MGMT 300 Chapter 7
Activity (within Amazon)
- allows Bezos to further sharpen the business battle sword by gathering an immensely valuable data asset - *digital movement is logged*, constantly analyzing what users respond to in order to further fine-tune the customer experience, make more accurate demand predictions, squeeze out costs, and drive cash flow
Amazon Web Services (AWS)
- allows us to see how the firm is building a powerhouse cloud provider, generating new competitive assets while engaging in competition where it sells services to firms that can also be considered rivals.
Network Effect (Amazon suffers from)
- amazon opens its website up to third-party sellers - dynamic where more customers attract more sellers, which attracts still more customers - *cycle of buyer-seller growth is a two-sided network effect*, source of competitive advantage
Which of the following factors likely contributed to the failure of the Fire phone? Select all possible correct answers.
- amazon was late to the smartphone market - amazon lacked network effects for its new system - rivals benefited from significant customer switching costs
Amazon's Customer Obession
- amazon's moves are largely motivated by one thing: *relentless customer focus* - *Bezos insist* that one seat be left open at the conference table as a symbol representing "the most important person in the room," the Amazon customer - every 2 years every employee, from Bezos on down, must spend 2 days on the service desk answering customer calls - scores highest on University of Michigan's American Customer Service Index (ACSI)
Amazon vs. Walmart
- amazon's revenues are still smaller than Walmart - amazon is growing far faster and has a market cap not just bigger than Walmart - *amazon is bigger* than Walmart, Target, Best Buy, Macy's, Nordstrom, Kohl's, JCPenney, and Sears (combine)
On-Deck Delivery by Drone and Robot
- an effort from the firm's next-generation R&D lab - use copter-style drones to deliver small packages to consumers in thirty minutes or less
Amazon is now under intense scrutiny from
- antitrust regulators - workplace advocates - privacy groups - lawmakers - the public *wondering* if its justifiable that a firm earning $11 billion in profits paid $0 federal taxes over 2 years (received rebates)
Acquisitions of other firms and the growth of new internal businesses has allowed Amazon to
- broaden the firm's product offerings to underscore Amazon as the "first choice" shopping destination - absorb potentially threatening competitors before they get too big - experiment with new product offerings and services - integrate value-added businesses and technologies into the Amazon empire
How Amazon Fulfilled Shipping Operations
- built a system that worked by focusing on costs, data, and processes - allowed amazon to focus on what was wrong and how it could improve though applying technology - - *one effect*: Get the CRAP out, focused on products that can't realize any profits
Collaborative Filtering
- classification of software that monitors trends among customers and uses this data to personalize an individual customer's experience. - 35% of product sales have come from the firm's recommendations
Rapid inventory turnover and long payment terms enable Amazon to
- consistently post a negative cash conversion cycle - allowing for amazon to sell products and collect money from customers before it has paid suppliers for these products.
What Factors does Amazon use to figure out the optimal way to deliver packages to consumers
- cost, fuel prices, routing, delivery time commitment, weather, traffic, fleet availability, and other factors to dispatch packages
Amazons Scale Advantage
- enables them to operate with thin margin and low prices - allows them to create several of its own branded product lines (allowing for the cutting of branded supplier costs lowering prices and improving margins over conventional brands) - amazon's retail prices are not cheaper than other e-commerce firms but also larger rival firms to (walmart) - amazon generates cash and nearly puts every penny back into the firm through investments in fulfillment center infrastructure and higher margin cloud computing - amazons has used its bargaining power with suppliers to demand price-saving concessions from partners
Amazon's Shipping Operations
- firm's early warehousing was a shambles of inefficient, money-burning processes - amazon's warehouse and technology infrastructure are radically different than any conventional retailer - *to automate profit-pushing hyper efficiency*, Amazon warehouses are powered by at least as much code as the firm's website
Exceptional Customer Experience
- fuels a strong and makes amazon the first place most consumers shop online - having more customers allows the firm to provide more products, creating *scale* - *larger the business*, easier it is for Amazon to vertically integrate to become its own shipper in some circumstances—keeping prices and other costs down while speeding delivery
Employee Efficiency (of amazon)
- greater as shift workers work at constant rates throughout the day
Amazon's Category Crushing Performance in Online Commerce
- have created a set of resources (data, scale, network effects, and more) that have a natural end-state of winner-take-all - give them enormous bargaining power with suppliers and partners, - made amazon the first stop for shoppers and the first choice for selling partners, allows the firm to gather an unprecedented amount of data, and has created a distribution footprint that's difficult to imagine any other firm rivaling
Operating Income
- income you generate through your operations. - sales through daily business operations minus related expenses. - *Net income* is overall "profit" but can include things such as income from investments, expenses related to financing costs or taxes, or one-time income or expenses such as a gain from a sales or a corporate fine.
