5.3 About Amazon.com

 

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The E-Business, the E-Customer, their Relationship and Interactivity

 

 

KunnskapskildenE-Business –
E-Business, E-Customer, Relationship and Interactivity

 

Dissertation
The E-Business, the E-Customer,
their Relationship and Interactivity 

Jan Vig 

Dissertation  av Jan Vig om E.Business, E-Customer, Relationship and Interactivity  (286 sider) i forbindelse med Masterstudie i Information Technology and Communication Juni 2000.

 

The E-Retailer Business, the E-Customer,
their Relationship and Interactivity

Table of Contents

Chapter One Introduction to the study

Chapter Two Business in Cyberspace

Chapter Three E- Retailer Commerce

Chapter Four E-Customer, Relationship and Interactivity

Chapter Five A Successful Case study – Amazon.com

Chapter Six The Future, Critical Success Factors, E-Business Strategy, Results and Conclusion

Appendix

 

Chapter 5

A Successful Case Study Amazon,com 

 

 

Chapter Five A Successful Case study – Amazon.com

5.1 Introduction
5.2 Amazon’s position
5.3 About Amazon.com
5.4 The Secrets of Amazon.com
5.5 Summary

 

 

5.3

About Amazon.com 

 

Amazon.com has grown to $ 1.6 billion business with customers in more than 150 countries, attracting them with a choice of more than 2.6 million titles, discounts of up to 40 percent, and search tools and book reviews that Amazon.com hopes make buying products that much easier. Amazon.com is not a traditional retailer. It has no physical stores, so it does not support the cost of the space and the labor to staff the stores. Moreover, because it is not constrained by physical space, Amazon.com offers a selection of products much greater than any single traditional retailer. Amazon.com tries to find its customers any product a customer might request within its product range

At the same time, Amazon.com shares typical retailers’ goals of attracting and keeping customers. Amazon.com spends heavily on advertising and marketing to build its brand name. It draws visitors to the store through advertising, both on the web and off. But getting someone into the store is only part of the battle. Amazon.com believes that making the shopping experience as intuitive and enjoyable as possible is what turns the visitor into a customer. Amazon.com’s sophisticated online search tools let the visitor quickly navigate the vast selection of products they also let visitors take their time to browse through different areas. Brief descriptions of for instance books and book reviews give additional information a potential buyer might need to make a purchase. These tools, combined with a very simple and quick check out process, help convert shoppers into buyers. Customers appear to be satisfied with the experience: 76 percent of Amazon.com’s orders come from repeat customers. Because a customer does not walk into the store, pick up the product and carry it home, Amazon.com has more work to do once the sale is made to get the products to the customer’s home or office.

 

Even for a pure onliner like Amazon.com, distribution costs are huge. When Bezos founded Amazon.com in 1994, he planned to rely heavily on Ingram Books, the largest book wholesaler in the U.S. The concept: Ingram would keep his inventory and the costs that go with keeping inventory.  Amazon.com’s rival, Barnes & Noble later bought Ingram. As the company has grown larger, its strategy for order fulfillment is changing. Rather than pay the additional markups that the wholesalers charge Amazon.com today is increasingly trying to buy directly from publishers.

 

Amazon.com offers along with online auctions and free electronic greeting cards a lot of other things. Amazon.com lists more than 18 million unique items in categories including books, CDs, toys, electronics, videos, DVDs, home improvement products, software, and video games. Through Amazon.com zShops, any business or individual can sell virtually anything to Amazon.com’s more than 20 million customers, and with Amazon.com Payments, any seller can accept credit card transactions, avoiding the hassles of offline payments. The company also participates in sothebys.Amazon.com, the leading auction site for guaranteed art, jewelry, and collectibles.
Amazon.com seeks to be the world’s most customer-centric company, where customers can find and discover anything they may want to buy online. Amazon.com’s All Product Search scours the Web to help customers find merchandise that is not available at Amazon.com, Amazon.com Auctions, or Amazon.com zShops, making Amazon.com the shopping destination to find anything. Amazon.com Anywhere is the leader in mobile e-commerce, providing access from anywhere in the world to Amazon.com through handheld wireless Internet devices using the Wireless Application Protocol, at http://www.Amazon.com/phone/ and on personal digital assistants (PDAs).
Amazon.com operates two international Web sites:www.Amazon.com.co.uk and http://www.Amazon.com.de. It also operates the Internet Movie Database http://www.imdb.com .

