Market Review on Amazon

MARKET REVIEW REPORT ON THE GROWING POWER OF AMAZON

BY

OLUWADAMILOLA O. ASHIRU

PROGRAM:

MSc MANAGEMENT

STUDENT NUMBER:

11691573

MODULE TITLE:

COMPETING THROUGH MARKETING (7BSP0395)

TO BE SUBMITTED TO:

MODULE LEADER: RON WELLS

DATE OF SUBMISSION:

15TH NOVEMBER, 2012.

NUMBER OF WORDS:

1620

INTRODUCTION

An Amazon.com Annual report (2011) states that Amazon.com opened its virtual doors on the World Wide Web in July 1995 and seeks to be Earth’s most customer-centric company for four primary customer sets: consumers, sellers, enterprises, and content creators.
The Amazon Company with its headquarters at Seattle, Washington was founded by Jeff Bezos in 1994, and launched in 1995 with values statement such as Customer obsession, Innovation, Bias for Action, Ownership, High hiring bar and Frugality. Amazon was one of the first big companies to sell goods over the Internet. They started out as an online bookstore and then quickly diversified by adding other electronic items as well as clothing, furniture, toys and even food items. (Schneider 2012).
The Amazon Company has changed over the years from [pic]
To [pic]
Source: Google Images (2012)

Key Trends in the Music Business “The majority of music is now sold in digital format, downloaded by consumers to Laptops, MP3 players or other devices” (Miller &Washington 2008).
A Keynote Report (2010) examined the different trends in the music business. • A Keynote primary research has shown that access to music has been spread out with new technology and the expansion of the media. In a survey conducted, 79.5% of adults listen to music every day, 69.4% listen to it on the radio regularly, 23.3% buy a music CD from a shop at least once a month, 27.2% play an instrument and 19.1% describe music as a their `main hobby '.

• Another trend is the relatively new consumer involvements with music. Young consumers are creating their own, purely personal music collections by downloading or sharing music rather than buying recordings as in the past.

• The trend in recorded music is certainly the drifting away from selling and buying music `products ' in the shape of CDs to the distribution of recordings in electronic format. In the home, access to music has moved from the static high-fidelity system in the living room to the home computer and the electronic gadgets.

The Figure below shows the impact of Electronic channels on the Internal Market Environment in the Music Industry:

[pic] Source: Mintel Report (2008).

The Book Business
A keynote report (2012) emphasizes that in terms of sectors, books are still contributing to the greatest share of the market, although there has been a clear decadence in value caused by the recession having an effect on consumer spending while the growing popularity of electronic books (e-books) is taking potential sales away from the conventional market. WH Smith and Waterstones are two of the leading high-street booksellers, although both continue to face competition from online and cheaper outlets. Online sites such as Amazon and Play are believed to have increased their share of the market, as consumers are more price conscious since the recession, going for the cheapest outlets.
The major trend is the growing popularity of e-books. The digital versions are believed to be reducing sales of conventional books, while many are distributed at much lower prices, devaluing the entire book industry.

AMAZON: AN INTERNET PLATFORM

“E-commerce, or online shopping, is transforming the retail sector” (Keynote 2009).

Internet retailing
Grewal et al (2004) states, that the essence of any business strategy is the ability to develop a sustainable competitive advantage. There are some retail format elements that are more sustainable than others, both for internet retailers and for bricks-and-mortar retailers. It was noted that, current market leaders, such as Amazon.com, enhance the shopping experience by providing reviews and making suggestions based on past purchases, customers can still use a shopping bot to find and purchase the lowest-cost product.
The figure below clearly states the several factors that help or hinder the growth and success of internet retailing.
[pic]
Fig.1: Internet retailing—the broad view. Source: Journal of Business Research (2004)
Amazon’s Dominant Position over Bricks and Mortar Retailers

Kotha (1998:212) argues that:

“Unlike traditional bookstores, there are no bookshelves to browse at Amazon nor are there salespeople to service customers. Moreover, the firm is open for business 24 hours a day and has a global presence”.

