Amazon.com. An e-commerce force in Europe

TABLE OF CONTENT

Abstract

List of Abbreviations

List of Symbols

List of Figures

1 Introduction
1.1 Aim and Objective
1.2 Structure of the Thesis

2 Electronic Commerce
2.1 Definition of E-Commerce
2.2 The Online Marketplace
2.2.1 Current Status

3 The Path to Customer Centricity
3.1 The Marketing Mix
3.1.1 The 4 Ps
3.1.2 The 4 Cs
3.2 Customer Centricity
3.3 The Seven Pillars of Customer Centricity
3.4 Economic Motivation of Personalization
3.4.1 Direct Switching Costs
3.4.2 Opportunity Costs
3.4.3 Sunk Costs

4 Amazon
4.1 The Founding of Amazon and Rise of the Internet
4.2 Amazon’s Culture and Business Strategy
4.3 Current Status of Amazon
4.4 Customer Loyalty
4.4.1 Measurable Effectiveness
4.4.2 Amazon Prime
4.4.3 Amazon Apps
4.4.4 Targeted Advertising
4.4.5 Subscribe & Save
4.5 Amazon Web Services

5 The MCR-BM Concept
5.1 Introduction to CRM
5.2 Management of Customer Relationship in Business Media (MCR-BM)
5.2.1 Customer Interaction
5.2.2 Added value for the customer
5.2.3 Customer Profiling
5.2.4 Trust
5.2.5 Virtual Communities
5.2.6 Processes
5.2.7 Controlling

6 Analyzing Amazon’s ‘Customer Centric’ Efforts

7 Critical Analysis of the Assessment

8 Conclusion

References

Abstract

Initially selling books online, the US company Amazon.com, Inc. has been transformed into a major online retailer over the course of its existence by providing its services to millions of customers around the world. Customer loyalty has always been essential to the success of a business, but never as much before as in the digital age. The associated customer loyalty programs are now an indispensable medium in the marketing world. Amazon is one of the most frequently mentioned examples of customer loyalty measures in general and in the world of e-commerce, in particular through its established premium program.

Private labels and retailers take advantage of the multiple capabilities of the Amazon.com e-commerce platform, thereby increasing their sales and reaching new customers. Amazon's evolution from a website to an e-commerce partner and on to a development platform is driven by the spirit of innovation that is part of the company’s DNA of the company. The smartest minds in the world of technology come to Amazon.com to explore and develop technologies that make life easier for buyers, sellers, and developers around the world.¹ The author objectifies Amazons subjective claim of being a customer-centric company and identifies key-areas of customer-centricity by applying theoretical concepts of that topic to the company itself, resulting in an assessment of Amazons degree of customer centricity and giving readers a better understanding of the meaning and historical development of the concept.

Keywords:

Amazon, Jeff Bezos, customer centricity, CRM, MCR-BM, e-commerce, marketing mix, 4 Ps, 4 Cs, personalization and customization

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Symbols

Abbildung in dieser Leseprobe nicht enthalten

List of Figures

Figure 1: Share of branches in the total online volume

Figure 2: Comparison of 4 Ps and the 4 Cs concepts

Figure 3: Internet usage 1994 - 2016

Figure 4: E-Commerce volume shares in percent

Figure 5: Building blocks of the MCR-MB model

1 Introduction

Apart from his studies at the Rhine-Waal University of Applied Sciences Cleve, the author of the thesis, Anthony Blint, has, together with a long-time friend, launched a clothing brand by the name of ‘NOHMI GmbH’ of which e-commerce is an integral channel to reach customers. Their shared values lie in serving customers with an outstanding online journey for which, in order to do succeed, requires a sophisticated understanding of the measures that have to be implemented to achieve such goals is of great importance. In addition, by the end of 2017 Anthony started work at a business located in Mainz, Germany, with the goal of creating a B2B and B2C online platform for the construction industry. In order to gain a better understanding of the challenges that arise, that company sells products via the Amazon marketplace by making use of Amazons FBA service, meaning that inventory is shipped to Amazon fulfillment centers around Europe and, from there on, shipped to the respective customers. Resulting from the enthusiasm of working closely with the largest online retailer in Europe for household items, the author had the opportunity to gain a better understanding as to why Amazon is succeeding and customers are utilizing that platform to such an extent, as the seller-side of the platform is loaded with a large quantity of regulations ranging from logistic matters to technical demands. Sparked by enriching discussions with fellow team-members and managers about the key-factors of an appropriate development of an online platform that shall be built on the same principles as Amazon.de, the author was determined to, in the light of his thesis, probe deeper and intensively examine literature concerning the meaning of customer centricity given that Amazons CEO, Jeff Bezos, claims that his company strives to become the most customer-centric company on earth.

