Amazon

Managing Extraordinary Success in 5-D Value

Benjamin Wall

• Publisher: Morgan James Publishing
• Year: 2019
• ISBN:
  9781642794397
• Topic: Business
• Subtopic: Management
• Index: Business

In Amazon: Managing Extraordinary Success in 5-D Value, Benjamin Wall offers structured insights into strategically managing value in the key relationships to customers, personnel, business partners, and investors in order to improve value management at any company.

The extraordinary success of Amazon is due to market-leading strength in three "dimensions" of value: owning the mightiest supply chain to deliver fastest and cheapest the broadest range of products, enhancing what customers and business partners are doing when using the website / online ecosystem, and knowing how to implement the optimal terms and conditions in the after-sales customer experience. Wall takes a look at the unique managerial skill of Amazon and how each of these organizational areas operates externally and internally according to a separate business logic based on a dimension of value.

In an original examination, Wall systematically evaluates Amazon by categorizing and connecting its external and internal success factors to dimensions of value. Each "score" on an external success factor is linked to an internal success factor in managing processes, organizational culture, and the business model, so that managers and leaders can enhance their own internal success factors and move towards the same successful external factors. Amazon looks to the future where the near-term promise of the company is evaluated to be in the development from online to omnichannel retail, including the sale of services, by reviving out of Amazon's past the fourth dimension of value: feeling how to integrate value. The long-term potential of Amazon is set in the context of a sustainable future for retail, based on trends arising today in meaning across multiple communities, which is the emerging fifth dimension of value. Amazon is projected to operate in this value dimension again as a disruptor, and with Wall's help, managers and leaders can reach for the same kind of success.

PART I

Value Offers and Markets Value Factors in US Online Retail

Chapter 1

Value Offers in US Online Retail

In this chapter, value offers in US online retail for customers will be examined. In a first step, a primary value offer in each of the five D’s as found in the US online retail market will be presented. This serves to build familiarity with the nature of each dimension specifically as it is exhibited in the online retail industry. Then the value configuration—the combination of primary and secondary value which makes up the entire value offer of a firm—of the leading online retail firms will be discussed. The chapter will be rounded out by looking at the value configuration of Whole Foods Market, which is active in the online retail market but, more importantly, has been purchased by Amazon and thus is a relevant topic.

Primary Value Offer to Customers in each D in US Online Retail

In this section, the primary value offer from five rivals to Amazon are presented to provide an initial overview of the online retail market in the US in order to set Amazon in the context of its market. This topic will then be pursued in greater depth in the following chapter with the Markets Value Factors.

In examining the value offers from the firms in each D, the focus is on the firms as they present themselves at their best (the extent to which the firms have diverged from their value promises in individual offers or during specific time periods is not systematically treated in this book). Furthermore, shopping customers will be understood as the consumers in households and not other businesses buying from these retailers, e.g. the case at Costco. That is, the focus in this chapter, indeed in this book, is on the B2C market and not the B2B market.

An overview of the value offers of the five firms, one for each D, follows.

Apple offers value in Degree: The products and the customer experience on the website boost the customer to a relative degree, i.e. higher status as a consumer in society, such that the customer can “own” a higher position in the “pecking order” within the society.

Apple has offered Degree value to customers with the elevated living standard of their products, which have provided status, elegance, and a luxurious image. The elevated status of Apple products has also been based on the advanced technology to be found in and around its products. On the website, the shopper is presented with the look and feel of refinement: the stylish “San Francisco” font plus background colors of black, white, or gray, which gracefully set off the photos in bright colors. The many photos showing the product in the possession of a person help the shopper assess how other people will perceive the shopper if he or she were to possess the Apple product.

Costco offers value in Dexterity: Costco provides all-around, one-size-fits-all benefits on its website and in its products, from which the customer can know how to function as a shopper in the environment of online retail.