Amazon Prime Subscription Service
- is used to make customers happy and to create habit-changing behaviors that fuel sales growth - in 2018 amazon announced it had 100 million prime customers (1/2 of US households) - subscribers to Amazon Prime now get next-day delivery on roughly 10 million products - prime members with additional perks like a selection of thousands of videos and hundreds of thousands of songs that subscribers can stream for free.
Amazon does not make money by selling Kindle hardware
- it seeks to fuel media and e-commerce sales as well as side businesses such as on-Kindle and in-app advertising.
Kindles Market Position Allowed it to Undercut Competition
- kindle fire was offered at half the price of its competition while increasing the devices functionality (Moore's Law) - kindle versions are sold at or below cost - *digital publishing* enables titles to enter the market far faster than physical offerings
Amazon Kindle
- kindle isn't as much about reading digital books as it is about putting a store in the hands of the firm's over 300 million customers - instantly linking those customers with the firm's entire inventory of physical products (6 million titles are offered in the kindles always open bookstore) - *amazon's top-selling product* (20% of amazon customers own at least one kindle device) - kindle arrives linked to the customer's amazon account - started as an e-book reader expanded to Kindle and Fire product lines, then to categories that include tablet and television set-top boxes, and new product categories like Amazon Echo
Amazon's Logistics and Shipping Efforts include
- leased fleet of cargo jets (Prime Air) - hundreds of tractor trailers, an expanding local delivery infrastructure - foray into trans-oceanic shipping - publicized commitment to delivery by unmanned drone
Affiliate Marketing Program
- marketing practice where a firm rewards partners (affiliates) who bring in new business, often with a percentage of any resulting sales. - *"finder's fee" for generating sales* - amazon allow others to sell products through its site, it allows others to market for the firm (known as amazon associates program) - *amazon fees paid* are pay for performance - meaning associates get commission only if their promotions generate sales
Amazon's Cash Conversion Cycle is consistently negative
- means amazon sells goods and collects money from customers weeks before it has to pay its suppliers. - *gives amazon* a special advantage where it has extra cash to put on expanding operations, making interest-bearing investments, etc.
Accounts Payable
- money owed for products and services purchased on credit - a bill that says when payment is due some time in the future. - periods vary, but it's common for big retailers to be able to hold products for a month or longer without having to pay for them
Inventory Turns
- number of times inventory is sold or used during a specific period (such as a year or quarter). - *higher number* means a firm is selling products quickly - *goal for amazon* keep inventory turns high and pay suppliers later
Cash Conversion Cycle (CCC)
- period between distributing cash and collecting funds associated with a given operation - firm's period between paying suppliers for products and collecting funds from customers who purchase these products - firm can increase inventory turns and lengthen its accounts payable period to improve CCC - CCC varies over time, # are an average for all products (want to be small)
Liquidity Problems
- problems that arise when organizations cannot easily convert assets to cash. *cash* is the most liquid asset
Two-sided Network Effect
- products or services that get more valuable as two distinct categories of participants expand - more buyers attract more sellers - more sellers attract more buyers
Size (of amazon)
- provides the firm with negotiating leverage to secure lower prices and longer payment terms *Walmart's sales dwarf Amazon's* - Walmart's 2018 revenues were $514 billion. - Amazon's 2018 revenue was about $233 billion - *amazon* has a larger dollar-value of products moved but the firm only books the money it keeps selling third party products not overall sales figures
Amazon's University Bookstore Business
- providing a hub for free textbook delivery and rental, and a link to customer acquisition and retention among college students - opened first Amazon Campus store at Purdue University in 2015, offering lowered textbook costs by 40%
A/B Test
- randomized group of experiments used to collect data and compare performance among two options studied (A and B) - is often used in refining the design of technology products - are particularly easy to run over the Internet on a firm's website
Amazon's Brick-Based Bookstores
- roughly 20 locations coast to coast - stores aren't especially efficient when compared to the economics of its e-commerce business - Amazon financials show the stores don't really make any money and offer only 6,000 titles in a small retail footprint - *main reason* is to serve customers and help them discover great books (organized like the website)
Advantages of Online vs Offline Companies are related to
- scale - data asset - brand building benefits
Quantity (of amazon)
- selling more goods gives better bargaining power with suppliers
Retargeting
- showing ads for products and services form a site that a user has previously visited
Amazon Go Concept Store
- shows how machine learning influences computer vision, AI, and other techniques to eliminate cash registers - shopping experience without lines is potentially far more attractive for consumers - offer any retailer benefits such as more shelf space, stores in a smaller real estate footprint, and perhaps even a smaller staff size. - uses image recognition, motion detection, weight sensors, and other advanced AI to tell what a customer picks up and charges them when they leave the store
Amazon's sophisticated fulfillment operations
- speed products into and out of inventory, reinforcing brand strength through speed, selection, and low prices.
