BUSINESS TO BUSINESS CASE STUDY OF AMAZON

BUSINESS TO BUSINESS CASE STUDY OF AMAZON

Amazon.com Inc., Model Canvas

Business to Business Case Study of Amazon

Introduction and Problem Statement

Company Offering

Amazon is a multinational technology company based in Seattle, Washington, which focuses on e-commerce, artificial intelligence, digital streaming, and cloud computing. It is among the big four technology companies; Facebook, Google, and Apple. Amazon is regarded for disrupting well-established industries through mass scale and technological innovation. It is the most significant e-commerce market place in the world; it also leads in the provision of AI assistant and cloud computing measured by market capitalization and revenue. This essay will focus on Amazon Business, which is an e-commerce platform that gives third-party sellers an opportunity to have access to Amazon’s customer base. These sellers offer either new or used products on a fixed price alongside Amazon’s usual offerings. This essay will also propose and analyze the B2B conversion for this product

As of 2019, more than half of Amazon’s total unit sales came from third-party sellers. Moreover, individuals and customers have been able to increase their sales since 2000. Amazon is undisputedly the leading shopping app within the United States, with one hundred and forty-two million mobile user subscribers. Its only other competitor follows far behind with seventy-two million users. Mobile shopping is also increasing within the United States, and the number of subscribers is set to increase (Monden, Y. 2019, 189). Eighty-nine percent of online shoppers are more likely to purchases products from Amazon than other e-commerce platforms. Amazon has a very high customer trust because of the timely delivery of untampered products. As of April 2019, Amazon was offering various range of products totaling one hundred and twenty million. Amazon has a goal of helping its customers “discover anything they may want to buy online.”

Customers Problem

Amazon is the world’s largest e-commerce retailer enabling third-party sellers to make sales and profit; they made one hundred and sixty billion dollars in sales in 2018. However, sellers on Amazon experience several challenges that limit their business activities on Amazon. Sellers on Amazon have little or no control over descriptions, titles, or images of their products in the catalog system. Sellers cannot create a new method of catalog for an already existing product (Hu, B. 2019). The performance target set by Amazon on sellers is meant to create a safe shopping space for their buyers. Late fulfillment rate has been set at four percent; the pre-fulfillment rate has been set at two point five percent and order defect rate of one percent. Failure to adhere to these terms may result in immediate suspension or ending of the selling privileges.

Amazon is consistently looking to offer the best brands, and this results in partnerships with leading providers, this might be restricted to third-party sellers, or it might be impossible for the sellers to compete with Amazon’s prices. Amazon has restricted several products if a seller’s products do not meet Amazon’s policies, their inventories in the fulfillment centers may be destroyed, and their selling privileges terminated. Amazon sellers have been suspended for reasons beyond their control, leading to huge losses of millions of dollars. Product restriction limits the number of products sellers can offer, and it would require one to have a professional account to be able to sell such product brands.

Analysis of the Situation

The problems mentioned above mean that there is a lack of congruence between the customer’s problem and the product’s offering. Amazon has all the power and is, therefore, introducing measures that are detrimental to the sellers. Amazon suspension measures are not friendly to sellers as approaches risk businesses being disrupted or coming to a halt altogether. Millions of sellers are acquiring their products from manufacturers that have not been vetted, and this has increased instances of counterfeit products. Amazon’s efforts into curbing counterfeit products are hitting even the honest sellers whose accounts have been terminated. Moreover, there are growing cases of unsubstantiated cancellations leading to turnover losses (Walters, D. and Helman, D. 2019, 12). For instance, a seller was suspended after a non-existent law firm made a false complaint. This suspension has made small businesses lose revenue on particularly essential times of the year, such as prime day and or the holiday season. Furthermore, the process of disputing suspension is challenging for several sellers as Amazon support conducts unsatisfactory reply to these customer’s emails.

In the past year, Amazon has been increasing its fees, and many sellers have threatened to leave selling their products with Amazon. While Amazon claims to be covering shipping costs from increased gas prices and also that sellers are likely to benefit from increased sales due to faster shipment. However, sellers see this as a plot by the company to increase its profits by putting all the weight on them.

Suggested Solutions

There has been increasing competitiveness within the Amazon Business platform. There is also prevailed in turbulent situations for the sellers. One essential approach of dealing with market fundamentalism is to change from commoditized businesses to go for strategic advantages over sophisticated customer connections. To deal with the above-mentioned customer problem and ensure Amazon remains the dominant e-commerce platform, the company should consider a servitisation conversion of its B2B product. This will be discussed further below.

Theoretical Background

Servitisation is a model of business innovation whereby the provision of associated services broadens existing company product options. It needs the innovation of a company’s procedures and abilities to create values for customers based on the (PSS) product-service system (Baines, T. et al., 2009). Despite being a concern of the upper management, servitization is recognized as necessary to be integrated into overall organizational functions. To be able to understand servitization, a definition of service is necessary; first, it is the application of specific abilities for the benefit of another individual, and secondly, it is the integrated solutions delivered to people and businesses (Maruti T. 2018). A service-dominant perspective is considered for Amazon to develop its competitiveness in the retail industry. The service-dominant view encourages customer-centric marketing, allowing the organization to build on its B2B relationships and comprehend the markets.