At Costco, the all-around benefits of Dexterity have constituted the primary value offer. Alongside national brands at reduced prices, for nearly twenty years Costco has been building the range of products covered by its private label brand, Kirkland Signature. These are Costco’s signature products that offer, according to the website, the perfect combination of quality and price. They are continuously improved so that they remain a benchmark for the features which have been tested as tried and true on the market. The website is strong in offering widely accepted online retail features, for example, customer product reviews to underline the reliability of shopping at Costco, extended warranty plans to mark the durability of the products, and free technical support for electronics products to provide a high level of customer service. Indeed, the customer service section of the site is the most developed, presenting more topics than any other section. This demonstrates Costco’s intention to offer assurance to customers regarding the terms and conditions of shopping at Costco. By building tried-and-true features from the market into its website, offering the choice of national brands, and providing its own label products, Costco assures its customers that they are not missing out on worthy innovations: one can not go wrong shopping at Costco.

QVC offers primary value in Deed: The QVC website empowers the customer to do specific activities while shopping which optimize the circumstances of the moment, individually fitting to the ever-changing “shopping mission” of the customer.

QVC is for the active shopper who gains Deed value from the activities of searching for and finding bargains. QVC offers a set of continually updated promotions for the active shopper to seek out what best suits at the moment: as described on the website, “a curated, ever-changing collection of name brands and unique finds.” The shopper can go to the QVC site every day and find new and different bargains to actively consider. The QVC website is a platform of shopping opportunities, and the customer exercises his or her individual leeway in utilizing the platform.

Macy’s offers value in Delight: Shopping at Macy’s enables the customer to realize the personal vision to feel that she or he is (becoming) who they want to be in a variety of lifestyle contexts, often with the feeling of a community.

Macy’s chain of stores embodies an integrated whole which resonates as a convincing and encompassing vision in Delight for the customer. As stated by the firm itself, “Macy’s embraces customers and provides an experience that transcends ordinary shopping.” Macy’s website conveys the same sense of magic in Delight value. In October 2017, the home page opened to a photo of three laughing women, intriguingly dressed, with interlocked arms, obviously having a grand time together. They looked straight into the eyes of the visitor to the website, inviting him or her to join in the fun. The range of skin and hair color amongst the women suggested that anyone and everyone would be welcome to become part of the group, or more so, part of the jovial community. In the online shop, the products are grouped into categories and presented in ways which speak to the lifestyle of the customer, including a link to lifestyle stories related to the clothes. The Delight value of shopping on the Macy’s site is bound to the personal tastes and preferences of the individual in relation to the specific nature of clothes as a functional and lifestyle product. The customer has a vision of what he or she seeks in clothes and/or the customer is willing to take on the vision developed by Macy’s of what the clothes should be.

Patagonia offers primary value in Deep-Connect: The relation to the firm integrates the essence of the customer with the essence of multiple contexts to give meaning to the life of the customer. The multiple contexts include the relation to the clothes, the business setting of the firm and the economy, the daily life of the customer, how the clothes are sourced and produced, the social setting of the customer, and the environmental setting of humankind.

The high-quality assortment of clothes and accessories for outdoor sporting activities offered by Patagonia generate Deep-Connect value for customers in multiple contexts. First, the materials are chosen and processed and the functional design of the clothes is made to closely match how people experience themselves in the specific circumstances and requirements of a given outdoor activity. The customer perceives how the materials and design are suited to the activity, and thus perceives himself or herself as being more deeply entrenched in the activity. The customer feels a greater depth in himself or herself, giving more meaning for the customer in undertaking the outdoor activity.

Second, the durability and longevity of the clothes has the consequence that the article comes to represent the personal history of the wearer. The website refers to “stories we wear” in that people’s own experiences are pressed into the rips, stains, and improvised repairs of their clothes. Indeed, the website suggests that the articles gain value with time as a result: “better than new.” The website underlines these kind of connections by showing videos and photos of the articles in use, supplemented with personal stories from people who wear Patagonia clothes.

Third, Patagonia clothes are superb pieces of modern design, as well as the embodiment of the latest technology. The customer feels connected to the future, becoming a connoisseur of the modern. And buying from Patagonia is a statement that America can still be the home of ground-breaking industrial technology and the manufacture of prized goods. The customer becomes a sponsor of modern technology as found in American manufacturing.