1.1 Aim and Objective

According to Amazon,² the company has four products which can be divided into the following four categories:

1. Amazon websites, where millions of products by Amazon and third-party sellers are being sold.
2. Electronic devices such as Alexa (virtual assistant controlled by speech-command), Kindle (e-reader tablet) or Echo (a hands-free speaker device that has the ability to play music or make calls).
3. Media content creation and distribution, which dives into an extensive range of tools, products and services offering cloud-based media software to create professional media experiences such as professional videos for advertisement purposes.
4. Amazon Web Services (AWS), a fast-growing B2B segment that gives businesses the opportunity of using up on-demand computing power, storage and more.³

However, the author claims that Amazon’s success does not solely stem from successful marketing campaigns and the value of these products but from Amazon’s ambitious goal of being the world’s most customer-centered company and the accompanying measures and processes of such an goal.

This thesis aims to understand and objectify the concept of customer centricity and, in order to do so, derives that understanding from historical literature of marketing theory. It then further aims to understand the driving dynamics of the products and services provided by Amazon in order to find out whether the customer-centric approach can be traced and understood on the basis of existing literature. Ultimately the author will analyze Amazons customer-centric approach by comparing the acquired data on Amazon to a Customer Relationship Management (CRM) model which is a concept stemming from the world of business media that manages to incorporate all of the discovered elements of customer centricity into a customer centric framework.

1.2 Structure of the Thesis

This thesis is divided into four main sections, which allow the reader to obtain an in-depth overview about the research topic.

Section two (2) has the purpose of making the reader familiar with the meaning of ‘Electronic Commerce’. A definition is given and a general description of the current landscape of that matter.

Section three (3) deals with the most important historical findings that lead to current product development and marketing concepts. It explains the so-called ‘marketing mix’ concept, the change of the economic environment which caused that concept to be re-evaluated and subsequently discusses the meaning of customer centricity. As customer-centricity is closely related to personalization the author point out the economic motivation of businesses that tend to implement such measures and finally ends the chapter by putting forward a preliminary conclusion on ‘Customer Centricity’.

In the fourth (4) section the author analyzes the company Amazon from the ground up in order to gain a better understanding of the origins of the persistency with which CEO Bezos implemented a customer-centric approach as a main pillar to the company’s mission statement and seeing it out all the way through. Furthermore, the author identifies five elements that increase customer loyalty directly and discusses them.

The last main section, section five (5) then introduces the Management of Customer Relationship in Business Media concept – abbreviated as ‘MCR-MB’ – and evaluates the seven building blocks of that concept in the light of Amazon.

2 Electronic Commerce

The term ‘e-commerce’ is an abbreviation of the complete term electronic commerce, which is difficult to define uniformly as it is subject to a wide spectrum of meanings. Often the terms ‘web commerce’, ‘digital commerce’, ‘internet commerce’ and ‘online retailing’ are being used as synonyms for one another.⁴

2.1 Definition of E-Commerce

Depending on the transaction partners, e-commerce can be defined even further, as transactions made between two or more businesses are labeled as B2B e-commerce transactions, and those between businesses (end) consumers are labeled as B2C e-commerce transactions.⁵

This study refers to B2C transactions only, the author will use the term e-commerce synonymously to online retailing under the following definition:

“Electronic commerce includes all forms of economic activities that are realized via internet services or between computer networks.”⁶

E-commerce serves as a sales channel that enables the conclusion of purchase contracts on digitally connected trading platforms. The distribution of the bought product to the buyer takes place after the good or service has been paid for by the buyer, as the payment process is conducted via digital payment systems, and the delivery in most cases through parcel shipping and goods logistics. Basically, the process of e-commerce can be characterized as a cheaper, more innovative and flexible form of stationary retailing.⁷

2.2 The Online Marketplace

In order to understand the business models of Amazon and several other e-commerce platforms like eBay it is important to know about the company’s highly profitable role as an online marketplace for third-party sellers, which the author will detail in the following paragraph.

