three stakeholders playing a collaborative role in its governance: governments, the private sector, and civil society. The participation of civil society in the governance of the internet is crucial to preserving the possibility of allowing anyone, at any time, from anywhere, to share information with anyone else, without having to ask for permission or pay a fee. This openness, the universal accessibility as well as the distributed design of the internet, allows the collaborative commons to prosper. But in this burgeoning economic system profits are defunct as more and more products and services that power the economic life of the people are heading towards zero marginal costs and becoming almost free. The two different paradigms are now working in tandem and the transformation is only at its earliest stages, but Rifkin expects a great shift will happen towards collaborative commons within the next two or three decades, causing the capitalist system to decline and pushing profit-making enterprises into niche markets. The competitive markets of capitalism which drove the productivity up and marginal costs down will ultimately foster sinking profits. This results in the fact that businesses would no longer be able to ensure a return on investment and sufficient monetary gain to satisfy shareholders. But states and companies are making huge efforts to stop this development and to gain control over the new communications medium, trying to impose a centralised command that enables them to regulate traffic and content. Companies’ way out of the declining profits dilemma is to gain market dominance and to reach a monopoly position which enables them to impose higher prices than the marginal costs of the products they are selling. The big players, like Google, Facebook, and Twitter, are eager to find new ways to enclose and further commercialise the internet. They exploit the commons and use valuable personal data gleaned from this distributed, collaborative, peer-to-peer network and sell the transmitted data of the masses to commercial bidders and businesses, who then use it for targeted marketing, research, and the development of new goods and services. And, of course, there is another company that realised the potential of the internet in its earliest days and that grew at such a pace that it also has the potential to maintain its profits. This company is called Amazon, and the facts and figures that prove its growing monopolisation of online retail will be depicted in the following chapters (Rifkin 2014).
4.2 The Rise of Amazon and the Market Concentration of the E-Commerce
Amazon is now well-known, even ubiquitous, but it is important to know how it became what it is today and see evidence for the market concentration of e-commerce to highlight the need for action on the part of other e-tailers. This is shown initially by presenting the e-commerce giant’s history, including its expansion, and statistics will indicate explanations for this expansion with figures thereafter.
4.2.1 The Rise of Amazon
Jeff Bezos, the founder of Amazon, started his career at a hedge fund company located in New York as a computer specialist. Back then, he noticed the 2,300% annual growth of the internet and was looking for a way to take advantage of this potential. He finally determined to use the web to initiate a new era of retail services (Zhu & Acocella 2017).
Bezos brainstormed a list of 20 products which, in his view, would be appropriate to sell online, and narrowed this list down to the most promising items, including CDs, software, videos, books, and computer hardware. The worldwide demand for literature, the fact that it can be easily sourced and stored, the vast selection of available book titles, and the low prices at which the products could be offered, convinced Bezos to settle on books. In addition, an Internet shop could carry a much larger inventory of books at that time than the dominant brick-and-mortar stores. Bezos believed in his idea, quit his job, and moved to Seattle because of the low sales taxes there. He built up his company and launched the website Amazon.com, after several months of preparation, in July 1995. The first version of the shop (see Figure 5) already emphasised the central benefits for customers, which, to this day, are massive discounts and a broad selection of products. The fact that Bezos initially bought the URL relentless.com and favoured it as the name for his company gives initial indications for his ambitions for the company. To this day that URL is owned by the company and redirects to Amazon.com (Stone 2013).