 

Amazon.com has invested in leading Internet retailers that are improving the lives of customers by making shopping easier and more convenient.
Greenlight.com, the only company that offers car buyers the control of auto purchasing online with ongoing service and support from local dealerships. Living.com  the leading online home products and services retailer. Drugstore.com, an online retail and information source for health, beauty, wellness, personal care and pharmacy.  Pets.com the online leader for pet products, expert information, and services. HomeGrocer.com the first fully integrated Internet grocery-shopping and home-delivery service. Gear.com, which offers brand-name sporting goods at prices from 20 to 90 percent off retail. Ashford.com, the leading Internet retailer of luxury and premium products and the Web’s No. 1 retailer of watches and jewelry. Della.com, which brings together leading retailers with gift registry, expert advice, and personalised gift suggestions to help everyone give better gifts.  NextCard, Inc., considered the industry’s leading issuer of consumer credit on the Internet. Audible, Inc., the leader in Internet-delivered spoken audio for PC-based listening or playback on AudibleReady(TM) portable digital audio devices.

 

Amazon.com has also set the standard not just for the Internet, but for the brick-and-mortar world as well. Customers expect responses in two or three minutes, not two or three days. They expect virtually limitless selections, available now, this minute. And e-mail that is not answered within 24 hours is considered quite slow, not because consumers’ needs are necessarily more pressing than they once were, but because consumers have received nearly instantaneous responses

A lot of risks and uncertainties for the future are mentioned below:

  • com’s limited operating history.
  • Anticipated losses.
  • Unpredictability of future revenues.
  • Potential fluctuations in quarterly operating result.
  • Consumer trends.
  • Risk of distribution center expansion.
  • Risks related to performance.
  • Risks of system interruption.
  • Management of potential growth.
  • Risks related to auction and zShops services.
  • Risks related to fraud and Amazon.com Payments.
  • Risks of new business areas.
  • International expansion.
  • Business combinations.
  • Strategic alliances.

 

 

As mentioned above Amazon.com seeks to be the world’s most customer-centric company.   Jeff Bezos, President of online book seller Amazon.com, said: (Sterne, 1996)

 

“If E-Customer have an unhappy customer on the Internet, he doesn’t tell his six friends, he tells his 6,000 friends.”

 

A true test of a company’s confidence in its products is its willingness to link to relevant newsgroups. This is culturally difficult, if not impossible, for companies used to treating customers as passive information sinks. However, customers do talk about products, and the Internet makes this easier than ever. It is becoming difficult for companies to rely on restricted information flows amongst consumers to push second rate products into the market. On the Internet, it is becoming impossible. Companies should be ready to cope with this reality as Amazon.com is doing.

 

One case for instance that was discussed very much in newsgroups and other places at the Internet was the Amazon.com patent for One-Click ordering, and for Affiliate programs. Amazon.com was claiming it cost them $1,000,000 to create their one-click program.
One-click ordering is a function that allows a buyer to click a single button on a web

page to order a product. When the buyer clicks, software retrieves the customer’s saved information, credit-card data, billing and shipping addresses etc..

 

Affiliate programs create a special link to a company that has an affiliate program, and the company can earn commissions when visitors to the one site travel through the link and make a purchase at the destination web site.

