Using E-Business Systems to Engage Customers and Crush Competition

In our first blog, we examined how Amazon uses IT to overcome barriers to commerce.  Today, we will further explore Amazon’s e-business systems and how they have used them to create a competitive edge.  Specifically, we will focus on customer relationship management (CRM) and how Amazon utilizes that to become an e-commerce giant.

What are E-Business Systems?

E-business systems are a set of online technologies, equipment and tools that a business uses to conduct business via the Internet. These systems help a company connect with customers, process orders and manage information, http://smallbusiness.chron.com/e-business-systems-5270.html, retrieved 6/24/14.  Porter identified five forces that impact an organization’s competitive position.  These forces are depicted in the graphic below. 

 

 

Porter's Five Forces

http://www.mindtools.com/pages/article/newTMC_08.htm

According to Porter value is “the chain of activities for a company that operates in a specific industry. For gaining the competitive advantages, Porter suggested that going through the chain of organization activities will add more value to the product and services than the sum of added cost of these activities. And thus, the company will gain marginal value for that product or service. If these activities run efficiently the company gains competitive advantage on the product or service. For this case the customers should transact the product or services willingly and provide return on value to the organization” (http://www.managementexchange.com/hack/mapping-porter%E2%80%99s-value-chain-activities-business-functional-units, retrieved 6/24/14).  As we will detail below, Amazon identified personalization, in conjunction with premier selection and logistics, to positively impact their competitive position in the e-commerce industry. 

Amazon – e-commerce at its best

Before we begin discussing Amazon’s e-business and how it uses customer relationship management (CRM) to its advantage, here is an ABC news presentation on Amazon’s business.

 

 

In 1994 Amazon set itself apart as one of the first companies to sell a large variety of products and housing those products at strategically located warehouses across the country.  In 2013 Amazon had approximately 140 million active customers (http://blog.zipscene.com/2013/06/amazon-crm-well-done/, retrieved 6/23/14).  While their customer base, immense selection, and logistics model are impressive; their personalization and approach to creating a continued relationship with customers has really set Amazon apart from other online retailers and positively impacted their competitive position.  According to Blankenmeyer (2013), Amazon essentially created a six-pronged approach to personalization in their e-business CRM system.  The approach includes:

·         Needs Creation - Amazon has created dynamic communication based on the customers’ views, purchases, and location. Algorithms are used to determine the right products to introduce at the right time, and a stimulant is created to trigger a customer action which could be an email, site visit, and hopefully a purchase. 

·         Information Search – Amazon works to provide tools and assistance to getting customers to products they are seeking through multi-level categorization. Through this endeavor, they also introduce items that customer may not have even been consciously considering. This is introduced through algorithms based on “Products You’ve Purchased,” “Related Items You’ve Viewed,” and “New Items For You”. For Amazon, understanding individual customer preferences, enables them to personalize the customer website experience.  Amazon believes that the personalization and the assistance with purchase suggestions increases the probability of a purchase as well as the number of items purchased. 

·         Evaluate Alternatives – Amazon determined that when customers are making a purchase, one of the most common considerations is, “What else is out there?”. Amazon is able to provide recommendations to similar products based on what other customers, who they have determined are like the specific customer, also viewed. This assists the customer in making a purchase decision. 

·         Purchase Transaction - Amazon has perfected the payment process through optimization and elimination of as many barriers as possible leading up to the ultimate “Buy” button-click. Elements such as their 1-click purchase have taken the online buying process even easier than in store. The “See it, Like it, Buy it” is virtually a frictionless process now. If a customer is not enrolled in 1-click purchase and leaves something in their cart, a reminder email is sent and when the customer is logged in, the item is carried over to the new cart. Amazon has expanded this ability across devices; their mobile site and apps support all of the purchase transaction features of the full site. 

·         Post-Purchase Experience – After the purchase transaction, an email is sent to the customer to confirm and set up notifications for delivery. Amazon also has created opportunities for customers to store shopping lists which they call “Wish Lists”; this allows customers to put any item on a list that is sharable, for either gift ideas or saving items for another time. Based on recent purchases, new “needs” are presented to customers.

