Amazon Go Case Analysis

MGMB01 Final Report[pic 1]

Amazon Go

Michael Huo

Jesse Elisen

Mathew Schler

Alex Wang

Company History:

Amazon started out as a book selling online store in July 1995. Its founder Jeff Bezos wanted to provide a service like the world had never been seen before. This is where he came up with the idea of Amazon, a lower priced, vast selection, high convenience online platform with near limitless inventory in which people could purchase anything they needed with a touch of a button. Initially they were only a bookstore, but very soon expanded their product line into music, electronics, and general merchandise. By the 2000s, Amazon opened to 3rd party merchants to place their own products on Amazon.com and taking a rake of the sales merchants did on their platform. Initially there was a fear that there would be an abundant number of scammers and that Amazon would lose its flagship trust amongst its consumers. However, when it did occur Amazon policed its own website very heavily with only trust 3rd party merchants allowed on the site. Consumer complaints against 3rd party merchants were taken extremely seriously and Amazon would kick merchants off if there were a high volume of consumer complaints. This way, Amazon preserved its trust amongst consumers in that it was always safe to purchase off Amazon. By 2015, 3rd party merchants accounted for 47% of Amazon’s online sales, with many Tier 1 CPG companies hopping onboard with their own corporate accounts. Amazon soon started setting up packing and distribution in these Tier 1 CPG firms such as P&G and Pepsi and facilitated their products on their product. This example of cross-branding and marketing is one of the most successful in the 21st century, with Amazon’s ironclad credibility backed by the largest CPG companies in the world and in return CPG companies gained an unparalleled platform for distribution and selling.

By 2002, Amazon’s Amazon Web Service (AWS) was launched as a cloud-computing service for external companies. AWS allowed for a highly flexible information technology infrastructure with a high degree of expandability for external firms. Billions were poured into this service year after year as Bezos believed that AWS was the direction for the future. By 2016 AWS is Amazon’s fastest growing segment and in Q1 accounting for over $2.6 billion in revenue and another $600 million in profits. Amazon’s gamble on cloud computing paid off considerably and is currently in contention with IBM for being one of the largest cloud computing players.

In 2005, Amazon’s Prime service was created. Seeing a growing trend in consumers desiring fast and free shipping, Amazon Prime service guaranteed 2 day free shipping on all Amazon products sold directly by Amazon. The service was charge $79 yearly with an initially free month. Amazon’s heavily pushed this service in that every single checkout was alerted they could get Free 2 Day shipping (which often meant next day if you purchased the product before a certain time). Amazon’s statistics showed that a small group of consumers within its own ecosystem accounted for most sales. By 2015, there were 80 million Prime subscribers all of which spent on average 4x what a non-prime member would spend. These 80 million Prime subscribers also accounted for 45% of total Amazon online purchases. In addition Amazon has tried to add value to the online platform be releasing its Prime Music service in 2014 to mimic Spotify. However, it’s limited coverage of songs and geographical region lock of the US has limited its exposure. Since the release of Prime in 2005, Amazon has raised its price for subscription to $99 dollars in 2014, but rather than lowering subscription renewal and lower subscription rates, Amazon’s subscriptions have increased over 50% in the year the prices were hiked and 35% in the subsequent year. Amazon has since launched additional services listed below.[pic 2]

Amazon is clearly diversified enough already covering an enormous number of sectors and services. Now Amazon is launching its newest subsidiary, the Amazon Go lineup. It would be a huge win for Amazon if it successfully penetrates the $600 billion-dollar retail market business that has been dominated by Walmart. Question remains are does Amazon have sufficient resources and expertise to tackle the retail giant and secure their place in the industry. In addition, there are additional problems with self-service that needs to be resolved before the stores can be scalable on a mass scale.

Amazon Comparables Review:

To determine how Amazon should continue with its self-service Amazon Go stores research was conducted on UK’s almost entirely self-service retail industry spearheaded by Tesco and Sainsbury. Tesco’s early efforts in trying to establish a self-service checkout it was riddled with issues and problems. First established in 2003, Tesco’s UK stores were made from an attempt to cut costs and modernize the store and differentiate themselves from competitors. AT Kearney’s report on the initial rollout mentions “hostess” that will help customers and alleviate the anxiety of self-checking out. In addition, Tesco has standing tech support as well as traditional cashiers standing by near the self-service checkout in the event of product malfunction or customers wanted to choose to talk or interact with cashiers. Many product malfunctions were noted in the initial release phase in 2003 with prices of products often being wrong or the machines wouldn’t be updated daily in time to reflect in store prices. This lead to situations where a customer would be scanning an $8-pound asparagus but on the bill, it would be an $80-pound vacuum cleaner. In addition, it was noted at first there was a paradigm shift in consumer satisfaction. Many customers were noted to feel lonelier or the shopping experience was a downgrade from the previous one because there was no human interaction at checkout. Self-service checkout meant that while everyone was treated equally, it also forced everyone farther apart as the only interaction in the store would be with the machine. Additionally, time saving and labor costs were not mitigated initially as additional tech support was required for the high-failure rate of the machines and thus, it would often be slower to go through self-checkout if there was an issue.