Differences between Internet retailing and Brick & Mortar Retailing

Toomey & Wysocki highlighted the differences between Internet retailing and Brick& Mortar retailing. - Consumers often relate online shopping with "deals" or lower prices, because of auction sites and easy cross-referencing via search engines. Also, using the Internet to purchase goods or services facilitates consumer competition because of greater accessibility. With shopping online and comparisons; it is possible to check the price offered by hundreds of merchants with a couple of mouse clicks. (The Economist 2004). - Another difference is the immediate access to information by a consumer. "Consumers have access to an unprecedented amount of product information, not just from manufacturers ' websites but also from online reviews written by previous customers, employees, and organizations faster, more directly, and with more visibility than ever before" (The Economist 2004). - Still a larger difference between traditional commerce and e-commerce exists because information technology (IT) is the middleman, with IT acting as a facilitator for globalization and integration (Kersten 2008).
Amazon has been able to establish its reputation as the most recognized `Internet ' on-line book retailer (Kotha 1998).

Kantar World Panel Consumer Insight (2012), in Complete Music Update (2012) states that at the top of the market share chart, is Amazon, which overtook HMV as the biggest entertainment retailer in the UK during the Christmas shopping quarter last year 2011. Its market share in the third quarter was 3.4% up in 2010 to 20.3%, while HMV’s was down slightly to 16.1%, despite the Game chain of stores being cut in half in March, giving the high street seller an advantage in the gaming space.

In October according to Retail Week (2012), HMV launched an online marketplace selling third party products and looking to hit back at Amazon.

[pic]

Source: Retail Week Online Newsletter (October, 19,2012).

VS pages (2012) stated that when it came to selling books, there are three foremost names to be called, Barnes and Noble, Borders Group and Amazon. However, Barnes and Noble and Border Group are both Brick and Mortar retailers unlike Amazon which does business solely on the internet. There is no doubt that Amazon has taken a very big lead in this aspect as a recent report shows that on the average, Barnes and Noble’s sales reached about $4.7 billion, Borders Group $3.8 billion, while Amazon have reached an annual sale of $15 billion.

According to the stock market news on Seeking Alpha newsletter (2012), there is only one brick and mortar retailer that Amazon sales seems lacking importance to, and that is the physical store division of Apple. The Apple division thrives in the growing world of on-line shopping: Comparable store sales increased 33% for the first six months of 2012. Apple retail stores have been increasing sales more quickly than Amazon. The table1 shows Amazon and Apple Retail’s most recent quarters in comparison and Fig.2 shows the growth in sales (%) of Apple, Apple retail and Amazon in 2010 and 2011.

Table 1: Amazon and Apple retail 's most recent quarters:
[pic]
Most recent quarter to comparable year-ago quarter.
Source: http://seekingalpha.com/article/541491-amazon-can-t-beat-this-brick-and-mortar-retailer (April 30, 2012)

Fig 2: Sales growth of Apple, Apple Retail and Amazon
[pic]
Source: http://seekingalpha.com/article/541491-amazon-can-t-beat-this-brick-and-mortar-retailer (April 30, 2012)

AMAZON’S SUCCESS

Amazon has been profitable and successfully expanded for the following reasons, an Emerald article (2012) analyses:

• Amazon transformed itself from an online bookstore to one of the world’s largest shopping destinations. Amazon’s evolution would not be successful without its high level of diversification, innovation skills and value proposition; it entered a market of application solution providers, offers business solutions in terms of warehousing and distribution and is among the top players in the cloud computing industry.

• Amazon’s strategy to allow third party sellers sell their products on the website and give consumers the opportunity to have different product choices available online in a single location became a profitable innovation. Also the product review feature added provides new and returning customers the opportunity to have an idea of a product and this reduces possible dissatisfaction and product returns.

• Amazon has devoted significant efforts in making its shipping platform the best possible platform. Amazon ensures that products are delivered within the agreed timeframe and it offers a full money-back guarantee on the cost of shipping if they do not deliver within the selected time frame.