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Figure 5: Amazon.com in 1995 (Lutz 2013)
In its first month of operations, Amazon.com sold books to customers in all 50 states of America and to over 45 other countries around the world. In September 1995, sales already exceeded 80,000 US Dollars. The start up quickly outgrew its offices and moved to new warehouses more than once in the following years to accommodate the prospering business. In 1997, Amazon outpaced its largest physical book-selling competitors, with a revenue of more than 15.6 million US Dollars. Consistent growth each quarter enabled Amazon.com to complete a successful initial public offering on May 15, 1997, and before its third birthday Amazon.com became the first internet retailer with one million customers. Those customers were attracted to the user-friendly shopping site pioneering customer reviews, one-click shopping, and order verification via email. Amazon strategically bought other companies and made alliances to further expand their product and service offerings. The acquisition of jungle.com, for example, allowed Amazon to use a technology on their own website, tracking users as they browsed products and displaying related or complementary products that could be of interest to each user, based on the data collected. This innovation gave users the feeling of spontaneous discovery resembling a shopping tour in a mall. The company further increased their reach by becoming the sole book retailer on AOL’s and Netscape´s commercial channels by 1998 (Rothaermel 2017).
Amazon used the exploding popularity of the website and started to sell further types of media products - electronics, apparel, toys, tools, jewellery, and more. They also expanded their marketplace to the UK and Germany in October 1998, and supported the growth by building fulfilment centres in the US and in their new markets. Those warehouses already used a computer network algorithm to determine the best route for pickers to navigate the complex system of shelves and products (Zhu & Acocella 2017).
Then, in 1999, Amazon tried to enter the online auction market and created Amazon Auctions, a product which was stopped at a later point in time because it could not compete with overly powerful top dog of the day, eBay. This was the first big setback for Amazon, but Bezos’ company was able to use the knowledge gained from the failure to create Amazon zShops which later became Amazon Marketplace, a place where other sellers could list their products directly on Amazon, next to the company’s own products. The marketplace became a very important cornerstone for Amazon and other sellers in the following years (Fries 2017).
The fateful year 2000, also known for the bursting of the dot-com bubble, brought many internet companies to their knees and also left its mark on Amazon. Bezos had to lay off 15% of the employees and close a distribution centre in the US. But, nevertheless, the growth of the e-commerce giant could not be stopped because, amongst other things, the company won contracts with big department store chains to include their assortments on the Amazon website. They also launched their marketplace in France in August 2000 followed by Japan some months later (Rothaermel 2017).
At that time Amazon also pioneered free shipping or Super Saver Shipping as they called it. Customers did not have to pay shipping costs when the shopping basket exceeded the amount of $99, which was reduced to $25 in 2002. In the logistics industry they still call it The Amazon Effect and it persuaded customers to spend more money each time they shopped on the webstore (Fries 2017).
The success of this service also influenced the development of the next innovation which Amazon introduced in 2005 and which is still an important success factor today, Amazon Prime. In exchange for a yearly fee, customers could now enjoy extremely fast and free shipping across the whole US. The Prime service underwent a lot of changes and included an increasing number of other services like music- and video-streaming (Stone 2013). Furthermore, in some regions, the speed of shipment has dropped to less than two hours.
Amazon expansion remains relentless to this day. Once it sets its sights on a market to enter, the company has a reputation for aggressively pursuing all possible opportunities without holding back. Amazon Web Services (AWS) was launched in 2006 and provides cloud computing services for other companies and by 2016 they had the biggest market share of that sector with 31%, followed by other tech giants like IBM, Microsoft and Google, which altogether only had a 22% market share (Rothaermel 2017). Nowadays, Amazon can, just by announcing plans to enter a new market, disrupt the market capitalisation of long-established companies of that sector. “Being Amazoned” is the corresponding name for this effect and it is more prevalent today than ever before.
The next industry to be disrupted was food retail. In 2007 Amazon launched Amazon Fresh which offers customers the delivery of fresh groceries. The service was recently launched in Germany, where food retail is one of the most competitive markets in the world (Fries 2017). However, Amazon does not shy away from the competition, no matter how big it is, which can be proven by its purchase of the supermarket chain Wholefoods, and which underlines its ambitions of conquering this industry.