Many sellers on Amazon do not sell their own unique items; they only sell items they have acquired in bulk from suppliers and wholesalers. This is similar to a retail shop. Therefore if one person can buy in bulk, so could a lot more people leading to intense competition for the same products (Neely, A. 2008, 105). Sellers can partner with manufacturers to create private brands for these products. Minor adjustments, such as color, formation, or fabric changes, can be done by the manufacturer where the seller’s brand is added to the product to make it unique. Such improvements are referred to as white label or private label products and have merged the selling of new products and existing products. Amazon can also help sellers deal with competition by enabling sellers to optimize their listing with particular words, do away with old inventory, and automatically reprice their products. Sellers should also focus on growing there bottom-lines sales yearly faster than top-line sales will fare better. Many sellers are already utilizing the repricing tool offered by Amazon. To stay competitive, they will reduce their prices; this will lead to other sellers to do the same. The result is only beneficial to Amazon shoppers and not the sellers.

Online market places seem to be only buyer-centric. This means that e-commerce platforms will always side with buyers at the seller’s expense every other time. Amazon set this trend. Consumers love the provision of excellent customer experience, followed by outstanding customer support, and this has led to the growth of the Amazon Marketplace. However, as much as consumers may be benefiting from excellent service, sellers are bearing the burden in case of any conflict between the buyer and the seller (Walters, D. and Helman, D. 2019, 16). The following are the suggested solutions to the above-mentioned customer problems to ensure Amazon remains the leading e-commerce platform of choice for both sellers and shoppers.

Amazon works closely with established brands and major manufacturers. If the brand manufacturers decide that they do not want a third party selling their products on Amazon, they can quickly be restricted by Amazon upon their request. This means that only the brand owner can sell these products on Amazon. However, this might be negative in a way, but for businesses with their brands may primarily benefit from this measure. Amazon has created a brand registry that allows a brand owner to sell their products on the platform without competition from counterfeiters or persons acquiring the products through unethical means.

Selling with Amazon has become continuously sophisticated and expensive. Amazon should create instructional videos and written material on how to use the fulfillment by Amazon (FBA) program, including other Amazon programs. Amazon should provide a team of account specialists on standby to assist sellers in setting up the account and deal with any arising issues.

According to Amazon, fulfillment is when a seller sends their items to the Amazon warehouse where they are stored until a customer buys them. Once sold, the items are packed and shipped by Amazon to the customer. It is challenging to learn the detailed procedure of sending items into Amazon’s warehouses. Several issues arise in the Warehouse; there is a lack of compensation or lack of full compensation for items that are either damaged or lost, including customer returns. Moreover, Amazon charges a third of the sale price of the item plus a monthly fee of thirty-nine dollars and ninety-nine cents. The warehouse storage fees are also continuously increasing (Janger, E. and Twerski, A. 2019). Amazon should periodically lower the charging fee on each sale, in return that the seller also lowers the sale price of their products. This can assist Sellers in sustaining their businesses through a slow-moving inventory. Amazon should also utilize its lending group to offer sellers loans based on their sales history. It should be set in a way where only Amazon provides the credit, and the sellers cannot request one.

Recommendations to Businesses on Amazon

Sellers should focus on bottom-line profits rather than top-line sales numbers. “I want to sell $1 million a year on Amazon” or “If only I could get to be a $10 million-per-year seller on Amazon,” this is usually the thinking of many sellers without considering the expenses which will consume much of this revenue. The benefits of being a massive seller on Amazon is limited; therefore, Amazon should provide account specialists only directed towards such executive sellers who will assist them in optimizing their businesses and maneuver through red tapes.

Sellers should focus on growing their business from the bottom-line, trace all costs efficiently, and work having an idea of the actual profit margins of their Amazon business. Working to reduce costs will enable bottom-line-sellers to grow their profits gradually compared to other top-line sellers.

Sellers need to understand the profitability of their products from an SKU level. This includes the indirect costs associated with the specific product. Every SKU should be thought in terms of its profit and loss structured with its marketing while considering the possible competitions for such an SKU. Moreover, it is essential for sellers to make use of third-party software such as inventorylab.com that assists sellers in automatically tracking the individual SKU by considering shipping fees, overhead fees, and other related product costs to develop net profit by specific SKU and including an overall loss and profit statement.

Amazon sellers can utilize information from the dashboard of the Amazon seller central to improve their catalogs’ listing quality. The establishment and optimization of products should not be a one-time listing and attention directed to other matters. Sellers should make use of the reports of the Amazon sponsored Ad campaigns (Janger, E. and Twerski, A. 2019). These reports present an opportunity as sellers can identify the keywords used by shoppers purchasing their products. Through a periodic examination of these keywords, sellers will find an opportunity in particular keywords that would be beneficial in automated targeting campaigns. Sellers might land on ideas and methods that they never thought effective. When such terms are listed into generic keywords and implanted at the back end of the listing of these products, it will improve the discoverability of such products. There is a possibility of the seller’s products showing up from shoppers’ Amazon’s search results.

Customers usually return products that they are in no need of, failure of the product to match their expectation or damage of the product in any particular way. The cost of shipping and picking up returned products could be quite high, causing a reduction in revenue. Several returns could spoil the reputation of the brand. Sellers need to establish the correct expectation with their customers (Mathieu, V. 2001, 42). The product images should be quite detailed with sufficient product descriptions. Care should be taken when packaging to minimize damage when products are in transit. Putting in place flexible return policies will ensure customer trust is built.

Conclusion

In light of the above discussion, this essay has examined the servitization conversion B2B of Amazon.com Inc.’s Amazon Business, a product. Several issues were identified and, if resolved, would maintain Amazon as the leading e-commerce giant. This essay recognizes that the major function of e-commerce is to make shoppers happy. Amazon should put in place policies that protect both the buyer and the seller while still maintaining their revenue streams.

References

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