“One of Amazon’s victory strategy is that is cheap, they cut prices into half” (Wells, 2012)

OPPORTUNITIES AND THREATS IN THE AMAZON MARKETING ENVIRONMENT

Using Kotler & Armstrong’s SWOT analysis (2008) to evaluate Amazon’s Strengths, Weaknesses Opportunities and Threats is a factor that would help the company serve customers better and achieve its goals.

| Strengths | Weaknesses |
|Internal capabilities that may help a company |Internal limitations that may interfere with a |
|reach its objectives. |company’s ability to achieve its objectives. |
| Opportunities | Threats |
|External factors that the company may be able |Current and emerging external factors that may |
|to exploit to its advantage. |challenge the company’s performance. |

Positive Negative

Fig 3: SWOT analysis
Source: Kotler & Armstrong (2008)

| Strengths | Weaknesses |
|Innovative new offerings |Free shipping may lead to profit losses or |
|Availability of products |reduction. |
|Efficient Customer Service |There might be a possible brand reduction. |
|Discounted goods | |
| Opportunities | Threats |
|Global Expansion |Threats from government policies and competitors |
|The Kindle product |as regards expanding in the market. |
| |Market fluctuations demand flexible management |
| |strategies |
| |Brick and Mortar retailing stores. |

Positive Negative

Farooqui (2012) identifies possible ways for Amazon to succeed in the marketing environment: 1. Amazon should invest in Research and development. The creation of innovative strategies and devices to provide a competitive advantage in the electronics environment will encourage success. 2. The opening of brick and mortar retail stores also involved in online ordering for non-savvy technology or internet customers. 3. Amazon should invest in Public Relations Marketing.

REFERENCES

Amazon’s new and old website layout. 2012. [Online Image] Available at: http://www.google.co.uk/imghp?hl=en&tab=wi [Accessed: 13 November, 2012].

Complete Music Update. (2012) Amazon remains biggest entertainment retailer in UK. [Online] Available at: http://www.thecmuwebsite.com/article/amazon-remains-biggest-entertainment-retailer-in-uk/ [Accessed: 11 November, 2012].

Emerald (2012) ‘Learning from Amazon’s success: Five-point guide to get in the customer’s shoes’. Strategic Direction. 28(4) pp. 19-21. [Online] Available at: http://www.emeraldinsight.com/journals.htm?issn=0258-0543&volume=28&issue=4&articleid=17021594&show=html [Accessed: 13 November, 2012].

Farooqui, S.A. (2012) Amazon.com SWOT Analysis. Business Marketing & Logistics Report 751. United States.

Grewal, D., Krishman, G., Levy,M.(2004) ‘Internet Retailing: enablers, limiters and market consequences’. Journal of Business Research. 57(7) pp.703-713.

Key Note (2010) Music Industry Market Review – February 2010. [Online] Available at: http://www.keynote.co.uk/market-intelligence/view/product/2324/music-industry?highlight=music+retailing&utm_source=kn.reports.search# [Accessed: 10 November, 2012].

Key Note (2012) Bookselling Market Report- 2012. [Online] Available at: http://www.keynote.co.uk/marketintelligence/view/product/10559/bookselling?utm_source=kn.product.family&medium= [Accessed: 10 November, 2012].

Kotha, S. (1998) ‘Competing on the Internet: The case of Amazon.com’. European Management Journal. 16(2) pp. 212-222.

Kotler, P. & Armstrong, G. (2008) Principles of Marketing.12th edn. New Jersey: Pearson Education.

Leaders: E-commerce takes off. (2004) The Economist 371(8375). Kersten, G.E. (No Date). A few suggestions for the Canadian agenda on e-commerce. Available at: http://interneg.concordia.ca/interneg/research/papers/1999/11.pdf . Cited in Toomey,C.A., & Wysocki, F.A. (No Date) Distinguishing between Traditional and Online Retailing: Evaluating E-commerce with Respect to the Food System. Available at: http://edis.ifas.ufl.edu/fe820 [Accessed: 09 November, 2012].

