January 30, 2009
Amazon Takes a Pass on the Recession
It’s hard
for any retailer to say they haven’t in some way been hurt by the recession.
But, if you were looking for a merchant that has made navigating
the recession look easy, than you wouldn’t have to go any further than
Amazon.com.
The retailer,
which continues to promote itself as the place to buy just about anything,
with free shipping to boot, saw sales in the fourth quarter climb 18 percent
while profits were up nine percent. The strong results took Wall Street
by surprise and Amazon’s stock shot up 14 percent in after-hours trading.
Tom Szkutak, chief financial officer at Amazon, told The Wall
Street Journal that the retailer’s discounting pulled its profit
margins down but "one of the reasons
that you see the growth that you do is because of the value we are providing."
Today,
Amazon is in numerous categories, including books, consumer electronics,
digital downloads, groceries and more.
While
Amazon has had little trouble dealing with the recession, many others have
not made it. The question for many is whether massive store and website
closings will ultimately benefit the mammoth e-tailer.
Jeff Bezos, Amazon’s founder, recently told analysts, "It
is difficult to say what if any short term impact you might see from that
(retail failures). In the long term, fortunately the markets that we operate
in are very large markets and there is room for lots of winners."
Discussion Questions:
What is Amazon’s competitive advantage and is it sustainable?
BrainTrust
Recent Discussions
Discussion Questions
Poll
For the small town shopper, Amazon offers a New York City sized assortment. For the big city shopper in states where Amazon has no facility, it offers significant sales tax savings (10.25% in Chicago where I live, no chump change). For the shopper with limited or no access to a car, Amazon offers incredible convenience. Ditto for anyone who works odd hours or is otherwise pressed for time. Amazon is different things to different people, but the same thing to anyone who finds the bricks-and-mortar retail experience a pain: a godsend. This isn’t often said, but Amazon is basically an old Sears/JC Penney/Montgomery Ward catalog online, made interactive and on steroids. What an interesting conversation it would be to hear those men whose busts adorn the front of Chicago’s Merchandise Mart talk about Amazon.
Amazon continually innovates. Once they established a strong infrastructure for selling books, they leveraged their e-commerce machine to sell other products, while constantly experimenting with new features. Look at Amapedia, the Kindle, Look Inside, Listmania, etc. All are market-leading innovations that keep Amazon at the top of the heap.
Amazon will next take on iTunes. Amazon provides a small application that makes downloads easy, and is compatible with iTunes. The music at Amazon is DRM-free and typically costs $.89 instead of $.99. What’s not to like? And the Kindle2, due to be announced next week, could bite into the iPod’s market, offering books, music, and free web surfing.
Amazon’s competitive advantage is simple. They continue to spend money on technology to make shopping as easy as possible. Their level of customer satisfaction is so great that customers never question whether or not they are going to receive their product on a timely basis. They simply assume that it is a fact. Their in-stock inventory levels are at almost 100%, and their selection of products is seemingly endless. And while they might not have the absolute lowest prices on the Internet, when coupled with their reliability, it is difficult to compete with their pricing.
Other than that, they don’t do anything right (sic).
Amazon has several advantages. It has an installed base of customers who trust it. It has diversified away from books and broadened its product portfolio. It has linked lower-cost providers and it has found ways to filter customer needs and preferences while anticipating customer wants. All together a pretty attractive package.
Clearly, Amazon has demonstrated year after year that it has a sustainable competitive advantage. They are hardly the only place to buy goods and services on the web but their reach has grown beyond books into so many other categories that they are the top-of-mind choice in a variety of businesses. Their scale, reputation for good execution and competitive pricing are all hallmarks of the shopping experience.
Not to say that another retailer can’t or won’t figure out how to compete effectively with Amazon in a variety of businesses, but it hasn’t happened yet. It’s also a demonstration that retailers needn’t be at the mercy of the weak economy if they figure out a strategy and execute it consistently and competitively.
Amazon gets it. Period.
They are excellent, customer-centric merchants providing exceptional value consistently.
We are always asked who does the best job of loyalty marketing and the answer is always the same. It’s not about who has the best loyalty “program” but rather who does the best job of creating, building and sustaining customer relationships.