·         Amazon Prime - Amazon Prime is a service of free two-day shipping on all eligible purchases, for a flat annual fee, as well as discounted one-day shipping rates.  Prime subscribers also receive Amazon Instant Video which allows streaming of selected movies and TV shows at no additional cost.  (Blankenmeyer, T., 2013. http://blog.zipscene.com/2013/06/amazon-crm-well-done/, retrieved 6/24/14).  A 2010 Businessweek story stated that Amazon Prime broke even within three months of launching, not the two years predicted by its creators. Customers spent as much as 150% more at Amazon after they became Prime members. Subscribers not only ordered more often, but after paying the $79 fee, they started buying things at Amazon that they probably would not have in the past (Tuttle, B., 2013)

Amazon’s latest innovation in improving using e-business systems is the Skype-like customer support they have built into their tablets - Mayday.  The video below demonstrates how Mayday can enhance the customer experience. 

Back to Porter’s Five Forces

 

So what does this mean for Amazon’s competitive position?  Let’s look at each of the forces individually in terms of their current and emerging e-business systems:

·         The treat of substitute products

o   Their use of e-commerce to create a nearly unlimited product selection makes it unnecessary for users to move to another e-commerce retailer.

·         The threat of established rivals

o   By continuing to improve the customer experience, Amazon is widening the gap in online customer management.

·         The threat of new entrants

o   Again, Amazon has isolated themselves though an easy “one-stop-shop” approach for customers.  New entrants would have a hard time replicating their performance.  Their huge product catalog also provides economy of scale protection.

·         The bargaining power of suppliers

o   Amazon’s ability to continue to grow it’s customer base gives suppliers very little leverage.  Their economies of scale allow Amazon to negotiate better prices and performance.

·         The bargaining power of customers

o   By using e-commerce to integrate multiple vendors into their site, Amazon customers are able to shop multiple vendors simultaneously.  This gives customers the ability to

 Conclusion

Amazon is the global leader in e-commerce.  Amazon.com offers everything from books and electronics to tennis rackets and diamond jewelry (http://ecps.amazon.com/amazon.jsp, retrieved 6/25/14).  In terms of technology Amazon is also leading the industry. 

            In 2000, Amazon.com began to offer its best-of-breed e-commerce platform to other retailers and to individual sellers. Now, big-name retailers work with Amazon Services to power their e-commerce offerings from end-to-end, including technology services, merchandising, customer service, and order fulfillment. Other branded merchants also leverage Amazon.com as an incremental sales channel for their new merchandise; you can find products from top retailers across our retail site. Finally, independent software developers also derive value from the platform--through Amazon Web Services--by building profitable applications and services that cater to Amazon.com customers and sellers (http://ecps.amazon.com/amazon.jsp, retrieved 6/25/14). 

Amazon has essentially done away with rivals, suppliers, new entrants, and suppliers by asking them to join the party.  This model creates a win-win-win for Amazon, other retailers, and customers. 

References

Banker, S., (2013) http://www.forbes.com/sites/stevebanker/2013/12/19/amazon-drones-here-is-why-it-will-work/, retrieved 6/25/14.

Biggs, J., (2013). http://techcrunch.com/2013/09/24/amazon-introduces-mayday-a-unique-and-amazingly-useful-live-tech-support-system-for-kindle/, retrieved 6/25/14.

Blankemeyer, T., (2013). http://blog.zipscene.com/2013/06/amazon-crm-well-done/, retrieved 6/25/14.

Mayday. https://www.youtube.com/watch?v=PFYHF1w8w3g, retrieved 6/25/14.

Tuttle, B., (2013) Amazon Prime:  bigger, more powerful, more profitable than anyone imagined.  http://business.time.com/2013/03/18/amazon-prime-bigger-more-powerful-more-profitable-than-anyone-imagined/, retrieved 6/24/14. 

 

BI Systems - Blog 2 Group 3

Introduction to Business Intelligence

Business intelligence is believed to have begun with the evolution of decision support systems (DSS) that began in the 1960s and developed throughout the mid-1980s. “DSS originated in the computer-aided models created to assist with decision making and planning. From DSS, data warehouses, Executive Information Systems, OLAP and business intelligence came into focus beginning in the late 1980s” (Business Intelligence,   http://en.wikipedia.org/wiki/Business_intelligence, retrieved 6/18/14).  Usage of the term became widespread in the 1990s.  Business intelligence (BI) is a broad term used to refer to applications and technologies for gathering, storing, analyzing, and providing access to data to assist with better decision making.  BI applications include the activities of decision support systems, query and reporting, online analytical processing (OLAP), statistical analysis, forecasting and data mining.  Although the terms business intelligence and business analytics are often used interchangeably, the chart below differentiated the two.