Miller, K. R. & Washington, K. (2008) ‘Chapter 24: Music & Video’, Retail Business Market Research Handbook. pp. 143-147. 5p. Business Source Complete, EBSCOhost.

Retail Week. (2012) HMV Launches online marketplace. [Online] Available at: http://www.retail-week.com/sectors/entertainment/hmv-launches-online-marketplace/5041959.article [Accessed: 12 November, 2012].

Schneider,L.(No Date). Amazon.com Company Research. Available at: http://jobsearchtech.about.com/od/companyprofiles/a/Amazon.htm [Accessed: 12 November, 2012].

Seeking Alpha Newsletter. (2012) Amazon can’t beat this Brick and Mortar Retailer. [Online] Available at: http://seekingalpha.com/article/541491-amazon-can-t-beat-this-brick-and-mortar-retailer [Accessed: 12 November, 2012].

VS Pages. (2012) The Differences between Barnes and Noble, Borders and Amazon. [Online] Available at: http://vspages.com/the-differences-between-barnes-and-noble-borders-and-amazon-812/ [Accessed: 12 November, 2012].

Wells, R. (2012) Marketing Communications, Part 1. Class conversation. Hertfordshire Business School. 8th November, 2012.

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Internal

External

Internal

External

References: Amazon’s new and old website layout. 2012. [Online Image] Available at: http://www.google.co.uk/imghp?hl=en&tab=wi [Accessed: 13 November, 2012]. Complete Music Update. (2012) Amazon remains biggest entertainment retailer in UK. [Online] Available at: http://www.thecmuwebsite.com/article/amazon-remains-biggest-entertainment-retailer-in-uk/ [Accessed: 11 November, 2012]. Farooqui, S.A. (2012) Amazon.com SWOT Analysis. Business Marketing & Logistics Report 751. United States. Grewal, D., Krishman, G., Levy,M.(2004) ‘Internet Retailing: enablers, limiters and market consequences’. Journal of Business Research. 57(7) pp.703-713. Key Note (2010) Music Industry Market Review – February 2010. [Online] Available at: http://www.keynote.co.uk/market-intelligence/view/product/2324/music-industry?highlight=music+retailing&utm_source=kn.reports.search# [Accessed: 10 November, 2012]. Key Note (2012) Bookselling Market Report- 2012. [Online] Available at: http://www.keynote.co.uk/marketintelligence/view/product/10559/bookselling?utm_source=kn.product.family&medium= [Accessed: 10 November, 2012]. Kotha, S. (1998) ‘Competing on the Internet: The case of Amazon.com’. European Management Journal. 16(2) pp. 212-222. Kotler, P. & Armstrong, G. (2008) Principles of Marketing.12th edn. New Jersey: Pearson Education. Miller, K. R. & Washington, K. (2008) ‘Chapter 24: Music & Video’, Retail Business Market Research Handbook. pp. 143-147. 5p. Business Source Complete, EBSCOhost. Retail Week. (2012) HMV Launches online marketplace. [Online] Available at: http://www.retail-week.com/sectors/entertainment/hmv-launches-online-marketplace/5041959.article [Accessed: 12 November, 2012]. Schneider,L.(No Date). Amazon.com Company Research. Available at: http://jobsearchtech.about.com/od/companyprofiles/a/Amazon.htm [Accessed: 12 November, 2012]. Seeking Alpha Newsletter. (2012) Amazon can’t beat this Brick and Mortar Retailer. [Online] Available at: http://seekingalpha.com/article/541491-amazon-can-t-beat-this-brick-and-mortar-retailer [Accessed: 12 November, 2012]. VS Pages. (2012) The Differences between Barnes and Noble, Borders and Amazon. [Online] Available at: http://vspages.com/the-differences-between-barnes-and-noble-borders-and-amazon-812/ [Accessed: 12 November, 2012]. Wells, R. (2012) Marketing Communications, Part 1. Class conversation. Hertfordshire Business School. 8th November, 2012.