In the same year as the Launch of Amazon Fresh in the US, the book industry was revolutionised. Amazon developed the Kindle which used e-ink screen technology to optimise the readability and minimise battery consumption. On this device users could access millions of titles and directly download them to the Kindle for competitive prices. The product was sold out within six hours, and in the year 2011 Amazon sold more e-books than physical books for the first time. The Kindle can be purchased at near breakeven prices, so the benefit for Amazon is in driving increasing numbers of people to its website where they can be persuaded to buy other products and content (Zhu & Acocella 2017).
Amazon also proved resilient in the global recession 2008-2009 because of its breadth of products and services and its focus on online retail. The sales volume of the online market even rose by 11 percent in 2009 despite the economic crisis. Amazon spurred further increasing numbers of online shoppers and consequently continues its growth, as you will see in the next subchapter presenting facts and figures. The growth has mainly come from the company´s traditional strengths, such as books and retailing, as well as from other areas into which the company continues to invest, like AWS. But focusing on a lot of peripheral business such as new fulfilment centres, expansions of Amazon Prime media services, and the development of smart devices devours profits and tries investors’ patience (Rothaermel 2017).
One of the smart devices Amazon invested in heavily, and finally released in 2014, is the Amazon Echo. It´s a combination of a loudspeaker and a microphone and it accepts voice commands when addressing it with “Alexa”. The device currently understands requests for the weather and traffic, takes music requests, and more. In addition, it can be controlled with other smart devices such as a light switch or a thermostat. Alexa should fulfil another function in the future: though orders are still placed mainly via the PC today, it will be by the smartphone tomorrow. The day after tomorrow, they could be replaced by voice input, and for that Amazon has equipped itself early. In 2015 Amazon launched the Amazon Dash Button, another device which increases the omnipresence of the e-commerce giant in people’s homes. It’s a small device with a button with which you can trigger a pre-defined order, and which is attached directly to the place of consumption. Consequently, a customer can directly reorder it at the touch of a button if he notices that a product is running low. In Germany, there is still legal uncertainty about the extent to which an order can be triggered by pressing a button. Nevertheless, the product can already be bought on Amazon.de (Fries 2017).
Lately Amazon released several new services for sellers. In 2015 Amazon started the Launchpad program, a platform for start-ups which are working on new products and are looking for initial customers. When listing products with this service, companies can benefit from improved marketing tools and a highlighted presentation of their products on the website. One year later, Amazon Handmade was started. This sub platform allows artisans to sell unique pieces on Amazon. Industrially manufactured goods are excluded from the sale and the artists here can present products in a different way. One can, for example, emphasise the artist in a specific way or offer customised products with longer delivery times (Fries 2017).
This chapter presented the history based only on significant events to give an impression of the company´s business conduct and the expansion. Amazon is now diversifying even further and is also expanding into many other industries. At the same time increasing verticalization can be noticed: For example, Amazon does not only stream series, but now produces them as well. Amazon does not only sell books but publishes them as well. Amazon no longer just sells third-party products, but also increasingly offers its own brands, which will also impact other e-tailers using the sales channel.
4.2.2 The Market Concentration of the E-Commerce: Facts and Figures
E-commerce has been booming worldwide for many years now and sales are still increasing. Shopping online is one of the most popular activities worldwide but in different regions people prefer different online retail companies. In China, the biggest e-commerce market in the world, customers prefer the shopping site Taobao.com.
Amazon is prevailing in western economies and Japan, and could reach exceptional growth rates due to their growing market penetration in those countries. From 2015 the revenue rose by more than 27% to 135,99 billion U.S. dollars in 2016 (see Figure 6).
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Figure 6: Net Sales Revenue of Amazon from 2004 to 2016 (Statista 2017b)
Amazon, together with Taobao.com, is the e-commerce company with the biggest market share, amounting to 16 percent of global e-commerce, followed by Alibaba´s Tmall.com with an 11 percent revenue share. eBay accounts worldwide for around 4 percent of sales (see Figure 7). On a global scale, there is no single online retail monopoly or a company dominating all the others.