Amazon SLAM Steps
- stands for scan, label, apply, manifest - packed boxes are weighed, and the software does an additional check to see if the weight is what's expected. - if an order is too light, that's a sign that a box is missing an item - if an order is too heavy and the wrong item may be in the order.
Amazon has combined ________ and _________ to outperform sky-high expectations and become one of the most innovative firms in history.
- technology and strategy
Amazon Logo
- the stylized smile in the Amazon logo doubles as an arrow pointing from A to Z (as in "we carry everything from A to Z")
Amazon Kindle Business
- this tablet, set-top box, and the voice-powered personal assistant allow us to look into the importance of mobile, multiscreen, and diverse-interface computing - is a vehicle for media consumption - distribution channel for increased sales and advertising - creator of switching costs - gathering point for powerful data, and a competitor for platform dominance
Amazon have also been victims of channel conflict
- topping the sale of Kindles and blocking the sale of books published through Amazon imprints. - when *channel conflict occurs*, the winner will likely be the channel that offers the greatest aggregate value to its partners
What Amazon Operates
- two dozen amazon branded stores that include "Amazon Books" and "Amazon Go (concept stores that are physical retailers with no-checkout convenience - Amazon pop up kiosks are now commonplace in malls cross country - Amazon completed a gargantuan $13.7 billion acquisition of Whole Foods—giving them a 42-state collection of over 430 grocery stores
Change in Amazon's Shipping Operations
1. Amazon previously relied exclusively on human beings rushing around maze-like warehouse shelves to stock products and pick orders *NOW* 2. Robots bring the shelves with the item to the worker for scanning new inventory and fulfilling orders (now using over 100,000 robots) - same items might be stored on different shelves allowing for different robots to simultaneously fulfill different orders for the same items - robots make a warehouse 50% more efficient at moving inventory and 50% more product can be stored - $46 million to set up a robot-run system warehouse - humans are still needed to grab an item off the shelf, do a second quality check, and place items into yellow plastic order fulfillment bins
Amazon Postponed Profits and Concentrated on
1. Expanding warehousing capacity 2. Building e-commerce operations worldwide 3. Developing a cloud computing platform 4. Pioneering e-book readers
Amazon
- went 7 years without turning a profit and lost over $3 billion during that time (firm's stock price had fallen from a high of $100 a share to below $6) - operates over 400 facilities worldwide dedicated to the warehousing, distribution, and delivery of products, sometimes guaranteeing delivery within the hour (*always have sold directly to consumers*) - Bezos refused to concentrate on the quarterly results (profit harvesting) instead followed his best reckoning on where markets and technology were headed - Amazon is clearly more than an online store and has even begun to aggressively invest beyond "clicks" into "bricks. - Amazon has the best reputation of any US corporation - *investment in cloud computing* has paid off spectacularly, and it now delivers over half of the firm's operating income
Conflict Channel
- when a firm's potential partners see the firm as a threat, they offer competing products vai alternate channels and work closely with threatening competitors *wholesale pricing*: paying publishers for titles and then selling the books at whatever price it wanted *agency pricing*: publisher sets the price and the reseller gets a cut
Amazon ___________ was discontinued in 2019 due to declines in usage and, most likely, the low profit margin it provided.
-dash
Dynamic Pricing
-pricing that shifts over time, usually based on conditions that change demand - causes consumers to react angrily if they feel they are being taken advantage of
Jeff Bezos invested in which of the following firms
-uber - the washington post - twitter - blueorigin
Bezos Quote
"I always get the question, what's going to change in ten years? "I almost never get asked, what's NOT going to change in the next ten years?" - *more important question* because you can build a business around things that are stable (low prices, faster delivery, customer convenience, selection)
Amazon will compete directly with firms via a Private-Label Product if
*the firm is unwilling to provide Amazon with*: - price breaks - payment terms - conform to shipping requests - complete product-line access it demands
Amazons "Wheel of Growth"
*three pillars of Amazon's business* (1) large selection (2) customer experience (3) lower prices *work together to create additional assets for competitive advantage*
Why Study Amazon?