BI vs BA	Business Intelligence	Business Analytics
Answers the questions:	What happened? When? Who? How many?	Why did it happen? Will it happen again? What will happen if we change x? What else does the data tell us that never thought to ask?
Includes:	Reporting (KPIs, metrics) Automated Monitoring/Alerting (thresholds) Dashboards Scorecards OLAP (Cubes, Slice & Dice, Drilling) Ad hoc query	Statistical/Quantitative Analysis Data Mining Predictive Modeling Multivariate

(http://searchdatamanagement.techtarget.com/definition/business-intelligence, retrieved 6/18/14)

Implementation of Business Intelligence Systems

The use of BI systems cuts across industries and sizes of organizations.  However, when deciding to implement BI systems, all organizations must evaluate costs, benefits, cultural issues, implementation issues.  Each of these will be evaluated below.

Costs

Actual out of pocket costs for BI tools can be quite high.  In terms of tangible costs considerations include, “…the data warehouse; information delivery; data gathering and management; and all the associated infrastructures, software, tools and support resources. In addition, the BI project development, management and delivery costs, including the infrastructure, are part of the cost equation” (http://www.itbusinessedge.com/cm/community/features/guestopinions/blog/measuring-the-return-on-investment-for-business-intelligence/?cs=30674, retrieved, 6/18/14). 

In 2012, a principal analyst with Forrester estimated that, “A typical business intelligence deal in a large enterprise with a large vendor is somewhere from $150,000 to $300,000” (King).  Furthermore, the analyst stated that, “For every dollar you spend on business intelligence software, you better expect to spend five to seven times as much on services” (King, 2012).  Given this, there is often a big cost for “big data.”

In addition to the direct cost of the software and services, the major costs of BI systems include getting prepared and implementing the system. The business has to consider:

•           The correctness and integrity of the data

•           The translation of the data into usable information

•           The speed and format of the delivery

•           How well the information meets the design criteria and business requirements in the preliminary design http://www.itbusinessedge.com/cm/community/features/guestopinions/blog/measuring-the-return-on-investment-for-business-intelligence/?cs=30674, retrieved, 6/18/14).

Benefits

The benefits to implementing a BI system can be numerous.  However, calculating the financial impacts returns of a BI investment is sometimes not simple and therefore some companies choose not to do so.  An example of this can be seen at Pittsburgh clothing manufacturer Little Earth Productions Inc. (LEP).  LEP uses BI to track the sales that each salesperson has brought in and then display that data publicly (Ante, 2006).  In this case, although they have obviously improved real time accountability and/or peer pressure, LEP has not taken the step to attempt to determine how this may have increased sales.  However, in other cases, companies benchmark year over year results (pre/post implementation) in order to estimate the impact of a BI tool.  For example, Anderson Regional Medical Center (ARMC) uses a BI tool with the main benefit of being able to quickly and accurately aggregate data.  This in turn can increase the speed of decision making and yield significant cost savings.  ARMC is a 400 bed, 1,700 employee hospital in Mississippi.  By implementing a BI tool which integrates data from their staffing and scheduling, human resources, and time and attendance systems; ARMC was able to make real time decisions about the most cost effective way to staff (API Healthcare, 2014)).  “The [BI tool] provides timely, relevant information so executives, managers and clinicians have the tools they need to staff the hospital based on patient need while effectively controlling labor costs” (API Healthcare, 2014).  Over an 8 month period, this resulted in savings of $2.5 million for ARMC (API Healthcare, 2014).

The video below outlines how MediaCom uses a BI solution from Microsoft to integrate data and provide real time feed back to it's internal teams and clients.

Cultural Issues

When implementing a BI system consideration must be given to how workers and managers will embrace and use the technology.  An example of a cultural impact can also be seen using our previous example of Little Earth Productions Inc. (LEP). There, real time data can often lead to a feeling of being micromanaged.  Additionally, if the BI outputs are widely visible, workers may feel an inordinate amount of peer pressure.  Employees state, “You do feel bummed out sometimes if you are low on the list,” and “It's frightening” (Ante, 2006).  These type of morale issues can significantly disrupt productivity and may cause BI implementation to have the opposite than desired effect.  Given this, companies should pay close attention to the use of, and messaging about, BI implementations. 

Implementation Issues

As mentioned in the cost section, one of the main implementation issues is data preparation.  In addition to the significant cost, this can often be an arduous process of manipulation and mapping.  In an extreme example, this could be manual entry for historical data that is kept in hard copy. 