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Figure 7: E-commerce Market Share of Leading E-retailers Worldwide in 2016 (Statista 2016a)
After switching the perspective from a global scale to the focus of this thesis, the German market, one can deduct a different statistical inference. But, to start with, as with on the global scale there was high annual growth from 1999 to 2016 and forecasted online retail sales will again grow in 2017 to approximately 48.7 billion euros as is depicted in Figure 8.
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Figure 8: B2C-E-commerce Revenue in Germany from 1999 to 2017 (Statista 2017d)
Besides these increasing sales revenues, the market analysis also reveals other significant changes. The number of online sellers which can profit from the growth are decreasing; the big retailers are the ones benefiting from this trend. The revenue of the 1,000 biggest online shops in Germany grew on average by 11 percent to 40 billion euros. Over 40% of this revenue is generated by the 10 biggest online retail companies. Amazon is and remains the undisputed market leader in Germany (tht/dpa 2017).
The following figure illustrates the trend by depicting the growing market share of Amazon from 2008 to 2015. In 7 years, Amazon more than doubled their market share in Germany, from 11,2% to 25,5%.
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Figure 9: Amazon´s Online Retail Market Share in Germany from 2008 to 2015 (Statista 2016b)
Amazon plays an increasingly dominant role in the German online retail market. The company has changed the shopping behaviour of Germans so that more than 90 % of online shoppers already purchase products on the Amazon.de, making them some of the most loyal clients of the e-commerce company. But the website is not only used for purchasing products, almost half of online shoppers in Germany start their product search on the website and consequently steadily integrate it into the purchasing process. This heavily affects other online shops and their ability to attract customers. One out of four online shoppers state that through their use of Amazon they buy less frequently on other websites (dpa 2017).
The statistics presented here disclose that it is primarily the big players that can benefit from the further growth of the online retail market, and prove a growing market concentration. Furthermore, it is shown that Amazon is increasingly becoming the first point of reference in product searches, making it harder for other online stores to draw customers to their pages. SMEs are more likely to lose ground because of this development and must react and find new strategies if they want to survive.
If the trend of market concentration should further increase, the already problematic situation for SMEs will become even more difficult. To investigate a further trend of market concentration in the e-commerce, the following subchapters will now focus on the reasons for the rise, and the sustainability of the growth, which helps to predict Amazon´s future position in the market.
4.3 Reasons for the Rise
The answers to the question of how Amazon could grow at such a pace and increasingly dominate e-commerce can be found in Amazon´s Vision and Mission and in its strategy, supporting the company in reaching its high-level goals. But it is not only the strategy that makes the e-Commerce giant successful, there are other mechanisms that support the growth of the company which will be presented in the theoretical reasons for the rise.
4.3.1 Amazon´s Vision and Mission
To understand the rise of Amazon one should first understand the vision and the mission driving the company to become the largest online retailer in the western hemisphere. Their corporate vision statement is crucial because it guides the organisation towards a desired future condition of the company and, furthermore, it gives rise to the corporate strategy and mission. In its vision the company states their high-level goal “To be the Earth´s most customer-centric company, where customers can find and discover anything they might want to buy online” (Amazon.com 2015). This already discloses the ambitions of the company. Their target market is “the Earth” so the company aims to compete on a global scale with a global reach. From this, one can further deduce Amazon´s corresponding strategic objective, global expansion through market penetration and market development which will be presented in the chapter about their strategy. Customer prioritisation, as the second pillar of the vision, shows the most important stakeholder for the organisation (Gregory 2017). In this thesis, this aspect will be subject to several considerations because this prioritisation will also have consequences for companies selling on Amazon. The third component of the vision involves the aim of having the widest selection of products. This indicates further ambitions to broaden its assortment which is also a reason for Amazon to cooperate with other sellers and is consequently of importance for the strategic direction of the company and the risks and opportunities for sellers.