There is no merchant that is as relevant and easy to do business with as Amazon.
Several years ago the (non-) prescient financial analyst community was questioning Amazon’s business model and strategy. To his credit, Jeff Bezos has not managed on a quarter-to-quarter basis but rather planned and operated strategically for the long term. The results they posted yesterday are the reason why.
More businesses should be following Amazon’s model of making it easy for customers to do business with them.
I think Amazon’s reputation and sales will be enhanced by the fact that there are still a lot of sites out there that are not serving people’s needs or garnering that trust you’re talking about.
Basically, there are as many bad online business models out there as there were in 2000.
I originally speculated that Target shoppers who downsized to Walmart would be back to Target as soon as they remembered all the reasons why they had not shopped at Walmart originally (like long lines, crowded aisles with towering stacks of inventory, etc.).
I was wrong. They just moved to Amazon instead. Outside of groceries–and even there Amazon is making inroads–Amazon is just as price-competitive as Walmart, and gee, you don’t have to deal with a drive or risk a sub-par in-store experience while you’re at it! If it’s not something that you need immediately, it’s hard to beat Amazon’s prices.
The first topic today dealt with time and saving money. Amazon serves consumers by doing both. By selling new and used goods, offering free shipping on Amazon purchases of more than $25, having consumer reviews a huge assortment of products and easy checkout, Amazon is giving consumers what they want. Isn’t that what retail is supposed to be about?
To quote Phil Rubin, “Amazon gets it. Period.”
Amazon is certainly customer centric. It offers good value, ease of shopping, quick response and long tentacles of customer connections.
This Holiday season, easily 75% of our shopping was online and 2/3rds of that was with Amazon. Other than leaving your Christmas shopping until Christmas Eve, brick and mortar retailers are just not as easy to do business with as Amazon.
Though some e-tailers still don’t “get it,” they are moving in the right direction, as noted by a proliferation of free shipping. Others are getting scale exposure by becoming affiliated with Amazon. The question is not “is Amazon’s competitive advantage sustainable.” The question is the sustainability of many of the brick and mortar concepts.
Imagine, if I could try on shoes without going to a shoe store. Oh, I can! Zappos!
Amazon offers a wide range of products at low prices. Shopping in one place is efficient. Amazon will lose some profit when it lowers prices but if Amazon continues to provide the same efficient service with low prices and a wide range of products, they will not lose many, if any, consumers.
From a consumer’s point of view, I recently checked out the price on Amazon of a Panasonic digital SLR camera that had been advertised at a “steep” discount, online, by a regional brick-and-mortar camera chain. The Amazon price was $45 lower. With that price, along with lower sales tax and free shipping, I was able to buy the camera I wanted for about $50 less than I might have paid had I not checked. And I didn’t have to venture farther than a few steps to my home office. Amazon has used its virtual real estate in the way that many dreamers visualized before the dot.com bust. What a company!
Amazon has capitalized on two key elements of the value equation. First, they’ve been able to achieve incredible economies across an enormous range of highly identifiable items. They offer the best prices, in-stock availability, and quick delivery. If you want it, they’ve got it.
Second, they make it easy. As product assortments have narrowed at retail, a customer knows Amazon will have it. It’s fast, it’s convenient, it’s easy.
Over the next few years, we’re likely to see the pace quicken of items and categories moving to Amazon as the primary (and in some cases, exclusive) channel of distribution. As many commercial properties go dark, the results from Amazon will continue to impress as market share continues to shift.
Right after Christmas, I got up early on a Saturday and drove almost 40 miles in a futile effort to get a “doorbuster” item at my not-very-local Rockler Hardware and Tool outlet. I was there well before it opened at 7 AM. They ran out two customers before my number was called.
I went home, logged on to Amazon, paid a little more than the ridiculous price I might have gotten, but still at least $150 less than any other outlet, even including the shipping (even as a Prime member I can’t get 200-plus pound cast iron woodworking power tools delivered for free!)
This is not the sort of thing you forget.
I buy my books and music there. I have a Kindle. I confess Amazon has made me a believer. I can’t see why they won’t grow much, much larger and continue to expand their offering.
