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.