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Amazing Amazon: The Largest Online Mall

Amazon was one of the very few companies that showed a profit in their quarterly financial statements during the recession. How come an ecommerce website, selling books to begin with and other products later on, could create such a big success story in just a few years, what a typical brick and mortar store would take several years?
 
The Beginning

The company was founded in 1994 as Amazon.com by Jeff Bezos. The big moment, however, was in 1995 when the company went online - the initial objective being to be an online bookstore. Though, later on, Amazon diversified into other products like movie videos, music CDs, toys, electronics and a lot of other products that could be sold online and shipped to locations within two days anywhere in the U.S. One of the major factors for Amazon.com’s success was its six core values: customer obsession, ownership, bias for action, frugality, a high hiring bar and innovation.

The Battle of Bookstores - Amazon v/s Barnes and Noble

The biggest competitor for Amazon was Barnes and Noble (B&N). B&N had 11% of book sales when Amazon was launched. B&N did not have an online presence, which it has today, but had all other systems in place – superstores, mall-based stores and mail ordering. With centralized logistics and distribution centers, B&N procured books directly from publishers, which gave them the luxury of giving higher discounts to patrons. The biggest advantage B&N had during that time was that the books were shipped within a few days - avoiding delivery delays from publishers. The introduction of electronic store systems in B&N allowed exchange of information in real time between its stores and distribution centers.

The problem with the way B&N worked was that selection of titles was physically limited and they invested in inventory, real estate and qualified personnel for each retail location - making costs high and a customized store for every customer was not possible. Amazon, taking advantage of its online store, avoided all these drawbacks.

B&N used a centralized stock strategy while Amazon used a just-in-time procurement. Amazon’s biggest advantage was working on a negative operating cycle – vendors were not paid for up to 44 days of sale. While Amazon offered 1MM books in its database, it only had 1000 books in its warehouse. Amazon did not source its books from wholesalers, but from publishers who could ship the books within a few days, since that was the advantage B&N had over Amazon during that time. Amazon made shopping an easy and convenient experience for users, making it today’s online e-commerce 'giant'.

Amazon’s Investment in Technology

Jeff Bezos clearly understood that maintaining customer loyalty is the key to becoming successful. The three vital points that was part of this strategy was to listen, invent and personalize.

Now, let’s just analyze what he was thinking. What will satisfy a customer online – user-navigation ease, search capabilities, and speed to retrieve information and deliver the product, all of which can be easily achieved through technology. With the diversification of Amazon to be an online business service provider, Amazon made online communities and customer feedbacks that provided recommendations and personalization. The personalization efforts being clearly indicated by the CEO stating, “If we have seventeen million customers, we should have seventeen million stores.” So, it was not an option, but a requisite that Amazon invested in technology.

Amazon used diverse technologies to ensure customer satisfaction and retention. Some of the technologies used include:

• Forecasting and Optimizing solutions
• Net Perceptions
• Supply Chain Optimization
• Purchase Circles
• All Product Search

Globalization and Free Shipping

Since 1998, Amazon has been going global - with web dependencies such as amazon.co.uk and amazon.de, which were acquired from the local markets, venturing into new market segments. The fascinating aspect of this was that Amazon became the market leader in the new segments in the same year. With more than 17 million customers in over 150 countries and growing, Amazon moved to other countries. In 2005, Amazon launched a Japanese, Canadian and French web site.

Till 2000, Amazon concentrated on setting up huge warehouses in Nevada, Kansas and other locations. It employed the US Postal Service (UPS) to distribute most of its smaller items. This strategy of setting up warehouses in non-urban areas was to keep costs down and to decrease the delivery time. The logistics was further enhanced by using automated fulfillment centers and customer service centers – enabling quick responses and package delivery. If Amazon did not have the inventory for any order, it was given to Amazon’s suppliers.  Amazon also had outsourcing and distributors all over the country to “deliver the goods” within hours. Amazon bought a stake in HomeGrocer.com Inc., a Washington based company that offered next day home delivery of groceries ordered via the Internet. Amazon also pioneered the free shipping concept. It offered free shipping on orders of $99 or more during the 1999 holiday season. With a huge response, the company extended the free shipping offer from January 2000 onwards. The offer was later available for sales more than $25 and continues to be there till today. 

Innovative Initiatives

In 1995 when Amazon became online, the first thing Jeff Bezos ensured was that the web pages loaded quickly and customers were allowed to post their own reviews on the books.

In 1997, after Amazon went public, Bezos set the stage for diversifying into other e-commerce opportunities.
 
In 1998, Amazon achieved this by offering music, videos and gifts – tripling the number of customers and increasing revenues by 313%.

The late 1998 and most of 1999 was a bad time for Amazon as they posted huge losses – they posted almost six times the loss in 1999 as against 1998.  So, in late 1999, Amazon introduced the “Wish List”– a simple idea, the customers had to create an online  wish list – a list of desired products so that others could decide what they should gift to others.

The Amazon website offered standard functionalities such as customer accounts, multiple shipping and invoice addresses, diverse payment options, auto-login features and product preferences.

Users could use shopping carts to merge and split orders that were not yet shipped. The previous orders were collected using an order history. The availability status of stock was displayed online for each product at all times. Items that were not released could be preordered and automatically shipped on arrival - Amazon put “each customer at the centre of his/her own universe”.

To improve customer satisfaction, Amazon did three major things in 1999. Firstly, they wanted to increase the revenue per customer – which was illustrated by releasing product lines once in every six weeks. Secondly, Amazon used the Customer Fulfillment Networking strategy - source directly from publishers than from wholesalers. After that Amazon used the cross-docking method by using the forecasting and optimization solutions from i2 Technologies - reducing costs per sale, build loyalty by investing in technology solutions like Net Perceptions, Supply Chain Optimization, Purchase Circles and all product search and integrating them into dynamic commerce. Thirdly and most importantly, Amazon provided navigation ease and excellent purchase experience for customers not only online, but also backed that by delivering goods either on the same day or the next business day. With a commitment to fulfilling customer requirements, Amazon created effective b-web relations with distributors and suppliers along with Inventory Management.

In 2003, Amazon’s profit came from international operations with changes in accounting. Jeff said, “Our pricing strategy does not attempt to maximize margin percentages, but instead seeks to drive maximum value for customers and thereby create a much larger bottom line in the long term.” Amazon made a lot of lucrative partnerships with Target, Toys ‘R' Us, Circuit City and Drugstore.com, which generated $5.2 Billion in sales during the same year.

In 2009 Amazon was one of the very few companies that had quarterly profits even during the recession. The success factors - convenience to customers, wide selection of products, service and price. Since its online inception in 1995, Amazon has been consistently providing competitive prices to its customers.

Today, Amazon is the biggest online e-commerce website, with Jeff Bezos being firm with his long-term approach rather than short-term gain to offer customers the lowest prices on products and assuring quality services to customers.

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