Amazon, as many others have said, is very consumer-centric. But the opportunity is to further leverage the “try before you buy” success that they have with more rational products like books and music into more multi-sensory, intangible items like apparel and food. Can an online store ever surpass bricks and mortar for giving customers full confidence, knowledge, and appreciation of what they’re buying–even when that purchase decision is normally based so many other senses beyond vision and hearing (i.e. smell, touch, taste)? I can’t wait to see how they do it!
Amazon’s chief competitive advantage is their ability to tap into Long Tail economics. Being able to offer a wider variety of products, and more importantly, market those items directly to the most viable consumer, is their greatest strength. Their reputation and ability for consumers to determine the value of a profit immediately through peer reviews adds a layer of comfort to the consumer’s buying decision.
One more advantage comes from being able to segment consumers and market promotions to a particular set of individuals. Amazon can place an item on special promotion for a limited amount of time or direct that promotion to specific users. This allows them to push through inventory quickly. For example, Amazon can sell the item at the regular price to those individuals willing to pay it and then mark it down to suit a different demand set. Basically, they can treat products like airline tickets and hotel rooms, adjusting the price to fit the consumer and blow out inventory.
Is this sustainable? Absolutely. However, more and more online retailers will come along that will erode Amazon’s dominance over time. Luckily, they have a pretty good head start and can continue to build their brand, adjust strategy and widen their consumer base.
I think people don’t fully appreciate the breadth of the Amazon business. Yes, they are a retailer, but they are also a technology service provider, a promoter, and a distribution service. If you need a technology platform, subscribe to Amazon Web Services. If you have your own items to sell, sign up to have your store listed in the Amazon Catalogue. And if you have items you need distributed, sign up for Amazon Fulfillment and they will warehouse and deliver them.
So while most people think of Amazon as a retailer, Amazon has reduced its operating costs by selling access to all the services it needed for its retail operation on a subscription basis. This has allowed them to recover costs while continuing to offer their retail service.
Another interesting aspect of this profit report is the fact that they are working with manufacturers to develop specially-packaged versions of products to be offered on Amazon. The theory appears to be that complicated, hard-to-open, and costly packaging is not necessary for product that will never be put on display in a store. Amazon will be able to offer mail order packages that are simpler for consumers to manipulate. Seems like a great selling point to me.
Everyone likes a site that’s easy to navigate, has ultra-low prices, a great assortment, a decent returns policy, low-cost and no-cost shipping, honest customer reviews, and no sales tax.
Amazon does this profitably, no easy feat, especially considering they have no built-in bricks-and-mortar audience, like Macy’s, Sears, Target, Walmart, J.C. Penney, etc. The #1 obstacle to making any e-commerce site profitable: the cost to acquire new customers versus their lifetime value to the retailer. That cost should be much lower for the bricks-and-mortar folks, yet Amazon has triumphed.
I’ve shopped on Amazon.com since the year they launched. Every experience has been completely satisfactory, some delightful. On some occasions Amazon has picked my pocket – made me spend on stuff that I wouldn’t have bought otherwise, by their very helpful suggestions of what others had bought while they were browsing my selections. On other occasions they’ve saved me money, time and heartburn by providing comprehensive customer reviews at a click.
In my experience, Amazon’s sustainable advantage is their customer-orientation – the technology, the supply chain, the design – everything is geared to making the buying experience as good as possible. A Retail 101 principle that many other retailers – online and offline – seem to ignore every day.
Amazon offers a tremendous shopping experience and is benefiting in electronics, as many of the readers seem to feel from the poll and comments, from low prices and ease of purchase. Part of that is a trend towards online in general as the price and complexity of electronics fall.
However, they do benefit from the unfair advantage of not charging sales tax versus brick and mortar stores (come on, how hard can it be, Walmart has 3500 stores and they seem to be able to charge the right tax to everyone). I would also point out their frustration-free packaging is a great PR stunt but means little as almost every online retailer offers that service, except they call it White Box packaging (check out Newegg.com for cheaper prices on white boxes vs. retail packaging).
I have to admit that I was not an Amazon believer for quite a long time. I feared their power, driving out independent and other chain bookstores, such as Crown Books, which they did. But they did so because they invested heavily in technology and customer service.
