Amazon: Best in Class Case Study

Ruth Lewin Chen, Hamutal Schieber | July, 2017

Introduction

• The purpose of this presentation is to review some of Amazon’s digital

initiatives, which make the company a leader in e-commerce.

• Amazon innovates frequently, and analyzing each and every initiative is

beyond the scope of this presentation; instead, we will focus on key

elements such as products and services, loyalty, mobile & IOT, curation

platforms and delivery.

• Amazon’s success, in one sentence, stems from the fact that it

reduces stress from each element of the shopping journey. It is true to

its mission of being a “consumer focused company”. Here, we aim to

explore how.

Overview

• Amazon.com is an international e-commerce

company offering products and services for

online purchase.

• According to Slice Intelligence, 43% of all online

retail sales in the US went through Amazon in

2016.

• At the end of 2016, Amazon’s workforce includes

180,000 in the United States from 30,000

employees in 2011.

• The company plans to create an additional

100,000 full-time jobs in the U.S. by mid 2018.

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Amazon’s Mission: Customer Centricity

• Amazon.com opened its virtual doors on the World Wide Web in July 1995 with a specific mission: to be

“Earth’s most customer-centric company”.

• The company is guided by 4 principles: customer obsession rather than competitor focus, passion for

invention, commitment to operational excellence, and long-term thinking.

• “Customer” means: consumers, sellers, developers, enterprises, and content creators.

• Consumers: focus on selection, price, and convenience in selling hundreds of millions of unique products to

be sold by the company, as well as by third parties across dozens of product categories, online and through

mobile.

• Sellers: the company offers programs that enable sellers to grow their businesses, sell their products on

Amazon’s websites and their own branded websites, and fulfill orders through Amazon. The company earns

fixed fees, a percentage of sales, per-unit activity fees, interest, or some combination thereof, for seller

programs.

“There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully,

wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it,

customers want something better, and your desire to delight customers will drive you to invent on their behalf. No

customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it.”

Letter to Shareholders, Jeffrey P. Bezos, Founder and Chief Executive Officer Amazon.com, Inc., 2017

Amazon’s Strategy: Think like a Start-Up

• According to Amazon’s Founder and CEO, Jeff Bezos, large organizations are challenged with making high-quality,

high-velocity decisions. Here are a few keys for doing so:

1. “Never use a one-size-fits-all decision-making process. Many decisions are reversible, two-way doors. Those

decisions can use a light-weight process”.

2. “Most decisions should probably be made with somewhere around 70% of the information you wish you had. If

you wait for 90%, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly

recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than

you think, whereas being slow is going to be expensive for sure.”

3. Use the phrase “disagree and commit.”

4. Recognize true misalignment issues early and escalate them immediately.

“Jeff, what does Day 2 look like?”

That’s a question I just got at our most recent all-hands meeting. I’ve been reminding people that it’s Day 1 for a couple of decades. I

work in an Amazon building named Day 1, and when I moved buildings, I took the name with me. I spend time thinking about this topic.

“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day

1.”

Letter to Shareholders, Jeffrey P. Bezos, Founder and Chief Executive Officer Amazon.com, Inc., 2017

Key Success FactorsFactor Description Innovation

Loyalty and

Pricing

The Prime membership program offers a variety of benefits, from faster delivery to video and

music content. It is key to Amazon’s sustained growth, due to Prime members more frequent

and larger purchases. The Amazon private label further strengthens price-competitiveness.

Subscribe and Save and Amazon Pantry offer discount for bulk or

repeat purchase. Payment cards and point system offer additional

benefits. “Digital Day”, “Prime Day” are special members’ events.

Supporting

decisions

Almost a given today, Amazon.com was a pioneer in customer reviews, and has improved the

personal recommendation and Q&A system

A “personal stylist” app which helps you decide between two outfits; a 7

day trial period for apparel purchases

Fast and

convenient

As quick delivery is often a barrier in e-commerce, Amazon uses various tools (from

algorithms, through warehousing, to couriers), to deliver products within as little as 1 hour (and

mostly, 2 days).

