Amazon.com: Expanding Beyond Books case study plus extra questions

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Problems in Management

March 12, 2003

Amazon.com: Expanding Beyond Books

1. Analyze the company's history, development, and growth.

§Amazon.com founded in 1994 in Seattle by Jeff Bezos

§Virtual store front on the internet -No physical store

§As of now, 2 warehouses and 1600 employees

§$30 million cumulative customers

§1996 -$340,000 in the first half spend on advertising and marketing

§End of 1997, Amazon had found its millionth customer

§In 1998 Amazon.com added music

§In July 1998 profits at the 400% level

§In 1998- $26.5 million on marketing -equivalent to 23% of sales.

§Sales in 1998 were $587.6 million with operating margin of 10%

§In February 1999, stock at the 1000% profit level

§More than 3.1 million titles in 2000

§In 2000, stock dropped 80%

§On January 28, 2000, Amazon.com cut 150 employees

§Services unit contributed $225 million in revenue during 2001

2. Identify the company's internal strengths and weaknesses.

Strengths

§Leader in e-commerce

§Strong in-house internet technology

§Excellent offline customer service

§A huge database of loyal customers - base of over 12 million shoppers

§Wide variety of products and services

§Distribution facilities to handle growth and fulfillment

§Building international presence in markets outside of the USA

§Has moved away from being a low price supplier of books toward a focus of delivering outstanding service and price.

§One-click purchase patent

§Low inventory and overhead cost (inventory turnover 26 times)

§Current alliances with ToysRUs [http://www.toysrus.com/], Circuit City, Yahoo!

§Well established web brand

§Leader in use of technology to deliver targeted content

§Low price

§Consumer notification of shipping

§Database- five times bigger

Weaknesses

§High advertisement cost

§High delivery cost

§Low bargaining power on suppliers

§Internet only

§Amazon.com brand has been diluted by entering a wide number of product segments, increasing competition.

§Need to restructure business to drive toward profitability has meant upward pressure on prices.

§No offline brand presence

§Now competes as a mass merchant, allowing specialty stores to identify with particular segments such as Barnes and Noble-books, eToys-toys and Home Depot-tools.

§Customers need to return products through third party delivery service, even for ToysRUs merchandise.

§No telephone support

3. Analyze the external environment.

Opportunities

§Future growth in internet

§1st with books online

§Increase in usage of e-commerce

§Establish 24x7 hour telephone support for customers and other processing

§Fast adaptation of technical innovations

§Decreasing advertising cost

§Building community events around the brand would help create brand affinity as well as loyalty.

§Further offline partnerships can potentially help Amazon by allowing customers to return products to offline stores.

§Opportunity to establish itself as a global mass merchant leader in the online shipping arena.

§Product expansion

§Frequent shopper discounts will increase retention and repeat purchases

Threats

§Strong traditional competitors

§Traditional companies going online

§Increasing Internet Technology employee salaries

§Technological innovation

§Trade limitations

§Unpredictable future e-commerce

§Success in mass merchandising typically requires low prices

§Diversification of product assortment may result in diluting the brand identity, leaving shoppers unsure of what Amazon.com stands for.

§Amazon's lack of in-depth community leaves it exposed to customer being attached to competitors with more in-depth content.

§Barnes and Noble may establish itself as the world's dominant book E-retailer with its ability to provide better service and a physical presence.

4. The SWOT analysis.

In Amazon's 1998 operating and promotion budgets, company...
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