I am amazed by their grocery end of the business. Books led them up a learning curve, now they are now bringing this technology front and center to the grocery side of the business. When I filled out a wish list reminder for an item out of stock in November, a reminder showed up in early January that the item was now in-stock, at the best price anywhere. I did not hesitate to order it.
My Mom has been a shut-in in her house for three weeks now, due to very bad winter weather. I live hundreds of miles away, so I can’t be with her right now. Amazon has been a life line to her. She now gets her Horizon Organic milk packs and other essentials delivered directly to her doorstep. I place her order online and she has her purchases delivered within a matter of a few days.
The model works well for Amazon. They took risks and are now rewarded with customer loyalty and great service.
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For the small town shopper, Amazon offers a New York City sized assortment. For the big city shopper in states where Amazon has no facility, it offers significant sales tax savings (10.25% in Chicago where I live, no chump change). For the shopper with limited or no access to a car, Amazon offers incredible convenience. Ditto for anyone who works odd hours or is otherwise pressed for time. Amazon is different things to different people, but the same thing to anyone who finds the bricks-and-mortar retail experience a pain: a godsend. This isn’t often said, but Amazon is basically an old Sears/JC Penney/Montgomery Ward catalog online, made interactive and on steroids. What an interesting conversation it would be to hear those men whose busts adorn the front of Chicago’s Merchandise Mart talk about Amazon.
Amazon continually innovates. Once they established a strong infrastructure for selling books, they leveraged their e-commerce machine to sell other products, while constantly experimenting with new features. Look at Amapedia, the Kindle, Look Inside, Listmania, etc. All are market-leading innovations that keep Amazon at the top of the heap.
Amazon will next take on iTunes. Amazon provides a small application that makes downloads easy, and is compatible with iTunes. The music at Amazon is DRM-free and typically costs $.89 instead of $.99. What’s not to like? And the Kindle2, due to be announced next week, could bite into the iPod’s market, offering books, music, and free web surfing.
Amazon’s competitive advantage is simple. They continue to spend money on technology to make shopping as easy as possible. Their level of customer satisfaction is so great that customers never question whether or not they are going to receive their product on a timely basis. They simply assume that it is a fact. Their in-stock inventory levels are at almost 100%, and their selection of products is seemingly endless. And while they might not have the absolute lowest prices on the Internet, when coupled with their reliability, it is difficult to compete with their pricing.
Other than that, they don’t do anything right (sic).
Amazon has several advantages. It has an installed base of customers who trust it. It has diversified away from books and broadened its product portfolio. It has linked lower-cost providers and it has found ways to filter customer needs and preferences while anticipating customer wants. All together a pretty attractive package.
Clearly, Amazon has demonstrated year after year that it has a sustainable competitive advantage. They are hardly the only place to buy goods and services on the web but their reach has grown beyond books into so many other categories that they are the top-of-mind choice in a variety of businesses. Their scale, reputation for good execution and competitive pricing are all hallmarks of the shopping experience.
Not to say that another retailer can’t or won’t figure out how to compete effectively with Amazon in a variety of businesses, but it hasn’t happened yet. It’s also a demonstration that retailers needn’t be at the mercy of the weak economy if they figure out a strategy and execute it consistently and competitively.
Amazon gets it. Period.
They are excellent, customer-centric merchants providing exceptional value consistently.
We are always asked who does the best job of loyalty marketing and the answer is always the same. It’s not about who has the best loyalty “program” but rather who does the best job of creating, building and sustaining customer relationships.
There is no merchant that is as relevant and easy to do business with as Amazon.
Several years ago the (non-) prescient financial analyst community was questioning Amazon’s business model and strategy. To his credit, Jeff Bezos has not managed on a quarter-to-quarter basis but rather planned and operated strategically for the long term. The results they posted yesterday are the reason why.
More businesses should be following Amazon’s model of making it easy for customers to do business with them.
I think Amazon’s reputation and sales will be enhanced by the fact that there are still a lot of sites out there that are not serving people’s needs or garnering that trust you’re talking about.
Basically, there are as many bad online business models out there as there were in 2000.
