Amazon Case Study: Evolving Into Offline Retail

This case study explores Amazon's management principles, the profitability of the offline retail industry, its competitive advantages, and distribution strategy. It aims to provide insights into these areas and make recommendations for improvement.

The key marketing issue dealt with is moving to the omnichannel strategy while maintaining the differentiated positioning of the company.

Table Of Contents

• 1. Management Principles
• 2. Offline Market Profitability
• 3. Competitive Advantage
• 4. Distribution Strategy
• 5. Recommendations

Amazon’s Management Principles

When it comes to Amazon, we can all notice how these people insisted on doing things differently.

They worshiped the customer and made the client the center of the whole selling process giving more value to them and more perceived value for the company. This helped ensure customer retention and satisfaction and thus a good relationship. 

Another important aspect that this retailing giant focused on, is being innovative, always making sure they did it differently which spices things up for the customers and makes them more engaged.

 Amazon needed heavy IT backup which was not a problem thanks to its AWS for cloud services that dealt with all the heavy flow of data. Amazon focused on being differentiated, and innovative. 

It had the customer at the center of its decisions to grow big and made the right partnerships and expansions to keep up and ensure the best experience possible for them. 

So what lessons can we learn from Mr. Bezos? Take risks! Stay unique! Obsess the customer! And invest in technology!

The Overall Profitability of the Offline Market

The offline market was estimated to be profitable since “9/10 USD were spent in offline retail stores in the United States” and several companies were moving to the omnichannel experience. 

Add to that, the B&M industry weighted 4 trillion and 90 percent of retail sales in the United States. 

Thanks to this, Amazon faced an increase in net income by 2612 US $ Million from 2014 to 2016.

 

1. In 2015, Amazon Books led to an increase in sales from 23% in 2014 to 26% in 2015, in North America. 
2. The launch of Amazon Go in 2016, increased the operating income by $936 US Million. Add to offering more convenient purchases with less waiting time and delivery. 
3. In 2017, the launching of Amazon Fresh Pick-up reduced delivery time, and the acquisition of Whole Foods was estimated to increase the variety of products offered and thus target more segments.

However, the market may not be as profitable as it was expected: in May 2017, there was a drop in the company’s stocks by 4.5%, which might be explained by the increase of 13% in online purchases within 3 years. 

Despite its loss, the offline market might be rewarding, since omnichannel customers were increasing and becoming more profitable. 

Amazon’s Competitive Advantage

1. Customers Relationship

Amazon already has well-established brand equity and could build a bond with its customers throughout all these years. This made customers more open to adapting to new forms of distribution the brand was making.

For these customers, it was not just a new company entering the retailing business, it was a brand that they know very well, a brand they trust.

At the same time, the company already had a large database of customers' information, about their behaviors as consumers and their purchasing preferences.

2. Customer Experience

Online or offline, Amazon always makes sure to be delivering the best possible customer experience by providing all the service outputs a customer may need including 

Assortment and variety/ Spatial convenience ( using an omnichannel approach helped customers minimize any difficulties in the search process) / Low waiting time and fast delivery.

Despite all that, Amazon made sure to always maintain the lowest possible prices in the market.

In a Nutshell, Amazon offered “the entire package” a customer may wish for.

Aside from the service outputs available for regular customers, Amazon built consumer communities through Amazon Prime and Amazon Now to give customers a sense of belonging to an upper class with higher privileges.

3. IT and Logistics

Since Amazon began, it has focused on investing and acquiring the internet in every possible way. It has always been revolutionary in using technology to its advantage through artificial intelligence, deep learning, cloud computing, and its AWS platform to be as efficient and effective as possible with its customers. 

Furthermore, Amazon worked heavily on minimizing human contact and making the shopping process as smooth as possible with high coordination with all the channel members.

Amazon's Distribution Strategy

Online Distribution Channels

Online retailing platform: It offers a huge product variety and has been in constant growth, especially in North America.

• AWS: the cloud computing platform, was the key driver to Amazon’s success since it is the source of several technologies that Amazon is using, such as sensors in Amazon Go stores, and deep learning algorithms. The company would have to make a huge investment if it bought these technologies. 
• Amazon Prime: For free, Prime and Prime Now offer extra fast delivery. Even though the company would incur additional costs, the return on investment on Prime was enormous since each Prime member spends 140% more than regular customers.
• Amazon Fresh: Amazon faced offline competitors, such as grocery stores. Prime members have the exclusive option of Amazon Fresh, which helps them buy groceries faster. 

Offline Distribution Channels

• Amazon Books: is the first brick-and-mortar store launched by Amazon. The store mixes the traditional bookstore setting with an innovative touch based on the showrooming concept and the strategic use of online features resulting in an omnichannel shopping experience that increased the profit margin from -0.13 to 1.47 and then to 2.86 in 2016.
• Amazon Go: A convenience store with an easy cashier-less shopping experience based on the implementation of technologies allowing the company to match the customers' needs through a personalized product mix in different locations and to minimize waiting time.
• Amazon Wholefoods: Acquired in 2017, Amazon wholefoods allow the company to upgrade the service output supplied regarding assortment and variety in Amazon Go stores By offering customers unprocessed food products such as fruits and vegetables in addition to the convenience products available.
• AmazonFresh Pickup: Pickup locations for amazon prime users where they can collect goods they ordered via amazon fresh.

Recommendations 

Recommendations are based on the following criteria:

1. Customer experience: since customer centricity is one of Amazon’s management principles, recommendations should aim to improve their satisfaction.
2. Operational excellence
3. Revenue and costs: operational excellence should be met to increase revenue and decrease costs.
4. Competition and innovation: It is critical to be innovative and differentiate itself from competitors. 
5. Feasibility

To implement an omnichannel strategy, Amazon should focus on creating a seamless customer experience across all channels, in all regions. 

First, they should prioritize data collection in their offline stores, and integrate that data into the existing online shopper's database. 

It should also ensure that employees in its offline retail stores are knowledgeable about the omnichannel strategy and equipped to provide excellent customer service across all channels. 

It is also important to note that Amazon is losing on the international level, with an operating income loss of -699 in 2015 and -1,238 in 2016. The offline retailing channel could lead to a shift on the international level if conducted in coherence with the culture of each region, and its infrastructure. 

Authorship: 

As part of the Marketing Channels course at Tunis Business School (TBS), this project was conducted by:

• Azza Ben Attia
• Mohamed Ali Ben Ayed
• Ons Hamdene
• Sahar Dronga
• Yasmine Jedidi

all collaborators granted The Marketing Recipe the copyright of the material above.

Case Study available at Harvard Business Review (Paid: $8.95)