The Mission Statement, in contrast to the vision, focuses on the present but its elements can be deducted from the components of the Vision statement. It includes the business goals and the strategic formulation of the organisation and can be read as follows: “We strive to offer our customers the lowest possible prices, the best available selection, and the utmost convenience” (Gregory 2017). This statement focuses again on satisfying the needs of Amazon´s most important stakeholders. Offering the lowest prices is one of the first and most crucial principles that Bezos enacted in his company to increase the attractiveness of his website and consequently became a clear guideline for the company´s pricing strategy. The mission statement also requires the company to offer the best selection of products so that all sorts of online shoppers can use the website as a starting point for the purchase of their products. Furthermore, the utmost convenience which is emphasised in the Mission Statement guides the company to this day, and has led to several innovations pioneered by Amazon which are an important factor for attracting huge numbers of customers to the website (Gregory 2017).
Summarising, one can say that the Vision and the Mission Statement are highly relevant for the success and further expansion of Amazon. Both statements are important high-level guidelines for the company and inform the strategy, which is depicted in the next chapter.
4.3.2 Amazon´s Strategy and its Implementation
The strategy of a company shows the path a company uses to reach its goals. In the case of Amazon, the high-level goal is to become the most customer-centric company in the world. Bezos was convinced that by using the internet as a sales channel his company can establish an unfair advantage over offline stores. Selling books was only a means to an end, enabling the company from the beginning to offer better prices and a broader selection than common offline retailers (Stone 2013).
To reach the aims depicted in the vision statement, Amazon banks on cost leadership to reach a further competitive advantage and on intensive growth strategies to increasingly dominate the online retail market. Cost leadership is realised by reducing its operating costs, by automating processes and by a continuous improvement of its information technology infrastructure. This also allows the company to minimise its price levels. The intensive growth strategy is realised by the entry and expansion into new markets where Amazon´s services can be offered. By establishing new online retail websites in new countries, the company increases its global market reach. Another part of the growth strategy is a higher market penetration and consequently increasing revenues in countries where Amazon already has footholds, as in Germany. The company grows with increasing consumerism and growing willingness from people to buy online. Another supporting strategy for business growth is product development and product diversification. Offering newly developed products allows the organisation to increase their revenues, and growth, also realised by new business and acquisitions, is the objective of this strategy (Smithson 2017).
The idea driving the overall corporate strategy is depicted in Figure 10. The central role of the customer and the aim of improving their experience and satisfaction is of utmost importance because high customer satisfaction leads to increasing numbers of customers. More customers attract a growing number of sellers, which leads to a broader selection of products, which again increases the satisfaction of the customers and their experience on Amazon. This cycle continues and induces further effects. Amazon grows and can realise scale effects leading to lower prices, which further improve and reinforce customer experience and satisfaction, causing the cycle to revolve faster still (Fries 2017). The growth of the company is consequently not a coincidence but a result of a strictly planned and implemented strategy.
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Figure 10: Amazon´s Strategy (Nejo 2016)
Jeff Bezos already wrote down this cycle in the founding phase of Amazon. In the meantime, it has developed further and is amplified by several strategies. In other words, the customer centricity and the company´s growth is further supported by Amazon´s ability to innovate and to mass-customise allowing the company to meet customer´s growing demands, coopetition with other companies to increase the product selection, vertical integration to increase the efficiency, the already mentioned scale effect to further reduce the prices, its culture to guarantee a strict implementation of the strategy and the long termism which enables further expansion and growth. These principles and their implementation will now be explained in more detail.
4.3.2.1 Customer Centricity, Loyalty and Amazon´s Omnipresence
Making the customer the centre of Amazon´s universe is, according to Bezos, the key to their rapid growth and it is consequently the daily job of Amazon´s employees to improve the customer experience step by step. This was true for the company´s beginnings where they directly offered the customers over 1 million different books, pioneering drop shipping, and this commitment to customer experience was evident in the website´s interface as well. Visitors of the website could, for example, apply discounts of 20%- 30% on many books, choose books recommended on basis of their reading habits, browse topic areas, and use reviews from other customers for their purchasing decisions (Zhu & Acocella 2017).
