Jeff Bezos dominates a room when he enters, with an explosive voice, boisterous manner, and complete look of total confidence.  This is not surprising considering that he is the CEO of the largest online retailer.  Amazon has over 209 million active users that buy everything from expensive electronics to dresses to dog food.  Over the past five years, Amazon has bought most of its competition, including Zappos and Quidsi (parent company of Diapers.com, Soap.com, Wag.com and BeautyBar.com).  It has also purchased robot maker Kiva Systems because robots help Amazon process orders faster, getting the transaction time to 20 minutes from click to ship.  Amazon’s annual sales have also quadrupled in the past five years to exceed $61 billion.  And, according to the most recent Harris Poll, Amazon is the world’s most trusted company, a spot previously held by Apple.

Amazon has redefined the global marketplace.  Last year, e-commerce accounted for $1 trillion in sales with 5% of that coming from Amazon.  Retailers like Best Buy, JC Penney, and Sears are floundering trying to keep up.  However, Amazon’s dominance is less about what it sells but rather about how it sells.  Amazon offers customers 1-Click ordering, which facilitates impulse buying.  It also offers “Subscribe & Save” to let customers schedule regular replenishments of essentials like toilet paper, deodorant and diapers.  Amazon also offers AmazonPrime, which is a $79/year service for second-day delivery.  The service now includes free shipping on more than 15 million items.  Prime members also gain access to more than 40,000 streaming Instant Video programs and 300,000 free books in the Kindle Owners’ Lending Library.  Bezos is willing to lose money on shipping and services in order to gain loyalty.  Today, Amazon has 10 million Prime members.  The average Prime member spends an astounding $1,224 a year on Amazon, more than $500 than a regular user. Members’ purchases and membership fees make up more than a third of Amazon’s U.S. profit.

Amazon has more than 89 fulfillment centers with more to come.  The complex machinery and  supply chain mechanisms allows Amazon to ship out products in less than 2.5 hours from the time a customer clicks “place your order.”   Yet, fulfillment center teams are always working to develop innovative ways to cut the time down even further.  During the past holiday season, Amazon processed 306 items per second worldwide.  In addition to warehouse speed, these centers excel in proximity.  Bezos has spent billions building centers closer and closer to customers.

Now Amazon is launching AmazonFresh, but it’s not necessarily about wining in grocery services, it’s about dominating the market in same-day deliveries.  AmazonFresh is a grocery delivery service that has long been available only in Seattle.   Amazon sees AmazonFresh as the future of shopping, customers can get whatever they want, whenever they want, wherever they want, and as fast as they demand it.  AmazonFresh recently launched in Los Angeles.  Customers in Los Angeles were offered free trials of PrimeFresh, the upgraded version of Amazon Prime that provides free shipping of products and free delivery of groceries for orders over $35.00.  In Los Angeles and Seattle, Amazon has a fleet of Fresh trucks that deliver everything from full-course meals to chocolate from local merchants.  As Amazon evolves into a same-day delivery service, its fleet could become yet another competitive advantage.

However, AmazonFresh will prove to be a challenge for Amazon as the products for groceries are different.  It can’t ship milk the same way it ships diapers.  Creating a same-day delivery service poses tremendous logistical and economic hurdles.  Yet, Amazon hopes to expand grocery customers and turn monthly customers to weekly or even twice weekly customers.   AmazonFresh is the last link in Bezos plan to make Amazon the dominant servicer of the retail experience.

The bigger Amazon gets, the greater the number and variety of stakeholders required to continue Amazon’s growth.  Amazon is also facing frustrations from its own employees.  In Germany, employees are striking at two of its eight facilities in an effort to earn higher wages and overtime pay.  Amazon workers in the U.S. have filed a lawsuit claiming that they’ve been subject to excessive security checks.

Investors wonder how Amazon has paper-thin profits, netting only $82 million in the first quarter of 2013.  Investors also worry about competitors matching Amazon’s supply chain capabilities. Companies like Target, Walgreens, and Macy’s are implementing savvier marketing and supply chain strategies by using apps to guide customers directly to products in a store and also having stores act as distribution centers.  However, the three primary weapons of Amazon are its fulfillment centers, Amazon Prime, and now AmazonFresh, are coming to maturity.  Retail analysts believe that the investment that Amazon has made it on its operations will give the company an end-to-end advantage that will be almost impossible for other retailers to duplicate.

Discussion Questions:

1. What are Amazon’s bases for a sustainable competitive advantage?

2. What makes Amazon’s customers loyal?

3. What makes Amazon’s supply chain superior?

4. Why is AmazonFresh an integral part of Amazon’s overall strategy?

5. What threats face Amazon and how is it dealing with them?

 

SOURCE: J.J. McCorvey, Fast Company, August 5, 2013