In addition to the data manipulation, there are often obstacles with preparing the organization for the implementation of a BI solution.  This includes the cultural issues mentioned above, but also includes business processes.  Portland State University (PSU) had some setbacks in their BI implementation for just this reason.  After attempting to implement a BI solution for over two years, the project team had to reset expectations.  One lesson learned was that “it represented a significant change in our processes and thus required substantive changes in practice and behavior to succeed” (Blanton, 2012).  Furthermore, identified the following obstacles in implementation:

1. Business intelligence projects run by IT tend to fail.

2. Project sponsorship can’t just be in name only.

3. Project management must adjust to the customers involved.

4. No matter how much customers dislike a legacy system, they will dislike change more.

5. Appropriate governance has everything to do with project success.

6. Overwhelming process can lead to underwhelming results.

7. A business intelligence project can foster amazing cross-campus collaboration and knowledge transfer.

8. A mission-critical project should be managed by someone with deep and broad institutional knowledge and relationships.

9. When creating a new unit to manage and deliver a new service, be sure to build in time for team cohesion, institutional knowledge transfer, and cultural intelligence as part of the project plan.

10. New tools expose the need for new policy.

We believe that each of these lessons learned are universal truths that should be considered anytime a BI implementation is being done.

References

Ante, S. (2006, February 12).  Giving the boss the big picture. Bloomberg Businessweek. http://www.businessweek.com/stories/2006-02-12/giving-the-boss-the-big-picture, retrieved 6/18/2014.

API Healthcare. (2014). Anderson Regional Medical Center Case Study. http://www.apihealthcare.com/sites/all/themes/wonderwheel/pdf/API_Healthcare_AndersonRegional_CS_0314_FINAL.pdf, retrieved 6/18/14.

Blanton, S. (2012, July 18). DataMASTER: Success and Failure on a Journey to Business Intelligence. http://www.educause.edu/ero/article/datamaster-success-and-failure-journey-business-intelligence, retrieved 6/18/14.

King, R. (2012, January 27). Business Intelligence Software’s Time Is Now. http://www.passionned.com/business-intelligence-softwares-time-is-now/, retrieved 6/18/14.

Miller, D., (2009). Measuring the return on investment for business intelligence.  http://www.itbusinessedge.com/cm/community/features/guestopinions/blog/measuring-the-return-on-investment-for-business-intelligence/?cs=30674, retrieved, 6/18/14. 

Rouse, M. Business Intelligence (BI).http://searchdatamanagement.techtarget.com/definition/business-intelligence, retrieved, 6/18/14.

Wikipedia. Business Intelligence. http://en.wikipedia.org/wiki/Business_intelligence, retrieved 6/18/14.

E-Commerce: For the Love of Shopping

E-Commerce is “buying and selling, marketing and servicing, and delivery and payment of products, services, and information over the Internet, intranets, extranets and other networks…” (O’Brien & Marakas, 2011).  We all know and love e-commerce as a go-to way to easily locate and purchase almost anything.  According to the blog ReferralCandy, in 2012 the number of retailers, differentiated by yearly sales, was as follows:

Yearly Sales of at least	Number of retailers in 2011	Number of retailers in 2012	Year-on-Year Growth
$12,000	90,501	102,728	13.5%
$25,000	54,686	61,728	12.8%
$50,000	33,983	38,157	12.3%
$100,000	21,118	23,587	11.7%

(http://blog.referralcandy.com/2013/09/18/how-many-online-stores-are-there-in-the-us-2013-edition/, retrieved 6/9/14)

The number of retailers are only one way to measure the impact of e-commerce.  When we look at the holiday shopping season of 2013 we see a shift from shopping in malls and stores to the “well informed, socially-connected consumers” (http://www.forbes.com/sites/oracle/2014/01/13/10-technology-trends-that-will-revolutionize-retail/, retrieved 6/5/14).  Further, while retail sales rose 2.7% in November of 2013, actual store visits declined 14.6% and eMarketer estimates that up to 20% of the 2013 holiday season sales occurred on mobile devices (http://www.forbes.com/sites/oracle/2014/01/13/10-technology-trends-that-will-revolutionize-retail/, retrieved 6/5/14).

So, if sales are on the rise, all must be fine in the world of e-commerce? Not so fast!  Competition in the e-commerce world is fierce.  This is true, at least in part, because of the impact of globalization that Thomas Friedman (2008) discussed in his lecture at MIT about his book The World is Flat: A Brief History of the 21^st Century.  Although globalization increases competition in all industries, the impact is greater in e-commerce because buyers have no physical connection to e-commerce retailers.  This heightened competition “encourages and sometimes requires a constant effort to gain competitive advantage in the marketplace” (O’Brien & Marakas, 2011, p. 46).  Given this, we were able to identify a number of barriers to commerce which are somewhat unique or more prevalent in the e-commerce world.  Additionally, we identified a number of IT strategies companies are using to overcome these barriers.