According to the dictionary, a marketplace is defined as “the arena of commercial dealings”.⁸ By providing the services of an e-commerce marketplace, Amazon allows multiple third parties to sell products on their platform – whereas Amazon, the marketplace operator processes these transactions. Corrot and Nussenbaum define an electronic marketplace as a virtual online space on which buyers and sellers meet in order to conduct transactions involving goods and/or services. They further suggest that a transparent, confidence-inspiring and safe environment shall be provided by the marketplace operator by putting tools and services at the disposal of the involved parties that support them with possibilities for online payments, catalog and stock management, gathering and displaying verified information about the selling and buying party and various guarantees. The operator’s strategy and potential verticality of the marketplace will help determine the different services and tools provided.⁹

2.2.1 Current Status

As a result of the rapid digitalization, e-commerce naturally has become increasingly popular and manifested itself into our everyday lives, with many people changing their shopping behavior: Rather than commuting to the nearest city or visiting local stores, they complete a large amount of their daily purchases online. According to the HDE Online-Monitor publication from 2018, the German e-commerce market is continuously growing and with an absolute market volume increase of 10.5% from 2016 to 2017 totaling€ 48.9 billion (net), and thus grew even more rapidly than HDE predicted.¹⁰

The fastest emerging markets in online retailing in Germany are FMCG: furnishing & interior design and home improvement & gardening.¹¹ Typical household items are covered by the term ‘FMCG’, which stands for “Fast Moving Consumer Goods” – an Industry that sells goods which consumers usually buy when shopping at stationary retailers like supermarkets or pharmacies. Typical examples would be products used in cleaning and laundry, packaged food, soft drinks and last but not least care products. Some of the most famous brand names that Europeans recognize such as ‘Coca-Cola’ or ‘Nivea’ are being held in this multimillion-dollar sector.¹² Furthermore, HDE revealed that some striking growth factors for e-commerce can be attributed to the rise in online shopping popularity among people aged 60 and above – given that their online shopping increased by 44% between the years 2016 and 2017, and to the steady growth in the Amazon marketplace which allows private users to sell their own items using the Amazon website as a sales channel, which will be covered in detail later on in Chapter 4.2.

Today the largest branches for online commerce are fashion and accessories and consumer electronics (CE), which are responsible for a volume of€ 12.2 billion and €12.3 billion - corresponding to a share of 25.1% and 24.9% of the total online business, respectively, and together accounting for half of the German online market.¹³

The following pie chart on the next page shall give a graphical overview of the different branches and their market volume.

Figure 1: Share of branches in the total online volume Own illustration based on HDE Online-Monitor (2018) - Total volume: € 48.9 billion (in € billions) and percentage.¹⁴

Abbildung in dieser Leseprobe nicht enthalten

3 The Path to Customer Centricity

Before the author ends this chapter with the topic of ‘customer centricity’, he will provide the reader with necessary information about the origins and the development of marketing strategies.

3.1 The Marketing Mix

An “exploratory survey of UK and European marketing academics” by Rafiq and Ahmed concludes that one of the core concepts of marketing theory, – as being taught at many schools and universities that offer courses on ‘marketing’ – is the so-called marketing mix concept.¹⁵ Understanding the origin of the traditional marketing mix is important in order to understand the distinction between the modern approach proposed in this paper.

Neil Borden, an American academic, coined the term ‘marketing mix’ in 1953 during his speech at the American Marketing Association and admitted that term was inspired by Culliton’s “mixer of ingredients”¹⁶ description after a business executive suggested said term to him, as he “[…] liked his idea of calling a marketing executive a ‘mixer of ingredients’, one who is constantly engaged in fashioning creatively a mix of marketing procedures and policies in his efforts to produce a profitable enterprise”.¹⁷ As for Borden, the marketing mix was simply a combination of important elements or ingredients that constitute a marketing program – he did not formally define the term.

