Marketing Case Study: Amazon.com

BACKGROUND
In 1994 Jeff Bezos left his job as Vice-president of the Wall Street firm D.E Shaw to begin forming a business plan that would become Amazon.com. Amazon.com debuted on the web in 1995 as one of the first web retailers. In the late 1990s, he expanded it through acquisitions until today it is a powerhouse on the web.  Amazon.com has been a publically traded company since 1997 and they posted our first profit in 2001.

Amazon.com’s primary product was book retailing.  The company began with only 2000 titles available in the first year.  After that, Bezos worked with web developers to make the website easy and user friendly for new internet users, as well as seasoned internet professionals.  Within four months of starting operations, Amazon.com became a very popular site.  Our mission is to “seek to be Earth’s most customer-centric company for three primary customer sets: consumer customers, seller customers and developer customers.”  Amazon.com continually focuses on quality and the user-end experience.  Additional web features such as gift wrapping and offering customers purchase suggestions have added to their experience.

Since 1995, Amazon.com has grown our book inventory to include more than 1.5 million titles and we have diversified our offerings outside the realm of books to include music, food, electronics, etc. Amazon.com recently entered the e-book market in 2000 when there was little interest in e-book readers, but the market took off in 2009-2010.  E-book readers topped $500 million in revenue last year in the US market and the company currently sells more e-books that traditional books.

PROBLEM
Recently, several of Amazon’s competitors have launched subscription services for e-books which has prompted the company to consider an exclusive subscription service for the Kindle, similar in concept to NetFlix and Amazon Prime for instant access to movies and TV shows online.  The challenge we are faced with is to develop a simple pricing structure and process for our patrons to check out their books and return them as efficiently as possible.  Because Amazon.com is lagging behind our competition with this product launch, we need to endeavor to create a service that is the most cost-effective and technologically advanced for our patrons as possible.

  • Strengths: Compared to our competition we offer more e-book options than any other web retailer.  We continuously strive to make the experience of using the Kindle “magical” for our clients through Amazon’s WhisperSync technology so that are able to easily access their library from any device, stored notes, page markers, etc.  We continually strive to create avenues for new authors to publish themselves and make this content readily available to our readers.  In addition, the Kindle has helped lower our carbon imprint because we are leading the way to create less waste with e-book technology.
  • Weaknesses: Our customers and shareholders are concerned that we have lost our inventive spirit as the company grows because other web retailers have managed to provide their users with a subscription service before Amazon.com.  Instant access to a web database would not be seamless for owners of older versions of the Kindle and some customers would prefer a monthly versus an annual fee.  In addition, publishing executives are not enthusiastic about the concept.  Their concern is that it could lower the value of books and strain their relationships with the other retailers that sell their books.
  • Opportunities:  With the launch of our four new Kindle products this week, many of our users will now have Wi-Fi access, an MP3 and Cloud drive built into their equipment, making it easier to download and use books as they see fit.  The technology we are using, in conjunction with our campaign to borrow books from local libraries, and download to their Kindle now gives us a platform to provide the same accessibility to those who want to pay for the service for access to the Amazon.com Library.
  • Threats: Barnes and Noble is predicting to steal some of our market share with their Nook, but currently does not offer an e-book subscription service to their readers.  Booksfree.com and Bookswim.com both offer their users limited e-book downloads and mostly provide their customers a subscription service to offline books.  24Symbols recently launched a similar application for the iPad, but only offer their users access to public domain books – no premium bestsellers.

COMPETITIVE ANALYSIS
Following is a breakdown of the current subscription availability and access fees by our competitors:

Competitor* Access Fee # of Items Available Products
24Symbols Free 1 at a time public domain e-books with advertising content
$14/month 1 at a time public domain e-books with no advertising content
$28/3 months 1 at a time public domain e-books with no advertising content
$82/year 1 at a time public domain e-books with no advertising content
Books Free** $14.49/month 2 at a time paperback books only
$27.49/month 2 at a time audiobooks only
$30.49/month 3 at a time 1 audiobook and 2 paperbacks
Books4Free Free ala carte e-books by non-published authors only
BookSwim $23.95/month 3 at a time hardcover new releases and paperbacks
$29.95/month 5 at a time hardcover new releases and paperbacks
$35.95/month 7 at a time hardcover new releases and paperbacks
$59.95/month 11 at a time hardcover new releases and paperbacks
*All competitors offer unlimited reading, no due dates, no late fees and no shipping costs.
**BooksFree.com offers their patrons a multitude of plans, for sake of space only the top 3 options have been listed here.
The site also offers users an ala carte feature starting at $5.99 in which no membership is required.

PROPOSAL
Two alternatives for an Amazon Kindle subscription service have been presented below.  Keeping in line with our competition, our customers will have unlimited reading, no due dates or late fees, and be able to cancel at any time with either option (alternative #2 offers no shipping costs).  All prices listed are for annual subscriptions.  However, customers will be given the option to be billed in monthly installments if they store credit or debit card on file at Amazon.com.  As part of their membership benefits, subscribers will have the option to buy any of the e-books they enjoyed reading at 20% off the Kindle Store™ cost, after they have borrowed the e-book, so that it can be downloaded to the Kindle and accessible when the reader is not on the Internet.