 

In an open letter from Bezos (2000) on the subject of patents Bezos writes in the final paragraph after being criticised in a lot of newsgroups and other places:

 

«On an important meta-level, one thing to note is that this episode is a fascinating example of the New World, where companies can have conversations with their customers, and customers can have conversations with their companies. I’ve been saying for 4 years now that, online, the balance of power shifts away from the merchant and toward the customer. This is a good thing. If E-Customer haven’t already, read the cluetrain manifesto. If E-Customer want the book, well… E-Customer can get it at several places online…»
This shows how strong the position of conversation and discussions on Internet are and will be in the future.

 

Amazon.com might be the most popular example of one to one marketing online. But probably they are far from doing one to one. By tracking the customers buying history, Amazon.com uses this data to recommend other books they probably like. However, the assumptions are far too general. May be the customer bought a given book simply for its information on one narrow topic. The resulting recommendations from Amazon.com are then useless.
Buy a book at online retailer Amazon.com, and the next time the customer visit, the opening screen will welcome the customer back by name. Amazon.com knows the customer reading taste and suggests new books that meet the tastes by using recommendation software that analyses the previous purchases, plus any ratings the customer have made on other books. For example, Amazon.com «remembers» who the customer is and does not require re-entry of order data, making repeat purchases easy. This type of service also creates a switching barrier, as it is easier to continue purchasing from a known vendor rather than re-entering the data at a new site.
Amazon.com is using a cookie which is a unique number stored by the customers browser in their computer, and the browser returns to the site that set it when requested to do so by the site. The site leverages its unique knowledge of what other people with similar interests to a customer are reading into a service that can be very useful and certainly encourages buyers to spend more on the site. This might all sound threatening, but in most cases the Web site is collecting information so it can deliver a more targeted message. The aim is to get the customer to click on the ad or buy that extra book or just spend a little longer on the site.

The site does this by knowing about the customer’s interests without asking a lot of questions.

There is no doubt that if the customers do want to keep their activities hidden they should avoid cookies and certainly never provide details to any Web site.

 

The 1-Click feature is one of Amazon.com’s signature strategies for differentiating itself from the competition and building loyalty among its customers. This method allows customers to order, pay for, and arrange for delivery of any item Amazon.com sells, all with a single click of the mouse. The 1-Click method is popular with customers because it gives them a faster, more convenient, more efficient, and more pleasant shopping experience. The uniqueness and consistency of the experience a consumer encounters using the Amazon.com site is crucial to Amazon.com’s ability to successfully expand its business. The 1-Click process is a significant element in attracting customers to the Amazon.com web site.

 

The process is as follows:

  • Go to http://Amazon.com.
  • To turn on 1-Click ordering, log in to E-Customer account and go to E-Customer Account Maintenance page. If E-Customer already have 1-Click ordering turned on «1-Click Settings.
  • Click on «Change E-Customer 1-Click Settings» link.
  • If E-Customer haven’t registered, and want to find out about it, click «1-Click Settings» link at the bottom of the page.
  • Click «Click here» link for more information.
  • If the E-Customer hasn’t registered, register. Click «E-Customer Account» link at the top of the page, then follow the instructions until E-Customer get to the Account Maintenance page.
  • Click on «1-Click Settings» to turn on the feature.
  • Browse the online catalog until E-Customer find a product to buy, then click the «1-Click Ordering» button.

 

 

This is an example of how an easy one-click buying process can build customer loyalty.

Note that both steps happen without imposing any extra work on the users. Also, the fact that somebody buys a book is a pretty strong signal that they have an interest in the product much more reliable data than most preference settings one can collect from users.

Amazon.com also uses the similarity data to include hypertext links between related products. Thus, when E-Customer are browsing the page for one product, the customer will see links to three other products he/she likely wants. This use of the data is much better than the personal recommendation list because the hypertext links are embedded in the context of the user’s natural behavior. When the user goes to a product page, that user will be shown recommendations that match his or her specific interest in that moment as opposed to being derived from a generic model of the user’s average interests.

