How does the Amazon ‘culture of metrics’ differ from that in other organisations?

 

QUESTIONS

 

1 By referring to the case study, Amazon’s website for your country and your experience of Amazon offline communications, evaluate how well Amazon communicates its core proposition and promotional offers.

 

2 Using the case study, characterise Amazon’s approach to marketing communications.

 

3 Explain what distinguishes Amazon in its uses of technology for competitive advantage.

 

4 How does the Amazon ‘culture of metrics’ differ from that in other organisations, from your experience?

 

Amazon

 

Context

 

Why a case study on Amazon? Surely everyone knows about who Amazon is and what it does? Yes, well, that may be true, but this case goes beyond the surface to review innovations in Amazon’s business and revenue model based on a historical review from its published annual reports (United States SEC filings).

 

Like eBay, Amazon.com was born in 1995. The name reflected the vision of Jeff Bezos to produce a large-scale phenomenon like the River Amazon. This ambition has proved justified since, just eight years later, Amazon passed the $5 billion sales mark – it took Wal-Mart 20 years to achieve this.

 

Vision and strategy

 

Amazon’s mission statement centres around its customers, providing them with a place where they can search and discover anything they may wish to buy online. This is a fairly generic statement, but previous statements (i.e. from the SEC filings in 2008) are more specific. They focus on the customer experience, but also mention three core buying motivations: low prices, convenience and a wide selection of products. Consider how these core marketing messages summarising the Amazon online value proposition are communicated both on-site and through offline communications.

 

Of course, achieving customer loyalty and repeat purchases has been key to Amazon’s success. Many dot.coms failed because they succeeded in achieving awareness, but not loyalty. Amazon has achieved both. In its latest SEC filing for the 2013 Annual Report it stress how it seeks to achieve this by reiterating a comment in a letter made by Jeff Bezos to shareholders in 1997 when it first became a publicly quoted company:

 

We will continue to measure our programs and the effectiveness of our investments analytically, to jettison those that do not provide acceptable returns, and to step up our investment in those that work best. We will continue to learn from both our successes and our failures.

 

More recently, this approach has been applied to a range of business model innovations including: Fire TV, smartphone and tablets, grocery delivery in the West coast of the United States, Prime Instant Video, Amazon Fashion and expansion to Amazon Web services (AWS).

 

In practice, as is the case for many online retailers, the lowest prices are for the most popular products, with less popular products commanding higher prices and a greater margin for Amazon. Free shipping offers are used to encourage increase in basket size, since customers have to spend over a certain amount to receive free shipping. The level at which free shipping is set is critical to profitability and Amazon has changed it as competition has changed and for promotional reasons.

 

Amazon communicates the fulfilment promise in several ways, including presentation of latest inventory availability information, delivery date estimates and options for expedited delivery, as well as delivery shipment notifications and update facilities.

 

This focus on the customer has translated to excellence in service, with the 2004 American Customer Satisfaction Index giving Amazon.com a score of 88, which was at the time the highest customer satisfaction score ever recorded in any service industry, online or offline.

 

Round (2004) notes that Amazon focuses on customer satisfaction metrics. Each site is closely monitored, with standard service availability monitoring (for example, using Keynote or Mercury Interactive) site availability and download speed. Interestingly, it also monitors per-minute site revenue upper/lower bounds – Round describes an alarm system rather like a power plant where if revenue on a site falls below $10,000 per minute, alarms go off! There are also internal performance service level agreements for web services where T% of the time, different pages must return in X seconds.