Constituting a desired response in the target market in order for a firm to increase its profit is a challenging task. Blending a set of tactical marketing tools in order to produce that desired response describes the so-called marketing mix and, according to McCarthy, the various possibilities can be gathered into four groups of variables – the ‘4 Ps’ – where each ‘P’ is an acronym for each of the following factors: ‘Product’, ‘Price’, ‘Place’ and ‘Promotion’.¹⁸ Kotler and Armstrong describe each P as “groups of variables” which firms can control via different tools that refer to each group and thereby succeed at actively influencing the demand for their product(s) and/or services.¹⁹

3.1.1 The 4 Ps

Product refers to the combination of goods and services the company offers to the target market. Typical tools can be variety, quality, design, features and packaging.

Price refers to the amount of money customers must invest to obtain the product. Also here the literature provides different tools that may adapt the response from the target market such as discounts, allowances or credit terms.

Place concludes all company activities that enhance the product availability to potential target consumers, by managing the sales channels, coverage, and hence logistics and transportation.

Promotion describes actions that transmit the value of the product and intentionally persuade target customers to buy the product. Typical tools are advertising, sales promotion and public relations.

Kotler and Armstrong, who have written several editions of the book “Principles of Marketing”, argue that consumers should be at the center of a company’s marketing strategy that defines the objectives and overall mission of the company in the framework of a strategic plan. Actively creating value for customers as well as building profitable relationships with them is the goal of a customer-driven marketing strategy. They also acknowledge that companies must be customer-centric in order to succeed in today’s marketplace and, to execute said task, suggest an integrated marketing mix, that the company designs, guided by its marketing strategy is made up of the four controllable factors – ‘product, price, place and promotion’.²⁰

Kotler and Armstrong rightfully address critics of the ‘4 Ps’ model, as they point out that some critics are under the impression that the respective model may leave out or place insufficient emphasis on other important business activities, such as the sale of services. According to studies conducted by Shostack, the 4 Ps formulation seems inadequate for services marketing business fields, prevailing with the argument that intangible-dominant services need to emphasize on making that respective service tangible.²¹ The physical environment itself (i.e., buildings, decor) is an contributory factor for customers’ evaluation of the character of service they can expect, for example, in hotels or restaurants.²² In response, the two authors Kotler and Armstrong provide the argument that “[…] services, such as banking, airline, and retailing services, are products too […]”²³ and further point out that many of the marketing activities which appear to be disregarded are “[…]subsumed under one of the 4 Ps.”²⁴

Last but not least Kotler and Armstrong address a point of criticism that has been obvious in the authors research on marketing mix concepts and can be found in other studies as well, since the 4 Ps concept relates to a definition of marketing associated with the aspect of production and not a customer-oriented one.²⁵

As the beginning of this chapter has concluded, the first theoretical attempts to define modern marketing mix concepts stem from years surrounding the second half of the 20th century. According to Lauterborn, that era is influenced by – and thus subject to – a different marketing world, “roaring out of World War II with a cranked-up production system ready to feed a lust for better living (…)”²⁶, further claiming that developed products were solely priced to generate profit by adding a certain margin on the production costs only to place them on retail shelves and easily selling them, as mass media was promoting a “culture of consumption”.²⁷

The few producers of goods and services back then, compared to the number of producers of goods in services in the beginning of the 21st century, were acting in different environments in terms of competition, customer expectations and product variety, which in turn had an effect on the variables that determine consumer buying decisions. Robert Lauterborn penned a critic of the 4 Ps model, finally suggesting that each of the variables of the 4 Ps model should be regarded from a consumer’s perspective as he accomplishes said transformation by converting the 4 Ps to a different set of variables coined as the 4 Cs, offering a new set of marketing mix elements which he sees as relevant variables for successful marketing mix strategies in current times.²⁸

3.1.2 The 4 Cs

Lauterborn shifts the existing 4 Ps variables towards customer-centric focused ones as he changes product to consumer wants and needs, price to cost to satisfy, place to convenience and promotion to communication, finally making up the 4 Cs model.²⁹

Figure 2: Comparison of 4 Ps and the 4 Cs concepts

Abbildung in dieser Leseprobe nicht enthalten

Own illustration, based on Lauterborn, New marketing litany. Four P's passe; C-words take over, Crain Communications, Inc. Advertising Age, 1990.³⁰

Consumer wants and needs

Lauterborn suggests that suppliers of goods and services cannot sell anything they can make anymore but only what is requested by consumers. As a result, bringing value to customers should be the focus of a marketing campaign.³¹