While a patent for drone-based delivery is the center of media attention,

Amazon is rumored to be building its own delivery services. An X-Ray

service lets customers “see” what’s in their closed box through the app.

Platform-

Specific

Understanding that shoppers have different motivations for each category, Amazon expands

lucrative categories (e.g., grocery, outdoor equipment) in the form of micro-sites. It seems that

the company is starting to create mini-businesses with each operating as a separate entity, for

a focused competitive positioning.

Amazon Go, the new Amazon supermarket, and the Whole Foods

Market acquisition, stem from looking at grocery as an independent

platform, creating differentiation and competitive capabilities as would

be expected from an entirely separate business.

Content as a

Service

Beyond products and services, Amazon sees content as a strong benefit for today’s digital

consumer. This pertains to both production of original content for Prime Video members, and

sales of content, such as through Amazon Music Unlimited. Amazon Devices such as Fire TV,

Echo etc., support streaming of content.

Prime Reading is an unlimited reading portfolio for U.S. Prime

members. Audible, acquired by Amazon, ventured the company into the

growing audiobook arena. With Alexa (Amazon Echo’s AI), content is

delivered ever more seamlessly.

Omni-Channel Orders made through Dash Buttons, a physical connected button enabling the online order of

everyday goods (an IoT platform), increased over 5x during 2016. Dash Buttons expanded

beyond the US to Austria, Germany, and the UK.

Amazon Echo (Alexa), the company’s AI platform, allows a seamless

shopping experience, beyond the company’s variety.

The brick and mortar Amazon Go and Amazon Bookshop, which are

digital at core, are a demonstration of anywhere-anyhow shopping.

Curation and

specialty items

The company offers variety that is a mixture between leading supplier products, and small

artisanal manufacturers. In both cases, the company offers some products that cannot be

purchased elsewhere.

Amazon Surprise is an example for how the company acts as a direct-

to-consumer platform for small, artisanal brands, “curated” by Amazon.

It operates through a “Surprise” dash button, to encourage impulse

confectionery purchase.

Source: Schieber Research Analysis, June 2017

Loyalty

• Amazon Prime, Amazon’s

loyalty program launched on

2005, benefits members with

unlimited movies and TV

shows, music, reading,

discounts and more.

• Amazon Prime members spend

more on Amazon and they buy

more frequently; thereby

making the Prime program a

key to Amazon’s sustained

growth. Amazon offers a 30-day Prime free trial.

Loyalty

• Amazon Prime members enjoy a 2-day

shipping for free (sometimes, Same-Day

shipping is offered). This has been the

leading reason for joining Prime, according to

RBC Capital Markets.

• Prime Now service for ultra-fast delivery

offers Prime members 2-hour delivery. It also

features a one-hour delivery from popular

restaurants.

• Deliveries can be made using the Prime

Now app or with www.primenow.com.

• The company sees fast delivery as a strong

driver for e-commerce growth, and recently

obtained a patent for shipping packages

through drones.

Loyalty

• In October 2016, Amazon

launched Prime Reading, an

unlimited reading portfolio for U.S.

Prime members.

• It also launched the Prime Photos

service in the U.S., an unlimited

storage of photos, plus an

additional 5 GB for videos and

other files.

• And, in 2017, Amazon began

offering Prime members an “outfit

compare” feature which lets

customers upload two photos of

themselves wearing two different

outfits, then receive a verdict from

an Amazon stylist, telling them

which one looks better.

Supporting Decisions

• Amazon was the first to offer personalized recommendations, wish-lists, and reviews. Today, the company offers an

industry-specific review system.

• In August 2016, Amazon launched

Amazon Vehicles, a car research

destination and automotive

community. Amazon Vehicles

contains information required when

shopping for vehicles, parts and

accessories. The information

includes specifications, images,

videos, and customer reviews.

• It is important to note that although

Amazon isn’t selling any cars yet, but

it seems that it is moving closer to

doing so. For example, Amazon

partnered with Hyundai to let potential

customers order up test drives

through Amazon’s website.