Barriers and Strategies to Overcome in the World of E-Commerce

If we assess the barriers through the lens of competitive forces, we can easily see how IT can assist with overcoming some of the barriers identified in the literature.  As a leader in the industry, Amazon can be used to highlight several examples of barriers in e-commerce.  Also, Amazon provides several examples of how these barriers can be overcome.  Amazon is an example of an e-commerce organization that has utilized IT, to assist with marketing, logistics and distribution, integration of selling channels, and customer management. 

Logistics and Distribution

Logistics and distribution functions not only provide customers with products, but they also play a role in allowing Amazon to be a cost leader.  Furthermore, they allowed Amazon to innovate by morphing from an online book store, carrying only a few titles and sourcing from other retailers, to becoming essentially a wholesaler by providing smaller retailers the ability to market through Amazon.  All of these business decisions were supported by data obtained through its large technology infrastructure which allows Amazon to divide their IT into three functions; query, historical data, and ETL which pulls data from one source and integrates it into another.  A quick overview of Amazon's E-Commerce Success Story below outlines their data differentiating strategy.

  

Most recently, IT solutions allowed Amazon to invest in about 50 new warehouses to bring same-day delivery to many of its customers.  Same day shipping allows Amazon to differentiate themselves from their competition.  However, the con of this is shipping isn’t cheap.  Amazon reported an all-time high of shipping costs in the first quarter of 2014, reporting net shipping costs of $1 billion – an increase of 28% over the same quarter in the previous year (see chart below).  (http://www.geekwire.com/2014/amazons-shipping-costs-keep-soaring-ripping-retailers-business/, retrieved 6/9/14). Although many customers pay an annual membership fee to allow for free shipping and other perks, it turns out that this doesn’t necessarily cover the cost and Amazon ultimately pays the price.  In order to alleviate the burden on the company, Amazon increased the membership price by $20.  However, with this increase in price comes a demand for more features to enhance the customer experience which IT will have to be fully involved in such as access to streaming videos and music.

Marketing, Selling Channels and Customer Management

A look at customer management also provides insight into how IT can assist with overcoming barriers to commerce.  When a customer opens the Amazon site, he or she will not only see featured products and special offers, but also recommendations based on past searches and sales history.  Customer tracking and behavioral targeting, thanks to its investment in IT, is an Amazon stronghold and differentiates it from many of its other e-commerce competitors (http://money.howstuffworks.com/amazon1.htm, retrieved 6/9/14).  Although, tracking is convenient to customers and increases sales, one con is it is costly to the company to implement and maintain.  Additionally, some customers might consider it an invasion of privacy.

Another feature of customer management that sets Amazon apart from its competitors and relies heavily on IT is its multi-leveled e-commerce strategy that provides customers access to almost anything by allowing other retailers to sell merchandise through their site.  For Amazon, this is both an innovation and alliance strategy.  By aligning with other retailers and bringing them on-board with their IT platform, Amazon eliminates competition by making them their business partners. 

References

http://blog.referralcandy.com/2013/09/18/how-many-online-stores-are-there-in-the-us-2013-          edition/, retrieved 6/9/14

http://blogs.hbr.org/2013/11/amazon-constantly-audits-its-business-model/, retrieved 6/9/14

http://www.forbes.com/sites/oracle/2014/01/13/10-technology-trends-that-will-revolutionize-        retail/, retrieved 6/5/14. 

Friedman, T. (2008, January 11). MIT Milestone Celebration | Keynote Address, retrieved on from https://www.youtube.com/watch?v=EcE2ufqtzyk, retrieved 6/10/14. 

Hanley Frank, B. Amazon’s shipping costs keep soaring, forcing tough decisions http://www.geekwire.com/2014/amazons-shipping-costs-keep-soaring-ripping-retailers-business/, 6/9/14

Layton, J. How Amazon Works. Retrieved from How Stuff Works             http://money.howstuffworks.com/amazon1.htm, retrieved 6/9/14. 

O’Brien, J.A. & Marakas, G.M. (2011).  Management information systems, 10^th edition. NYC,      NY, McGraw-Hill.

Tucker, B. List of Barriers to eCommerce.  Retrieved from How Stuff Works             http://www.ehow.com/info_8465346_list-barriers-ecommerce.html, retrieved 6/9/14.