I originally speculated that Target shoppers who downsized to Walmart would be back to Target as soon as they remembered all the reasons why they had not shopped at Walmart originally (like long lines, crowded aisles with towering stacks of inventory, etc.).
I was wrong. They just moved to Amazon instead. Outside of groceries–and even there Amazon is making inroads–Amazon is just as price-competitive as Walmart, and gee, you don’t have to deal with a drive or risk a sub-par in-store experience while you’re at it! If it’s not something that you need immediately, it’s hard to beat Amazon’s prices.
The first topic today dealt with time and saving money. Amazon serves consumers by doing both. By selling new and used goods, offering free shipping on Amazon purchases of more than $25, having consumer reviews a huge assortment of products and easy checkout, Amazon is giving consumers what they want. Isn’t that what retail is supposed to be about?
To quote Phil Rubin, “Amazon gets it. Period.”
Amazon is certainly customer centric. It offers good value, ease of shopping, quick response and long tentacles of customer connections.
This Holiday season, easily 75% of our shopping was online and 2/3rds of that was with Amazon. Other than leaving your Christmas shopping until Christmas Eve, brick and mortar retailers are just not as easy to do business with as Amazon.
Though some e-tailers still don’t “get it,” they are moving in the right direction, as noted by a proliferation of free shipping. Others are getting scale exposure by becoming affiliated with Amazon. The question is not “is Amazon’s competitive advantage sustainable.” The question is the sustainability of many of the brick and mortar concepts.
Imagine, if I could try on shoes without going to a shoe store. Oh, I can! Zappos!
Amazon offers a wide range of products at low prices. Shopping in one place is efficient. Amazon will lose some profit when it lowers prices but if Amazon continues to provide the same efficient service with low prices and a wide range of products, they will not lose many, if any, consumers.
From a consumer’s point of view, I recently checked out the price on Amazon of a Panasonic digital SLR camera that had been advertised at a “steep” discount, online, by a regional brick-and-mortar camera chain. The Amazon price was $45 lower. With that price, along with lower sales tax and free shipping, I was able to buy the camera I wanted for about $50 less than I might have paid had I not checked. And I didn’t have to venture farther than a few steps to my home office. Amazon has used its virtual real estate in the way that many dreamers visualized before the dot.com bust. What a company!
Amazon has capitalized on two key elements of the value equation. First, they’ve been able to achieve incredible economies across an enormous range of highly identifiable items. They offer the best prices, in-stock availability, and quick delivery. If you want it, they’ve got it.
Second, they make it easy. As product assortments have narrowed at retail, a customer knows Amazon will have it. It’s fast, it’s convenient, it’s easy.
Over the next few years, we’re likely to see the pace quicken of items and categories moving to Amazon as the primary (and in some cases, exclusive) channel of distribution. As many commercial properties go dark, the results from Amazon will continue to impress as market share continues to shift.
Right after Christmas, I got up early on a Saturday and drove almost 40 miles in a futile effort to get a “doorbuster” item at my not-very-local Rockler Hardware and Tool outlet. I was there well before it opened at 7 AM. They ran out two customers before my number was called.
I went home, logged on to Amazon, paid a little more than the ridiculous price I might have gotten, but still at least $150 less than any other outlet, even including the shipping (even as a Prime member I can’t get 200-plus pound cast iron woodworking power tools delivered for free!)
This is not the sort of thing you forget.
I buy my books and music there. I have a Kindle. I confess Amazon has made me a believer. I can’t see why they won’t grow much, much larger and continue to expand their offering.
Amazon, as many others have said, is very consumer-centric. But the opportunity is to further leverage the “try before you buy” success that they have with more rational products like books and music into more multi-sensory, intangible items like apparel and food. Can an online store ever surpass bricks and mortar for giving customers full confidence, knowledge, and appreciation of what they’re buying–even when that purchase decision is normally based so many other senses beyond vision and hearing (i.e. smell, touch, taste)? I can’t wait to see how they do it!
Amazon’s chief competitive advantage is their ability to tap into Long Tail economics. Being able to offer a wider variety of products, and more importantly, market those items directly to the most viable consumer, is their greatest strength. Their reputation and ability for consumers to determine the value of a profit immediately through peer reviews adds a layer of comfort to the consumer’s buying decision.