Guiding Choice

• Amazon is guiding customers’ purchase decision through

different tools: providing customers reviews, using filters

(varying according to the product category) and buying guides.

• In 2016 Amazon started focusing on banning “incentivized”

reviews from its website.

• The ban was meant to address the growing problem of less

trustworthy reviews that had been plaguing the retailer’s site,

leading to products with higher ratings than they would

otherwise deserve.

• Incentivized reviews are those where the vendor offers free or

discounted products to reviewers, in exchange for

recipients writing their “honest opinion” of the item in

an Amazon review.

• Data has shown that these reviewers tend to write more

positive reviews overall.

Guiding Choice

Buying Guides

Amazon’s website is featuring buying guides for different product categories such as laptops, mattresses,

TVs, backpacks and more. The guides include video.

Personalization

A tab on the website offers

personalized information such

as recommendations,

browsing history and editing

your personal profile on

Amazon.

Convenience

The mobile app allows to search for products through text, voice or the device’s camera, shopping and reading reviews.

Convenience

• In 2016, Amazon launched a feature on its mobile app in order to know what’s

inside a package before opening it.

• In order to use it, customers should peel off the top layer of the sticker, launch the

Amazon mobile app on their phones and select “scan it” feature.

• Pointing the smartphone’s camera at the code will load a page containing detailed

information about the product.

• The feature is particularly useful to for holiday shopping, when customers order

multiple items and would like to decide whether to open the packages or not.

Special Offers

“Today’s Deals” is a tab offering deals that can be sorted according to different parameters such

as: department (video, baby etc.); deal type; price; discount; and customers reviews.

Categories of Operation

Source: Slice Intelligence

• Slice Intelligence research demonstrates that the

company’s growth in 2016 has been driven by

electronics, home & kitchen, and apparel.

• Food represented 11% of the company’s growth, and

recent M&As indicate that the company believes

there is more potential to cultivate in the field.

• In June 2017, Amazon announced its acquisition

of organic food chain Whole Foods Market for

$13.7bn.

Platform-Specific: Grocery

• In 2007, Amazon Launched AmazonFresh, a grocery

shopping service.

• Amazon Fresh include different product categories such as

fresh fruit; dairy & eggs; prepared foods; household supplies

and more.

• The products can be sorted by sub-categories and special

dietary needs such as gluten-free.

• In 2017, the retailer launched AmazonFresh Pickup, a

service through which customers can order from

AmazonFresh and then reserve a pick-up time — in some

cases, as early as 15 minutes after ordering — and drive to

their selected location. There, shoppers can either park in a

dedicated space and have groceries delivered and loaded

into their car by an Amazon employee; or pick up orders in a

dedicated reception room.

Platform-Specific: Grocery

• At the end of 2016, Amazon launched “Amazon Go”,

described as “a new kind of store with no checkout

required.”

• In order to shop in an Amazon Go store, shoppers

should download the Amazon Go app. Customers use

the Go app to enter the store, and once inside, a

combination of sensors, computer vision and deep

learning keep track of what’s taken off and returned to

shelves inside a virtual cart. Once finished, the

shopper just walks out and the company charges their

Amazon account, along with a receipt.

• In May 2017, Amazon received the approval of the UK

Intellectual Property Office to trademark the slogans

“No Lines. No Checkout. (No, Seriously.)”, reflecting

Amazon’s intention to launch Amazon Go in the

country.

Platform-Specific: Beauty

• Amazon’s Luxury Beauty section on its website is growing. While in October 2013 only 24 brands were present on

the platform, in January 2017 202 brands were present.

• In order to attract more luxury beauty brands, Amazon features editor’s picks and new arrivals sections.

• Amazon is offering features similar to beauty-specific e-commerce sites like Sephora, Ulta, and Space NK.

• According to One Click Retail, as of March 2017, the US beauty market experienced a 2% YoY growth, whereas

Amazon’s beauty sales experienced a 47% YoY.

Bringing E-Commerce to Services

Amazon has entered the services industry, offering home and office services.

