MIS 320: Max Hazel, Kyler Sager, Joshua Hamann, Zach Porr



Max HazelJoshua HamannKyler SagerZach PorrMIS 320Amazon Prime Case StudyAmazon has existed as a very successful retailer of a vast variety of products, where they have occupied a large portion of the market share but with the recent addition of Amazon Prime, which allows individuals to purchase a year long membership to gain faster shipping, video streaming, and music streaming as well as much more, Amazon has secured its market share and has become the dominant online retailer. The SWOT analysis to come will provide information to where Amazon prime has become greatly successful as well as information that could show where Amazon may improve their Prime service to become even more petitors such as Walmart offer free shipping without any membership required. Despite these customers still choose to shop and buy with Amazon and specifically with Amazon Prime. While not many other retailers are requiring a membership to get premium shipping, Amazon sees that customers perceive the membership fee as an investment in order to get fast shipping for free. Best Buy during the last summer created a promotional slogan stating, “Deals for All. No Membership Needed.” Best Buy is one of the largest competitors of Amazon in electronics retail. While many look at the membership as a disadvantage to Amazon, in actuality the membership fee locks customers into the service because since they already bought the membership and with Amazon providing a wide variety of products that ship for free, the customers will feel the need to stay with Amazon as their primary retailer. The membership method creates a steady stream of revenue, the same steady stream that Costco receives with their membership fee. ?Prime actually has been a dominant factor in acquiring new customers, with analyst speculating between 40 and 50 million members worldwide. “Amazon’s cutthroat pricing reels in shoppers initially, Prime keeps them hooked”(Fortune). By making shipping faster and cheaper, customers no longer have to sacrifice the time lost with long shipping for lower Amazon product prices. “Over the last 10 years, the number of available items through Prime grew from 1 million to 20 million” (Fortune). Prime has even pushed into other international markets including Japan, the UK, Germany, France, Italy, and Canada. While Netflix dominates the video streaming market, Amazon still offers a large catalog of TV shows and movies. Amazon is getting closer and closer to a service that encompasses every customer need. A customer can be entertained and shop for food or clothes all on the same site and expect orders to be at their home within two days. Netflix is a single factor streaming corporation while Amazon offers multiple factors to make it reign supreme as a customer's number one choice.Amazon, especially their Prime division, are on the forefront of what can be done in the retail space. However, they are not with their own problems. When you think of Amazon and their service to a customer, what is one of the first things you think of? Fast shipping, especially with Amazon Prime. However, this doesn’t come at a large price to you. So how this this happening? Well, Amazon’s first weakness in regards to Prime is the fact that they spend a large amount of their revenue on shipping items to their customers. According to , Amazon has a net shipping cost that is usually around 5% of their net sales. This quarter last year (Quarter 3, 2015), Amazon spent $2.7 Billion on shipping. This was offset by $1.5 Billion in shipping profit, but that is still a net loss of $1.2 Billion dollars according to .Another weakness Amazon has in its Prime department is the fact that Prime comes bundled with a lot of different services. These services include fast and free shipping, music streaming, TV and Movie streaming, and eBook libraries. This may seem like a strength, the fact that you get all of this value for your Prime subscription! However, according to , this is indeed a weakness. This is because not many customers need fast and free shipping, as well as all of these other services. You may only use a small portion of the features you are given, but you are charged for all of them. If they served each service individually, you would make your customers happier by not charging for something they do not use. You also could potentially make more revenue, because you can take off the “bundle” price of the other services, and charge full price for each individual service. So instead of giving customers the full package at $70 a year, you can charge $50 for the shipping service, $20 for video streaming, $20 for music streaming, $20 for eBook libraries. That way, if anyone ever uses more than 2 of your services, you are actually making more money than if you bundled them.The last weakness I want to talk about is the reliance Amazon has on the United States Postal Service. Amazon is currently working on drone delivery services, but this has not been rolled out yet. They are, instead, mostly using USPS for their shipping needs. When there is an aspect of your business, in this case shipping, that is this important to you, it is not in your best interest to rely on a third party to use that aspect. But Amazon unfortunately relies heavily on USPS, and this poses a lot of problems. USPS doesn’t operate on holidays, operates at a much smaller scale on weekends, and is overall a organization that is stuck in the past. Even with Amazon’s help, they have been struggling greatly since the rise of E-Mail. To have one of your biggest business partners be someone who is struggling to stay afloat because of their dated ways, that seems very odd for a company as cutting edge as Amazon. Amazon Prime has many opportunities to grow and expand their business to all corners of the globe and be able to offer more options to customers as they continue to see success. Amazon Prime. Namely expanding all parts of their current Amazon Prime service to other countries. For example, Canada is lacking Amazon Instant Video from their Amazon Prime service. Due to international licensing issues, France does not have access to