Is there such a thing as a ‘sweet spot’ in the middle?

By: Mary-Jane Mastrandrea

“Many rival retailers have reported their worst revenues in years; they’re cutting workers or shutting down entirely. Yet Amazon is thriving: It just had its best holiday season in company history, with profits up 9 percent over last year.”[i]
Amazon.com is a retail outlet operating solely online. The company has been credited with popularizing online shopping having started in the realm of books in 1995 and expanding its product offering to furniture, home furnishings, food, toys, apparel and electronics.
In the last decade, Amazon.com has weathered the storm of many online market competitors including Barnes and Noble, eBay and most directly, Walmart. What makes Amazon.com stand out is its ability to sustain its online operations and success where retail gurus such as Walmart online cannot. This prompts the question: How has Amazon.com has achieved such success in areas where big players can’t? Has Amazon.com found a ‘sweet spot’ in satisfying the online retail world?
Amazon.com has achieved sales growth through an expansion of its product lines. Offering thousands of products across the globe, the company thrives on its ability to offer an assortment of products as opposed to a specialty online niche. Furthermore, Amazon.com’s private label brand, “Pinzon” has fostered customer loyalty and is known for its quality assurance.
Amazon.com’s inventory management allows them to offer competitive prices to their products. As a large player, Amazon.com has the strength to apply pressure to its suppliers, and where inventory is purchased on demand, Amazon.com has the flexibility to pass on savings to its customers. This was evident in the 2008 holiday season where Amazon.com offered products through its website that were discounted by distributers “as demand was falling off a cliff, [Amazon.com] could get better rates.”[ii]
On ‘Black Friday’ in 2008, online sales saw an increase of 11%.[iii] This has been directly linked with the convenience experienced by customers’ ability to shop online as opposed to manage the chaos of typical retail shopping. Amazon.com prides itself with offering convenience through 24 hour accessibility to the website and delivery of products. Furthermore, Amazon.com values customer experience. Customer reviews are offered on all products and not edited by Amazon.com. This allows customers to feel as though they are permitted to honest product opinions from real buyers—where firsthand experience is more valuable than a sales associate.
In terms of retail value proposition, it is clear that Amazon.com has acknowledged all areas: Selection, Experience, Convenience and Price. However, as the company continues to dodge attacks on market share it is worth assessing if Amazon.com’s current retain value proposition is sustainable? Is Amazon.com attempting to satisfy too much? Are they too unfocused to maintain this level of success?
In terms of growth strategy, Amazon.com has achieved success through its addition of products and product categories. However, as Amazon.com begins to tiptoe into a realm of ‘over-selection’ the convenience of online shopping decreases. Consumers drawn to online shopping for its ease of use and simplicity could find themselves overwhelmed with a search for ‘towels’ yielding 50 results!!
Furthermore, the customer experience offered by Amazon.com could be easily replicated by a competitor. Customer reviews of products and shipping are not sources of a competitive advantage in the realm of customer service.
Finally, Amazon.com’s inventory purchasing strategy has hinged on its ability to seize sale opportunities with distributors in order to pass on lower prices to its customers. However, the company acknowledges that “real bargain hunters can almost always find better deals at Walmart.”[iv] What’s more, WalMart has higher sales than Amazon.com due to its physical retail locations and has the opportunity to apply even more pressure to suppliers to achieve even lower raw costs.
Amazon.com has hit a crossroad in the online retail world. Although seeking to satisfy all aspects of the retail value proposition has allowed Amazon.com the appearance of success, without a focused retail value proposition, Amazon.com will not sustain its position as an online market leader. It is only a matter of time before this ‘sweet spot’ goes sour.
Citations
[i] http://www.slate.com/id/2210620/
[ii] iBid.
[iii] http://news.varadinum.com/pricegrabbercom-releases-2008-black-friday-online-shopping-statistics.html
[iv] http://www.slate.com/id/2210620/

Other Websites Consulted
http://www.ecommerce-guide.com/news/trends/article.php/1501651
http://online.wsj.com/article/SB122764819199157439.html
http://weblog.raganwald.com/2008/05/why-apple-is-more-expensive-than-amazon.html