Marketing efforts will entail creating a dedicated area on the Amazon.com website (similar to Amazon Prime) where customers can get information about the subscription plans and sign up for the plan of their choice.  Current subscribers will also be able to access their rental queue and manage their account from this site area.  Advertising will consist of an email campaign to our current subscriber database dedicated to updating them with the exciting news about the new subscription service, a well as utilizing all social marketing media to notify our fans on Facebook™ and Twitter™.  Separate social network pages will be created for the service where subscribers can share reviews of books with other users and notify their friends as to what books they have borrowed, etc.  Public Relations will alert the media with news of the launch of our new services  Finally, our current SEO media campaigns will be updated to include optimizing our metatags and keywords to enhance our positioning on all search engines.  This should create the lowest increase to our advertising budget.

ALTERNATIVE  #1:  BorrowKindle™
Provide an annual subscription service, known as BorrowKindle™, that allows customers access to the entire Amazon-for-Kindle library.  The following price points will be available to our patrons for an annual subscription:

$55/year or $4.99 a month for 1 e-book at a time

$95/year or $7.99 a month for 2 e-books at a time

$235/year or $19.99 a month for 5 e-books at a time

Pros – Gives our customers tiered options for the occasional to the avid reader.  By only offering e-books, we continue our commitment through Amazon and Our Planet to lower our carbon imprint by eliminating waste through the printing and shipping process.  Our users will have instant access to many popular titles with our new Kindle products that include Wi-Fi capability.

Cons – Readers will have to wait for new release to be approved by publishers for the Kindle before they are able to access the e-book.  Kindle users with later models will not be able to access the subscription services.  Risk dip in e-book sales once subscription service is launched.  Revenue structure proposed may need to be adjusted to close a possible gap in revenue based on more recent data.

ALTERNATIVE  #2: BorrowAmazon™
Provide an annual subscription service, known as BorrowAmazon™, that allows customers access to the entire Amazon-for-Kindle library.  The following price points will be available to our patrons for an annual subscription:

$155/year or $12.99 a month for 1 e-book and 1 hard/paperback book at a time

$190/year or $15.99 a month for 2 e-books and 1 hard/paperback book at a time

$260/year or $21.99 a month for 4 e-books 2 hard/paperback books at a time

Pros – Gives our customers tiered options for the occasional to the avid reader.  Our users will have instant access to many popular titles with our new Kindle products that include Wi-Fi capability.  If a book is not yet available on the Kindle, our readers won’t miss out on new releases because they will be able to have the book shipped to them within 4-7 business days.

Cons – Kindle users with later models will not be able to access the e-book subscription service.  Risk dip in e-book sales once subscription service is launched.  Revenue structure proposed is higher for the customer than Alternative #1.  By offering book rentals, we create a larger carbon imprint through increased packaging and shipping, as well as increased hard cost and operations management to Amazon.com for shipping hard/paperback books.

RECOMMENDATION
Alternative #1 gives us the fastest option to launch our new subscription service.  Alternative #2 will take more time to set up the infrastructure and manpower to ship out actual books.  In addition, Alternative #1 will allow Amazon.com to test the viability of a subscription service with our customers, track feedback and work out any glitches in the technology before offering our customers Alternative #2 which comes at a greater hard cost to Amazon.  I recommend we begin our subscription service launch with BorrowKindle™.


REFERENCES

www.24symbols.com

www.amazon.com Kindle e-Book Store

Amazon.com Media Hotline, “Introducing the All-New Kindle Family: Four New Kindles, Four Amazing Price Points”, Amazon.com, Inc, September 28, 2011, Seattle, WA

Amazon.com Media Hotline, “Kindle Books Now Available at over 11,000 Local Libraries”, Amazon.com, Inc., September 21, 2011, Seattle, WA

Bezos, Jeffrey P., 2010 Shareholder Letter, Amazon.com, Inc. Seattle, WA

www.booksfree.com
www.booksforfree.com
www.bookswim.com

Damouni, Nadia, “Amazon in talks to launch digital book library – WSJ”, Reuters, India, September 12, 2011, Retrieved from: http://online.wsj.com/article/SB10001424053111904265504576565040210224696.html, Republished on: http://in.reuters.com/article/2011/09/12/idINIndia-59289220110912

Zee, “Amazon reportedly in talks to launch a Netflix for books”, The Next Web Insider, September 11, 2011, Retrieved from: http://thenextweb.com/insider/2011/09/11/amazon-reportedly-in-talks-to-launch-a-netflix-for-books/

Zee, “Spotify for books, 24Symbols gets a slick iPad app”, The Next Web Apps, Retrieved from: http://thenextweb.com/apps/2011/07/28/spotify-for-books-24symbols-gets-a-slick-ipad-app/

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