One more advantage comes from being able to segment consumers and market promotions to a particular set of individuals. Amazon can place an item on special promotion for a limited amount of time or direct that promotion to specific users. This allows them to push through inventory quickly. For example, Amazon can sell the item at the regular price to those individuals willing to pay it and then mark it down to suit a different demand set. Basically, they can treat products like airline tickets and hotel rooms, adjusting the price to fit the consumer and blow out inventory.
Is this sustainable? Absolutely. However, more and more online retailers will come along that will erode Amazon’s dominance over time. Luckily, they have a pretty good head start and can continue to build their brand, adjust strategy and widen their consumer base.
I think people don’t fully appreciate the breadth of the Amazon business. Yes, they are a retailer, but they are also a technology service provider, a promoter, and a distribution service. If you need a technology platform, subscribe to Amazon Web Services. If you have your own items to sell, sign up to have your store listed in the Amazon Catalogue. And if you have items you need distributed, sign up for Amazon Fulfillment and they will warehouse and deliver them.
So while most people think of Amazon as a retailer, Amazon has reduced its operating costs by selling access to all the services it needed for its retail operation on a subscription basis. This has allowed them to recover costs while continuing to offer their retail service.
Another interesting aspect of this profit report is the fact that they are working with manufacturers to develop specially-packaged versions of products to be offered on Amazon. The theory appears to be that complicated, hard-to-open, and costly packaging is not necessary for product that will never be put on display in a store. Amazon will be able to offer mail order packages that are simpler for consumers to manipulate. Seems like a great selling point to me.
Everyone likes a site that’s easy to navigate, has ultra-low prices, a great assortment, a decent returns policy, low-cost and no-cost shipping, honest customer reviews, and no sales tax.
Amazon does this profitably, no easy feat, especially considering they have no built-in bricks-and-mortar audience, like Macy’s, Sears, Target, Walmart, J.C. Penney, etc. The #1 obstacle to making any e-commerce site profitable: the cost to acquire new customers versus their lifetime value to the retailer. That cost should be much lower for the bricks-and-mortar folks, yet Amazon has triumphed.
I’ve shopped on Amazon.com since the year they launched. Every experience has been completely satisfactory, some delightful. On some occasions Amazon has picked my pocket – made me spend on stuff that I wouldn’t have bought otherwise, by their very helpful suggestions of what others had bought while they were browsing my selections. On other occasions they’ve saved me money, time and heartburn by providing comprehensive customer reviews at a click.
In my experience, Amazon’s sustainable advantage is their customer-orientation – the technology, the supply chain, the design – everything is geared to making the buying experience as good as possible. A Retail 101 principle that many other retailers – online and offline – seem to ignore every day.
Amazon offers a tremendous shopping experience and is benefiting in electronics, as many of the readers seem to feel from the poll and comments, from low prices and ease of purchase. Part of that is a trend towards online in general as the price and complexity of electronics fall.
However, they do benefit from the unfair advantage of not charging sales tax versus brick and mortar stores (come on, how hard can it be, Walmart has 3500 stores and they seem to be able to charge the right tax to everyone). I would also point out their frustration-free packaging is a great PR stunt but means little as almost every online retailer offers that service, except they call it White Box packaging (check out Newegg.com for cheaper prices on white boxes vs. retail packaging).
I have to admit that I was not an Amazon believer for quite a long time. I feared their power, driving out independent and other chain bookstores, such as Crown Books, which they did. But they did so because they invested heavily in technology and customer service.
I am amazed by their grocery end of the business. Books led them up a learning curve, now they are now bringing this technology front and center to the grocery side of the business. When I filled out a wish list reminder for an item out of stock in November, a reminder showed up in early January that the item was now in-stock, at the best price anywhere. I did not hesitate to order it.
My Mom has been a shut-in in her house for three weeks now, due to very bad winter weather. I live hundreds of miles away, so I can’t be with her right now. Amazon has been a life line to her. She now gets her Horizon Organic milk packs and other essentials delivered directly to her doorstep. I place her order online and she has her purchases delivered within a matter of a few days.
The model works well for Amazon. They took risks and are now rewarded with customer loyalty and great service.