But one of the most central innovations for improving the customer experience and for increasing their loyalty was the introduction of Amazon Prime, which was described in chapter 4.2.1. Today, more than 80 million households are registered for the service. Amazon thereby manages it to increase its omnipresence in the homes of their customers and has become, for many customers, the first touchpoint when buying products online. Every second purchase on Amazon is already made by a prime member. Furthermore, prime customer loyalty increases over time, indicated by the fact that the longer a customer is a prime member, the more money he or she spends per purchase (Fries 2017). Even if the Amazon program costs up to one billion dollars a year, it's very important for customer satisfaction, customer loyalty, and Amazon's sustainable growth. For the company, Amazon Prime is a long-term investment (Byrnes 2016).
4.3.2.2 Long-Termism and Cash flow
Amazon´s founder knew that becoming the most customer-centric company on earth could not be accomplished overnight and, in contrast to many other market-listed companies, Amazon neglects short-term profits because focusing on ever-improving quarterly results could lead management teams to make profits in short-term that could hurt the company´s competitiveness in long-term. Instead, the company focuses on building long-term value and realising its vison. When the founder took Amazon public in 1997, he disclosed this long-term strategy to potential shareholders and addressed them with a letter (see Figure 11) telling them that the company´s current leadership role can only be extended, and their vision can only be realised, by focusing on the customer, on reinvesting profits, and on revenue growth. So growth will be chosen over profitability, because growth enables the company to realise scale effects and thereby prices for customers can be lowered (Blodget 2011).
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Figure 11: Letter to Amazon´s Shareholders 1997 (Blodget 2011)
Jeff Bezos kept his word, and the fast growth of net sales revenue, from 6.92 Billion USD in 2004 to over 135 Billion USD in 2016 (see Figure 6), involves a comparatively low net income or, in two years, even a net loss (see Figure 12).
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Figure 12: Net Income of Amazon.com from 2004 to 2016 (Statista 2017a)
From the statistics, it can be deducted that fast growth has its price and the expansion of the biggest online retailer in the western hemisphere was realised by a direct reinvestment of profits. Today, over 20 years after the IPO, long-termism and the importance of revenue growth is as present as ever, leading to a net profit that decreased by 77% from 857 Million USD to only 198 Million USD in the second quarter of 2017 while the overall turnover increased by 25% (Postinett 2017).
Despite the low profits the market capitalisation, or in other words, the value of all outstanding shares of Amazon is ever increasing and dwarfs those of other retailers, including Walmart, which is in sales, the biggest retailer in the world, as Figure 13 depicts.
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Figure 13: Market Capitalisation of selected U.S. Retail Companies (Statista 2017e)
From this one can conclude another strength of Amazon, remarkably patient shareholders which remained amongst the most devoted as the company´s sales skyrocketed quarter after quarter, but the core retail business does little better than break even. Most of its profits come from third party sellers offering their products on Amazon´s marketplace.
Looking at the low profits, one gets the impression that investors are patiently waiting for Amazon to eventually translate high sales and dominant market positions into corresponding profits (Disley 2014).
Long-termism, still a central cornerstone of Amazon´s strategy, has made it the only one of the early internet leaders that is still prospering. It also allows the enterprise to realise exceptional customer satisfaction offering the lowest prices available. Amazon can even allow itself to sell at loss and console its investors with growth and future profits.
In addition to patient investors, figures also reveal another strength of the company, extremely patient suppliers which enable Amazon to achieve a very high cash flow (see Figure 14).
[...]
- Citar trabajo
- Samuel Weihrauch (Autor), 2018, E-Commerce in Times of Amazon. Chances and Risks for E-tailers, Múnich, GRIN Verlag, https://www.grin.com/document/1034426
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¡Carge sus propios textos! Gane dinero y un iPhone X. -
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¡Carge sus propios textos! Gane dinero y un iPhone X. -
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¡Carge sus propios textos! Gane dinero y un iPhone X.