Cost to the consumer

Price becomes the cost when shifting to the consumer’s perspective and represents the amount customers will have to pay for a product or service and has always been a major factor in determining whether customers are willing and able to make a purchase decision. Here, Lauterborn claims that the price is close to irrelevant as such, given that it only represents a part of the total costs to the consumer. The cost to the consumer is not only of monetary value but also the time spent driving to a given place or costs of guilt for not treating somebody else but spending the money on oneself.³²

Convenience

Making purchasing decisions in favor of convenience has gained in extended importance to consumers as convenience costs are also caused by the expense of physical and nervous energy. Thus, simplifying the process customers must endure in order to make business with a retailer increases the level of convenience for the customer and prevents them from following convenient solutions provided by another retailer.

Communication

”Promotion is out—out, manipulative, 1960s.”³³, further claiming that the purpose of a good advertisement should be the beginning of a dialogue between buyer and seller “Communication is from the buyer– in, cooperative, 1990s.”³⁴. The aim is not to promote a business, but to communicate with the customers displaying the value of a given product and to offer content to attract them.³⁵

Implementing and teaching such drastic change seems challenging, since consumers have the comfort of adapting their purchasing behavior at all times; businesses – especially larger companies with more traditional corporate structures –take a longer time to adapt their behavior and strategies accordingly or, even fail to do so.³⁶ Whereas some employees may not mind organizational change, others might react negatively to even a minor change. It seems that resilience is associated with increased likelihood of accommodating a required change at work and not necessarily related to agreement with whether that change is beneficial to the organization and its clients.³⁷

3.2 Customer Centricity

In order to have long-lasting success, companies must comprehend present customer needs and wants and establish proper customer-facing strategies, procedures and marketing initiatives and meet these, given that the people who are lastly responsible for the success of many companies are loyal customers. The model of the 4 Cs functions as a great framework providing managers with an overview that is helpful for a specific configuration of offerings to suit customers’ needs and wants. The measure blocks of the MCR-BM model which will be presented in detail in chapter five (5) and applied in order to analyze Amazons customer centric approach is closely related to the 4 Cs model.

Customer centricity does not solely refer to making the customer the central organizational focus, as customers are not a singular entity, but to understand the different types of customers at a more specific level and regarding the distinct attributes that set them apart as in their propensity to purchase, their likelihood to be loyal, their means of communicating with each other and their varying response to the same offers. These characteristics affect the distinct ways in which they respond to a company which is significant for their value to the company.³⁸

Peter Fader defines customer centricity as “(…) a strategy that aligns the development and delivery of a company’s products and services with the current and future needs of its highest valued customers in order to maximize these customers’ long-term financial value to the firm”.³⁹ The important aspect of this definition is that not all customers are equal and thus do not deserve equal shares of the company’s precious time and resources. As a result, a customer-centric company shall make efforts into understanding the intrinsic attributes that group its most profitable customers, often supported by CRM systems that provide the necessary insights. The capabilities to extract customers’ expectations, desires and needs, satisfying these and in addition anticipating future customer requirements and aligning the company’s strategic orientation to meet these requirements is within the confines of a customer centric company. In order to effectively do so, managing knowledge is of great importance for enterprises, as a great knowledge base is an important source containing raw data which enables enterprises to analyze and assess future and current expectations, desires and needs.⁴⁰ Also, the previously mentioned tool which will be disclosed in Chapter 5 will introduce an important tool which provides great assistance in managing such knowledge and is generally referred to as an ‘Customer Relationship Management’ tool.

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¹ M. Gassmann,‘Die „Kampfmaschine“ pflügt deutschen Markt um‘ [Website], 2015, <https://www.welt.de/wirtschaft/article144068894/Die- Kampfmaschinepfluegt-deutschen-Markt-um.html> accessed on 20 February 2019.

² Amazon.com, Inc., 2017 Annual Report [Website] 2018 <https://ir.aboutamazon.com/static-files/917130c5-e6bf-4790-a7bc-cc43ac7fb30a> accessed on 17 December 2018.

³ Ibid.

⁴ A. Opuchlik, E-Commerce-Strategie: Entwicklung und Einführung, Books on Demand, 2005, p.20.