- *amazon* it the world's most valuable retailer and the largest, most profitable provider of cloud computing services - Bezos's firm is worth twice as much as the world's largest physical retailer (Walmart), and is growing far faster *amazon* provides a context for introducing several critical management concepts such as: (1) cash efficiency (2) logistic advantages (3) channel conflict - this company shows how tech-fueled operations can yield better profits than offline payers
Amazon Echo and Alexa
- *echo* is the brand name for voice-powered devices - *alexa* is the name of amazon's voice assistant software platform - devices are powered by machine learning and the firm with more customers should have more data for improvement and skill refinement
Amazon Marketplace
- *half of all units sold by Amazon* are from the firm's 2 million participating Amazon Marketplace sellers worldwide. - allows amazon to build a long tail of product offerings without the costly risk of having to take ownership of unproven or slow-moving inventory - Around 40% of products sold on Amazon are offerings sold through Amazon Marketplace by third parties *allows amazon to:* - get a cut of each sale - maintains its control of the customer interface - retains the opportunity to collect customer data that would be lost if users went elsewhere for a purchase.
Amazon's Shipping and Delivery Infrastructure
- *includes* a fleet of Prime Air cargo jets, long-haul trailers, local trucks, trans-oceanic shipping operations, and plans for automated delivery-by-drone. - *cost and control drive Amazon's interest in logistics* - Amazon spent $27.8 billion on shipping costs in 2018 (with fulfillment costs) $61 billion - quarter of amazon's revenue - 4.8 million packages a day in the US alone. - *delivery network* gives Amazon more control over the customer experience
Amazon and the Cloud
- *kindle* stores purchase content off-device and can load a customers virtual bookshelf on demand - *amazon cloud drive* offers file storage similar to dropbox and google drive - *amazon cloud player* streams music purchases through a web browser or smartphone app *amazon web services* allows firms to rent industrial strength computing capacity on an as-needed basis - goal to monetize firms expertise in scalability and reliability - fastest growing business of amazons
Amazon's Dominance of Publishing
- 41% of new US book sales and 61% of online sales gives amazon inordinate market influence - amazons bargaining power, could prompt domestic and international regulation and sanctions.
The Last Mile
- Amazon has built out its network of sortation facilities, which now number at 70 throughout the US. - network is so extensive that 75 percent of the US can now be serviced with next-day or same-day delivery.
Long and Mid-Haul Trucking
- Amazon owns 1,000s of its own branded truck trailers that get loaded with customer packages at fulfillment centers - can be driven by any firm or independent contractor
Controlling Parts of Amazon's Distribution Channel Means
- Amazon partners will be increasingly disintermediated from a larger percentage of Amazon orders
By Sea and Global Reach
- Amazon's China subsidiary has become an ocean freight shipping operator moving goods from Chinese manufacturers to the US Ocean shipping - used for forecast demand (not rapid delivery), say to bulk up fulfillment centers with goods Amazon knows it will need
Prime Air
- For items that need to travel farther and faster than trucks - Amazon has realized it can fly cargo jets more cheaply and efficiently than shipping partners (like UPS) - Amazon plans to grow its fleet of aircraft to 70 by 2021
Note
- In Sept 2018, Amazon's market cap topped $1 trillion for the first time, and by January 2019 the firm was the most valuable firm on the planet
Which of the following is true of Amazon's warehousing process?
- When stacking shelves in its warehouses, Amazon ensures that no two similar products sit next to each other.
Amazon Fresh Delivery
- a freshdirect style grocery competitor - offering same day or next-day delivery of groceries and more - Amazon has 43% of the online retail market, over 90% of purchases happen in physical stores, and the US grocery business alone is worth three-quarters of a trillion dollars. - *amazon is still experimenting* with getting the model for groceries right - *amazon fresh "click and collect"* centers allow customers to order online and then drive through to have their groceries loaded directly into their cars at a predetermined time
Cookie
- a line of identifying text, assigned and retrieved by a given Web server and stored by your browser. - amazon tracks your surfing behavior as well as your buying history - allows for amazon to know what you liked and what you didn't
Two-Pizza Teams (Amazon)
- a rule Bezos has mandated to keep Amazon nimble and innovative as they expand - states that any individual project team should be small enough that it can be fed by no more than two pizzas - help ideas flourish - discourages kind of "groupthink" that diminishes the consideration of alternative approaches - provides a mechanism where several efforts can compete to identity the best solution
Physical Presence (Amazon)
- absence of brick and mortar stores brinds down costs for real estate, energy inventory, and security *allows for amazon* to spend significantly on software, automation, and expansion of its warehouses
Why Amazon allows third-party firms to offer products through its site.
- allows Amazon to maintain the customer relationship and acquire data, even if it sells products from others - Amazon earns revenue from the sale and fulfillment of third-party products - reinforces the appeal of Amazon as a first-choice shopping destination