The Wheel of Retailing and Amazon: An Analysis

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1) Carry out an analysis of where Amazon.co.uk is on the wheel of retailing. Give reasons for your answer. (50%)

The concept of the wheel of retailing was originally created by McNair (1958) and latter modified by Hollander (1960), the concept attempted to show the life cycle of a retail establishment over time. The analysis of retailing, the selling of products directly to customers for personal use (Brassington and Pettitt, 2000), is extremely important, as in the U.K this sector employs 10.5% of the workforce and represents 36% of consumer spending (Management of Marketing, course handout, 12th Jan 2004). The emphasis of the original theory was that entrants to a new retail market would begin trading as cut- price, low overhead, low margin and low status operators. Then over time, through a process of trading up, theses traders will increase their overheads by offering additional services and product lines, perhaps in better locations, smarter premises and with more sophisticated marketing communications. Eventually, they mature as higher-cost, high price merchants, vulnerable to newer types, who in turn go through the same pattern (definition adapted from Blackwell Dictionary of Marketing, 1997). Some of the reasons that cause this movement are misguidance, e.g. being coaxed by suppliers into unnecessary modernisation, changing retail personalities, e.g. original innovators being replaced by less cost conscious successors, and the presence of imperfect competition, i.e. retailers avoid direct price competition and chose to compete on services instead (Marketing Management, 1996). An often-used example of the wheel pattern is department stores, they originally appeared as strong competitors to the small retailers but now face increasing competition from cash and carrys and supermarkets. An example of how the retail life cycle works in the real world is the online book and CD retailer Amazon.co.uk. In terms of the wheel of retailing, in my opinion, Amazon.com shows characteristics of both the entry phase and the trading up phase, with an emphasis on characteristics normally attributed to traditional retailers in the trading up stage. The reasons that have helped to cause this are discussed below.

Although Amazon.com has started to offer a wider range of products and services, discussed in more detail later, the firm still competes heavily on price. When Amazon.com was founded in 1995, the firm had to focus on the typical attributes of an E-tailing firm, i.e. low prices and minimal customer service, in order to attract customers from traditional high street book sellers such as Barnes and Noble. And even in the present day, when Amazon.co.uk ranks as one of the most famous Internet sites, the firm still clearly displays many of these values (E-shock, 2000). There are a number of examples of price competition that include ''a new permanent price strategy of 30% off 100,000 titles priced at £10 or more'', as a result of this Amazon will be permanently price promoting about a quarter of titles sold in Britain (Bookseller, 1/30/2004). Further examples can be seem from simply clicking on to the home page, where offers of free delivery on orders of certain value and 2 for 1 offers can clearly be seen. As well as price competition, other attributes of an innovative firm can again clearly be seen, e.g. the use of automated emails for customers service purposes and a lack of telephone help lines. All of these factors stated above may lead you to think that Amazon.com is still in the entry phase of the wheel, however, the organisation also displays a great number of characteristics of the trading up phase.

Amazon.co.uk displays many, but not all, of the characteristics of a firm trading up and entering the traditional retailer stage. A good example of this is how Amazon has changed from selling simply CDs and books to offering a whole variety of services. All consumers with internet access can now purchase a massive range...
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