the streaming service that Amazon Prime offers. They however still have access to the shipping component of Prime at a localized rate but Amazon has the opportunity to really make Prime more complete in international markets around the world that can be more on par with customers in the United States.Developing a larger network of distribution centers can increase the effectiveness of Prime around the world and continue to grow Amazon Prime from just the United States and a few countries around the world to more connected network of distributions centers around the globe. Amazon Prime utilizes what is called a “Prime Now Hub” and station them around the areas of which Amazon Prime is active. For example, the United States, alone, has 42 Prime Now Hubs whereas in the European Union there is 17 combined spread across multiple countries. In Asia, there are only 8 Prime Now Hubs and they are all located in Japan. Amazon could open more Prime Now Hubs across the globe to be able to deliver Prime to more areas around the globe including the ones they already have.As of right now in the United States, Amazon Prime is setup as a buy just the stand alone service that bundles everything, including Amazon Music and TV services. If Amazon were to do a more customizable service for Prime in which customers can pick and choose if they just want the free 2-day shipping as opposed to the shipping including all the streaming services, one should be able to pick that option and it should be reflected in a reduced price for the service. If this were the case, Amazon could see an increase in overall Prime users due to the customizable options that they can offer to attract those people who are only looking for a TV/Music streaming service or only looking for a 2-day shipping service or are maybe looking for a music streaming service and 2-day shipping etc. Customized options for customers would lead to more users enjoying the Prime service overall.The best way to summarize the primary threats to Amazon revolves around a group of newer internet shopping retailers that are concentrating on maintaining a similar service to Amazon, without any of the overhead costs. The strength of Amazon Prime lies in how fast they can connect consumer to purchased product. However, this depends on consumers ordering items contained in nearby warehouses. Many newer companies, such as , , and AliExpress all perform similar services to Amazon Prime, but simply stop offering service past connecting consumer to company. The main strengths if these companies lies in their cheap versatility. Subscription costs are cheaper (No subscription costs for AliExpress, you simply buy direct from the manufacturer, which is typically cheaper), and these companies offer a selection that may not be as comprehensive as Amazon’s, but comes pretty close. This fall in-line with the concept of a “long enough tail,” in that these alternate e-commerce websites offer a selection just broad enough to cover most products, but lack the finer alternatives presented through Amazon.The main advantages that Amazon Prime has over these competitors lies in their brand recognition, brand respect, and wide pre-existing customer base. For many of these alternatives, they lack the trust and respect that Amazon has spent a decade cultivating. As a result, these threats to Amazon Prime are currently struggling to achieve recognition at a level comparative to Amazon. Given a couple more years, we predict that these competitors will have built up more of a consumer base with which to challenge Amazon.Amazon Prime is currently in a very successful position, where it has become the gold standard for quick, efficient, and affordable service. However, Amazon Prime, and the services included, is facing a ‘crisis of stagnation.’ As other companies are now looking to compete with Amazon, they are beginning to take advantage of Amazon’s inherent lack of options and forced bundling. Should Amazon Prime wish to be the world’s most popular e-commerce enabler, they will need to address their lack of competitive options that are being implemented by their competitors.Works Cited"Amazon Fulfillment Center Network." Amazon Distribution Network Strategy | MWPVL International. N.p., n.d. Web. 30 Nov. 2016. . "Amazon Has Grown Its US Logistics Network." Atlas. N.p., 10 Mar. 2016. Web. 30 Nov. 2016. . "Amazon Spends More on Shipping than It Makes." Atlas. N.p., 15 Jan. 2016. Web. 30 Nov. 2016. . "Amazon Using Merchants’ Warehouse Space So It Can Ship More Prime Orders, Faster." Consumerist. N.p., 17 Nov. 2016. Web. 30 Nov. 2016. , Lisa. "How Amazon Delivers Packages in Less Than an Hour." Time. Time, 22 Dec. 2015. Web. 30 Nov. 2016. Business Review. "Why Amazon Should Unbundle Prime." Harvard Business Review. N.p., 01 Nov. 2014. Web. 30 Nov. 2016. , Ovidijus. "Learning from Amazon's Advantage – 2016 SWOT Analysis." Strategic Management Insight. N.p., 19 Oct. 2016. Web. 30 Nov. 2016. , Brent. "R.J. Hottovy of Morningstar on Amazon Prime’s Lessons in Creating Loyal Customers." Small Business Trends. N.p., 07 June 2013. Web. 30 Nov. 2016. , JP. "Inside Amazon Prime." Fortune. N.p., 02 Feb. 2015. Web. 30 Nov. 2016. , Evan. "Ever Wonder How Pays for All That Free Prime Shipping?" The Motley Fool. N.p., 01 Jan. 1970. Web. 30 Nov. 2016. , Chase. "How Amazon Is Secretly Building Its Superfast Delivery Empire." Quartz. N.p., 11 Mar. 2016. Web. 30 Nov. 2016. . "Loyalty Case Study: Amazon Prime." Sweet Tooth -. N.p., 24 Aug. 2016. Web. 30 Nov. 2016. . "See the Robots Who Ship Your Amazon Packages | TIME." YouTube. YouTube, 04 Dec. 2014. Web. 30 Nov. 2016. , Brad. "8 Retailers Hosting Big Sales to Compete with Amazon Prime Day." Time. Time, 11 July 2016. Web. 30 Nov. 2016. , Brad. "Amazon Prime Membership Should Come With a Warning." Time. Time, 28 Jan. 2015. Web. 30 Nov. 2016. , Neal. "What Amazon Prime Is Like Around The World." Fast Company. N.p., 08 Jan. 2016. Web. 30 Nov. 2016. , William M. "Amazon Says It Can Ship Items before Customers Order." USA Today. Gannett Satellite Information Network, 18 Jan. 2014. Web. 30 Nov. 2016. ................
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