 

Amazon.com was the pioneer concerning affiliate program. It has benefited greatly by having more than 100,000 affiliate sites post its advertising messages. That’s a lot of advertising space. The idea obviously makes sense for Amazon.com and others. It get risk free ads. If the affiliate brings business, they both benefit. If the affiliate doesn’t bring business, then the advertiser hasn’t wasted any money. Amazon.com allows anyone to set up a specialty bookstore. When people buy books from the specialty store, the person who owns the specialty bookstore gets a commission (up to 15% of the book’s list price) from Amazon.com. The affiliate program gives Amazon.com great exposure because hundreds of thousands of specialty bookstores popped up all over the web. Therefore this model is now copied by thousands of e-commerce sites. For Amazon.com, this could be a very attractive source of additional revenue.

 

Amazon.com has a capability called a ‘Purchase Circle’. The feature tells the customer what books, music, and videos its customers, organised by employer, university, professional organization, or geography are buying. Amazon.com mines shipping address, email, and purchase data to create the circles, so if the customer order a book while on the job, Amazon.com can determine where the customer work and then add his/her selection to the list of books bought by others in the same company. What Amazon.com is doing is not new, it and other online companies have long offered suggestions based on recommendations by people with similar tastes, often based on sophisticated, collaborative-filtering software.

Instead of having its database compare the customer blindly to other buyers (called «collaborative filtering»), the purchasing circle lets the E-Customer choose whom to affiliate with and see what people the customer say are like him/her are buying.

Amazon.com has also unified its searches so that instead of looking for books, movies, or videos, the customer enter something in the search box, and it brings up everything they have.

The point is that Amazon.com knows its main asset is its database. Amazon.com is working hard to tweak and add to the capability so it can learn even more about its customers and, hence, serve them better.

Despite the privacy-issue Amazon.com is doing a lot right to guard the privacy of its customers. For instance, the company is well aware that a purchase circle would be inappropriate for a company with only a few employees, it would reveal buying habits too close to the individual level. So Amazon.com has adopted a type of «safety-in-numbers» policy where it will only create purchase circles for groups that consist of at least 200 customers.

 

It’s this sophisticated databasing capability that really separates the Internet successfully from the less successfully.

 

Amazon.com offers also customers what it is calling a «guarantee» against fraud by sellers.

Essentially, Amazon.com assures its customers that they will have a 100 percent safe shopping experience. It also gives the customer an integrated way to order via phone if they don’t feel comfortable ordering online.  Since security is one of the top reasons for not shopping online, giving the customers a no-risk feeling about online ordering could yield Amazon a significant increase in online sales. In a recent Business Week article, Jeff Bezos, CEO of Amazon.com explains:
We’re also doing something bold with Auctions–we’re guaranteeing buyers a safe auction experience, and we’re doing it on the honor system. Essentially, we’ll take E-Customer word for it if E-Customer ever the victim of fraud. There are some restrictions; for example, the guarantee doesn’t apply to purchases above $250 (the vast majority of items sell for significantly less than that). The guarantee is described in full on the Web site. (Allen, 1999)

 

Essentially, Amazon.com assures its customers that they will have a 100 percent safe shopping experience. It also gives the customer an integrated way to order via phone if they don’t feel comfortable ordering online.  Since security is one of the top reasons for not shopping online, giving E-Customer a no-risk feeling about online ordering could yield E-Customer a significant increase in online sales.

 

One of the upcoming mobile Web services is the ability to buy from Amazon.com over a PCS telephone: an ideal service since books can be fully specified by an ISBN number which would be easy to enter on a telephone keypad. If this service takes off, it will kill many independent bookstores: E-Customer are out shopping and see a book E-Customer like. Instead of waiting in line to buy it and then having to lug the heavy package around the mall during the rest of E-Customer shopping expedition, E-Customer whip out E-Customer phone, type in the ISBN, and have the book delivered at a 30% discount.

 

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