Fourth, Patagonia has become well-known for its stance on the environment. Wearing clothes from Patagonia can project messages about the environment with which the wearer identifies. This can lead to interactions with others on this topic, making for profound experiences during the day. The Deep-Connect value when wearing the clothes is a deeper meaning in daily life.

Fifth, the raw materials and the production processes of both Patagonia and its suppliers are conducted so as to reduce the harmful impact on the environment. Furthermore, Patagonia actively promotes worker rights and sound working conditions at its suppliers. Both of these efforts are unusual in the clothing industry. The informed Patagonia customer experiences new meaning in consuming clothes and feels much freer to wear the clothes he or she wants due to the Deep-Connect value in the context of Patagonia’s responsible operations.

Sixth, Patagonia is actively engaged in societal transformation with initiatives to improve the environment and make businesses more responsible. By doing business with Patagonia—i.e. buying its products—the customer gains Deep-Connect value in transforming the conditions under which business is conducted. The Patagonia customer is connected to a new paradigm of business practice which transforms the economy, society, and the environment.

Value Configurations in Leading US Online Retail Offers to Customers

Following the examples above of primary value in each of the D’s as found in the US online retail market, in this section, the value configurations of six leading firms are examined. Figure 1-1 shows their US online sales and their value configuration of primary and secondary D’s.

Figure 1-1: Value Configuration* of Leading US Online Retailers**

The six firms listed in Figure 1-1 exhibit a wide mix of value configurations. Amazon offers primary value in three dimensions: Degree, Dexterity, and Deed. Apple and Walmart each offer primary value in one dimension—Degree for both—and secondary value in the other three dimensions. The remaining three firms offer primary and secondary value each in one dimension only. The value configurations of these six firms are presented in turn.

Amazon offers primary value in Degree, Dexterity, and Deed, and basic value in Delight

The primary Degree offer to shopping customers by Amazon is an elevated living standard: on the one hand due to the customer service which is like “room service” at the beck and call of the customer and, on the other hand, due to the low prices—for both the goods themselves as well as the shipping costs—which enables the customer to enjoy more consumer products.

The core offer to customers in terms of “room service” has become the low shipping costs. Purchases over $35 in value and shoppers who are members of Amazon Prime incur no shipping costs. The Prime subscription started at $79 per year, rose to $99 in 2014 and then to $119 in 2018. The Prime offer includes a kind of “free shipping” of thousands of movies and TV series in the form of unlimited streaming and other benefits. Prime Free Same-Day and Prime Free One-Day delivery are available in more than 8,000 cities and towns in the US. Prime Now offers same-day delivery on selected items in more than fifty cities worldwide. In addition, in certain cities, Amazon has introduced Sunday deliveries as well as Amazon Fresh, a same-day or early morning delivery service for fresh food, prepared foods, and speciality items suitable for entertaining. Further to the “room service,” the information on the website about the timing of the availability of items, plus the choice of different speeds for delivery, represent a much higher level of service to customers than is normal in postal distribution.

The “room service” is intended to impact the psychology, and thus behavior, of online shoppers: it is the home delivery which sets online shopping apart from going to the store. Research shows that shipping costs are the number one reason for shopping cart abandonment; however, when shipping is free, there is no reason to stop. Regarding the timing, the overall approach has been to promise a conservative shipping time and then hopefully deliver sooner in order to create a positive surprise rather than disappointment. And Amazon has reduced shipping time to same-day delivery in selected cities. In sum, the “room service” aims to heighten loyalty from customers who can determine the shipping terms best suited to them, including the possibility for many shoppers of the “instant” gratification from receiving their order two days, one day, or even several hours after buying. An even faster delivery service will be discussed later on in the book.

Regarding the low purchase prices for consumer products, a 2011 study by Wells Fargo found that Amazon was up to 19 percent cheaper than Walmart stores on a basket ...