Innovation in Online Retailing. The Amazon Case at BBS
12 March 2018In Bellevue, a small city in the state of Washington, back in 1994 a young Jeff Bezos understands that he wants to be part of that still unknown but highly promising world called e-commerce. A year later, Amazon.com, a rudimentary website built with HTML, offered a wide range of books at affordable prices, purchased in the bookstores of the city and then shipped to buyers from the now iconic garage. From these humble beginnings to the current catalog of over 250 million products and the undisputed leadership in online retailing the path may seem short, but it spans over 24 years of technological development, assiduous innovation, some controversy and a complete cultural revolution in purchases. Bologna Business School has given to its students the chance to get closer to the Amazon universe with an inside look, made possible by Patrizio Pecunia, Amazon Manager in the Vendor Services and Consumer Electronics sector, and Stefano Belletto, Marketing Manager for Amazon Prime Now.
A careful analysis of the company logo is enough to understand the philosophy lying underneath the foundations of the Seattle giant. The orange arrow that starts from the letter “A” and points to the letter “Z”, emphasizes that in Amazon is possible to buy just everything, but also represents a stylization of the Long Tail, or the retail strategy based on statistical analysis, for which is preferred to sell a large number of unique items in relatively small quantities, compared to selling a small number of popular items in large quantities. “To make the difference, we rely on these three elements: the price, the convenience for the customer and the selection. The world’s best-sellers and top brands can be found everywhere, the difference is made by the unobtainable products that may interest a few people, but that bring them to us,” explained Stefano Belletto during his meeting with the students of the Master in Business Management, within the MGIncontri cycle.
The name Amazon, however, also evokes the great Brazilian forest and its complex ecosystem. The virtuous circle of the company is in fact a microcosm constantly projected towards the growth, which the company achieves by lowering costs and consequently prices. “We strive to offer the consumer the lowest possible price. Very often companies do exactly the opposite,” adds Belletto. The excellent shopping experience then translates into an increase in traffic on the site, which attracts more and more sellers who in turn increase the number of available products. To understand the success of this strategy, just think that in 2013 in the category Electronics and PC Amazon proposed 200,000 articles, to move to 2 million in just 12 months. “Ours is not a business related to the buying and selling of products, but a business based on the support we give to our business partners. We grow together with the brands we help in their interaction with the e-commerce world,” says Patrizio Pecunia during the class of the Master in Marketing and Sales. “We do not have a single customer, but we have three: consumers, individual sellers and companies. Our job is to create the best conditions for each one of them.”
The company talks to consumers, creators, sellers, and businesses, but it is much more than an intricate system of digital shelves. Amazon is first and foremost about innovation, both in products and in sales and delivery processes. In its history there have been flops, like the Fire Phone, costing between production and marketing about 170 million dollars. Despite this, not waiting, burning the times, loving the invention without the fear of failure and standing in a state of permanent revolution, seem to be the hallmarks of Bezos’ creature. From the production of TV series as Transparent, the winner of three Golden Globes, to the dash buttons, designed to reorder everyday products with a click, Amazon seems to want to show that there are no limits to creativity and that e-commerce is much more than a purchase experience.
One of the peculiarities that best characterize Amazon is undoubtedly the speed of delivery, carried so much to the extreme that the company itself ironize on the theme with the video on the futuristic program Amazon Yesterday Shipping. If the journeys between present and future are not, for now, in the plans of Jeff Bezos, the company has nevertheless been able to make delivery its flagship. From the Prime program that allows, in exchange of an annual subscription, free shipping in a few days from the purchase, it has come to its evolution with Prime Now in some major cities, including Milan in Italy, which guarantees delivery within hours. The next step seems to be the Octocopter drones of the Prime Air service, capable of delivering in a radius of 20 kilometers up to 2.5kg (85% of Amazon deliveries) in about 30 minutes. Currently the doubts concern more the aviation safety than the technical feasibility, but the advantages both for the customers and for the urban circulation make suppose that this type of delivery will become customary in a not very distant future.
It is estimated that as much as 60% of the total revenue on merchandise sold by Amazon is attributable to Prime, it is therefore self-evident that the more products can be purchased through the program, the more consumers will be willing to renew their membership. It is also true that some physical experiences of consumers, such as the choice of food and grocery shopping, can not be reproduced on a website. The company’s response to this need, while remaining faithful to its vocation for speed and simplicity, is the experimental supermarket without checkout Amazon Go, launched in 2017 in Seattle. Only time will tell if this concept will please consumers, but it is clear from the huge investments in the project and from the $ 13.7 billion acquisition of the Whole Foods high-end chain, that Amazon aims to become a leading player also in the food sector.
The innovation in the services offered by Amazon necessarily passes also from the organization of its warehouses and the work done by the people employed in them. Amazon’s warehouses are labyrinths organized with random storage, as game theory suggests that chaos allows a greater likelihood for the operator to find products close together, while lowering the number of errors. The organization of work also imitates the model developed by Toyota in the ’80s, so every worker can stop the entire production in case he noticed problems of any kind.
The employees of the company often express conflicting opinions about the exhausting work cycles and the conditions of particular pressure and stress. The last controversial issue, born in the Amazon home and that has been holding the attention of the media for weeks, are the electronic bracelets for workers. “This is simply a communication problem,” explains Stefano Belletto to the BBS students who ask for a clarification in the classroom. “The bracelets are nothing more than the evolution of the tablet already supplied to employees. To leave their hands free, it was decided to transfer the functionalities of this work tool into a bracelet, nothing more.”
Distribution is increasingly taking control of the entire production process, which has to adapt to its standards and rhythms. Amazon has certainly understood and guided this revolution.
“A very important point, which I would like to emphasize: we humans evolve together with our tools. We change tools and tools change us: it’s a repeating cycle.”
– Jeff Bezos