⁵ Handelsverband Deutschland, Handel digital Online-Monitor 2018 [Website] <https://einzelhandel.de/index.php?option=com_attachments&task=download&id=9449> accessed on 3 November 2018.

⁶ A. Ruff, Vertriebsrecht im Internet: Der Vertrieb und Fernabsatz von Waren und Dienstleistungen, Springer, 2003, p.7.

⁷ D. Große Holtforth, Schlüsselfaktoren im E-Commerce. Innovationen, Skaleneffekte, Daten und Kundenzentrierung, Wiesbaden, 2017, p.3f.

⁸ Oxford Dictionary, accessed: 14.11.2018

⁹ Corrot P., Nussenbaum A., Marketplace: the future of e-commerce, 2014, p.6.

¹⁰ Handelsverband Deutschland, Handel digital Online-Monitor 2018 [Website].

¹¹ Ibid.

¹² Telegraph Jobs, What Is FMCG - Fast Moving Consumer Goods [Website] 2015, https://jobs.telegraph.co.uk/article/what-is-fmcg/ accessed on 3 November 2018.

¹³ Handelsverband Deutschland, Handel digital Online-Monitor 2018 [Website].

¹⁴ Ibid.

¹⁵ M. Rafiq and P. K. Ahmed, ‘Using the 7Ps as a generic marketing mix: an exploratory survey of UK and European marketing academics’, Marketing Intelligence & Planning, Vol. 13 Issue: 9, p.4, <https://doi.org/10.1108/02634509510097793> accessed on 5 November 2018.

¹⁶ J. Culliton, The Management of Marketing Costs, Boston: Division of Research, Graduate School of Business Administration, Harvard University, 1948, p.6.

¹⁷ N. H. Borden, ‘The Concept of the Marketing Mix’, Journal of Advertising Research. Classics, Volume II, 1984, p.7.

¹⁸ E. J. McCarthy, Basic Marketing, Richard D. Irwin, Homewood, IL, 1964, p.38.

¹⁹ P. Kotler and G. Armstrong, Principles of marketing, 14th edn., Boston: Pearson Prentice Hall, 2012, pp.51-52.

²⁰ Kotler and Armstrong, 2012, pp.51-52.

²¹ G. L. Shostack, The service marketing frontier, in Zaltman G. and Bonoma, T. (Eds), Review of Marketing, American Marketing Association, Chicago, IL, 1979, pp.373-88, cited in Rafiq and Ahmed, 1995, p.7.

²² Rafiq and Ahmed, 1995, p.5.

²³ Kotler and Armstrong, 2012, p.52.

²⁴ Ibid.

²⁵ C. Gronroos, ‘Defining marketing: A market-oriented approach’, European Journal of Marketing, Bradford, vol. 23, no. 1, 1989, pp.52ff.

²⁶ B. Lauterborn, New marketing litany. Four P's passe; C-words take over, Crain Communications, Inc. Advertising Age, 1990, <http://rlauterborn.com/pubs/pdfs/4_Cs.pdf> accessed 2 December 2018.

²⁷ Ibid.

²⁸ Ibid.

²⁹ Ibid.

³⁰ Ibid.

³¹ Ibid.

³² Ibid.

³³ Lauterborn, loc. cit.

³⁴ Ibid.

³⁵ The Marketing Mix, Marketing Mix 4C’s [Website] < https://marketingmix.co.uk/marketing-mix-4cs/> accessed on 26 December 2018.

³⁶ Kotler and Armstrong, 2012, pp.53-55.

³⁷ C. Wanberg and J. Banas, ‘Predictors and outcomes of openness to changes in a reorganizing workplace’, Journal of Applied Psychology, vol. 85, no. 1, 2000, pp.132-142.

³⁸ N. Romano and J. Fjermestad, ‘Electronic Commerce Customer Relationship Management: A Research Agenda’, Information Technology and Management, vol. 4, 2003, pp.235ff.

³⁹ P. Fader and S. Toms, The Customer Centricity Playbook, Wharton Digital Press, 2018, p.39.

⁴⁰ M. Tseng and F. Piller, The Customer Centric Enterprise: Advances in Mass Customization and Personalization, Berlin Heidelberg, Springer, 2003, p.14, p.27, pp.41-42.