Omni-Channel and IoT

• Launched in March 2015, Dash Button is Amazon's 1-Click ordering brought into the home. In October 2016, Amazon reported an

exponential growth for the Amazon Dash program. Dash button orders increased over 5x in 2016. According to the company, the

Dash Buttons programs expanded beyond the US to Austria, Germany, and the UK.

• In January 2017, Amazon launched a digital version of its Dash buttons. The virtual Dash buttons on the Amazon.com homepage

allow shoppers to click on the icon in order to stock up on essentials like laundry detergent, paper towels, or snacks. Prime members

can choose the “Add to your Dash buttons” option for many products.

•

Alexa

• Alexa is Amazons’ voice control system.Using unique streaming audio

players, Alexa can respond to voice commands from almost anywhere

within earshot. Saying “Alexa”, followed by what you want to happen, and it

will be done—as long as you’ve set up everything properly and are using

the correct command.

• Alexa enabled devices include Amazon Echo, Echo Dot and Amazon Tap.

• Recently, the company launched a service enabling Alexa to Alexa calls and

voice messages – including through the Alexa app. In June 2017, Amazon

released the Echo Show device, a Wi-Fi-enabled home device with a

seven-inch screen that plays media and responds to voice commands.

Echo Show enables making and taking video calls, with other humans and

it can be used to watch Amazon videos, YouTube, movie trailers and other

video content.

Alexa

• In January 2017, Amazon

launched a food delivery

service for Prime members.

• Meals can be voice-ordered

through Amazon

Restaurants through Alexa-

enabled devices including

the Amazon Echo and Echo

Dot.

• To place an order, customers

should say: “Alexa, order

from Amazon Restaurants”.

• The meal will be delivered to

their door for free in an hour

or less.

Content as a Service

• In 2016, Amazon launched Amazon Music

Unlimited, a service which provided access to a

library of “over 40 million” songs, priced at $ 79 a

year.

• In April 2017, Amazon launched “Subscribe with

Amazon”, a service which allows customers to pay

for subscriptions to third-party services and content

through their Amazon account.

• Shoppers can search subscriptions by categories

including education; lifestyle; news, magazines &

more; and productivity & software.

Curation and Small Businesses

• In January 2017, Amazon launched Prime Surprise Sweets, a service

of a "top-notch artisanal treats from across the nation“ supply ordered

through a Surprise “Dash” button.

• Amazon has a list of some example boxes on the site.

• Each box also comes with a note card that describes "every decadent

detail" of the confectionery making process, emphasizing that the order

also supported a small business.

• This conduct positions Amazon as a patron of small businesses, and

as a “curator” of artisan goods.

Curation: Promoting Innovation

• Amazon Launchpad offers products made by

startups, positioned as “unique and unexpected

products”.

• On July 2016, Amazon Launchpad launched

the creation of a Kickstarter Collection,

featuring Kickstarter products available for

purchase on Amazon.com.

Payments

• Amazon uses payment collaborations to add more value to customers in the US market, where cash-back is a

prominent loyalty and retention strategy. For example, Amazon and Chase Bank introduced in January 2017 a

Prime Rewards Visa Card With 3% Back on all Amazon.com purchases. Shop with Points Program benefits

credit cards’ holders with points that can be redeemed for Amazon.com purchases

• Gift cards are another payment method, and customers can reload their balance with a credit, debit, or pre-

paid card, or set up Auto-Reload which allows them to add gift card funds automatically to Amazon.com Gift

Card Balance on a schedule or when the balance drops below a certain amount.

Summary

• Amazon’s success stems from the fact that it reduces stress from each element of the

shopping journey. It is true to its mission of being a “consumer focused company”.

Consumer Focus

Fast and convenient

Platform-Specific

Content as a Service

Omni-Channel

Curation and

specialty items

Supporting decisions

Thank You!

The research was conducted by: Ruth Lewin Chen, Hamutal Schieber

Schieber Research | Market Research & Competitive Intelligence

www.researchci.com | hamutal@researchci.com

More articles and researches on Carmelon Digital

Marketing website:

http://www.carmelon-digital.com