AMAZONEcommerce Industry

E-commerce: Market evolution

First wave: advent of online Naukri.com and Shaadi.com

• Introduction of internet in India in 1995

• Economic liberalization after the launch of reforms in 1991 attracted MNCs and brought about the growth of the IT industry.

• The implementation of liberalization policies led to the demise of the license regime, and high taxes and import restrictions, as well as facilitated the growth of SMEs.

• The IT industry and SMEs were the early adopters of internet. This led to the emergence of B2B, job searches and matrimonial portals.

• B2B directory : 1996

• Online matrimonial : 1996

• Online recruitment : 1997

Second wave: duplication of global business models and improvement in ecosystem• Online travel: The entry of Low Cost Carriers (LCCs) in the Indian aviation sector in 2005. Travel

emerged as the largest segment. They developed their own websites and partnered with OTAs to distribute their tickets online and, thus, contain costs. The Indian Railways had already implemented the e-ticket booking initiative by the time LCCs commenced their online ticket booking schemes.

• Online retail: The growth of online retail was partly driven by changing urban consumer lifestyle and the need for convenience of shopping at home. This segment developed in the second wave in 2007 with the launch of multiple online retail websites.

• Group buying: Starting in 2010, the group buying and daily deals models became a sought after space for entrepreneurs in India, emulating the global trend.

• Social networking actively used by organizations to reach out to customers: In the second wave, social networking gained steam in the Indian online space. It has gone on to become an integral part of people’s lives. Initially used for staying connected with friends, social networking websites have now emerged as an anchor in any company’s digital strategy. Termed as social commerce, it is a key avenue for e-Commerce players to reach out to target customers. Companies have started establishing their presence in the social media space for branding activities, connecting with customers for feedback and advertising new product launches.

Headlines – Ecommerce Industry

Current Value of Rs170 billion

Rise of 20% over 2013

Apparel and footwear gaining

popularity

Most important internet retailing

channel in 2013

Dell India is the leading

player8% value share in 2013

Changing phases of the consumer – They are online now

Apparel&

Footwear

Internet retailingForecasted to increase at a CAGR of 12%

*Euromonitor

Major Trends

The Showrooming

Consumer

Availability and variety

Payment Options

Convenience and

ComparisonDrivers of

Online purchase

India’s Online market population

2014

164 million

2015 2016

280 million

2017

• Currently 3rd largest and set to outpace USA by 2018• Growth in internet usage driven by faster internet

technology, higher awareness and increasing sales ofbroadband and smartphones

• Mobile users form a lions share of internet users butcontribute only 9% to internet sales

202 million

244 million

*KPMG

*McKinsey

Traditionalbrick and mortar consumer

The online consumer

Apparel ComputerSoftware

ComparisonShopping

ConsumerElectronics

ComputerHardware

21% 16%

15% 13%11%

Percentage reach of variousonline retail categories

FragrancesJewellery/luxurygoods

Food Travel &Tickets

90% 26%25% 18%

Percentage growth of somehigh growth categories

Dominant and key emerging categories

• Private label products widely available in leadingdepartment stores and footwear and apparelspecialist retailer chains like lifestyle, shoppersstop, pantaloons Etc. were the most negativelyaffected

• Cash-on-delivery remained the most popularmode of payment in online shopping

• Try and buy concept gaining popularity

*KPMG

*Euromonitor

Competitive Landscape

Leader in online retailing

Internet remains its primary retail channel

More options while shopping online than in-store

Witnessed the strongest growth of 400% with its value sales increasing to Rs. 2.6 billion

Primarily because of the variety and discounts it offers

E-marketplace and consumer-to-consumer transactions are increasing

Mainly popular among the age group of 18-30

Aggressive marketing campaigns on

Internet retailing by category: %Value growth 2008-2013

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• Pure players continue to outperform multi-channel rivals

• Both pure players and bricks-and-clicks retailers are focusing on reducing delivery times and increasing variety of products

• Price positioning and branding are increasingly gaining importance

• Increasing number of acquisitions in internet retailing

Prospects

Key decision PointsMarket Based model Warehouse Based Model

Challenges• Logistics

• Several players have begun building their in-house capability to manage customers’ deliveries.

• The number of express courier companies in India has grown significantly over the last decade, with more than 4,500 companies covering a large number of pin code areas across the country.

• The cost of logistics in India is, however, among the world’s highest due to the substandard quality of physical infrastructure.

• inadequate airline fleet size of express courier companies

• Logistics companies in India lag behind in terms of their technology infrastructure and limited investments in technology

• GPS systems for fleet, bar codes/RFID tags on packages and hand-held devices for their field force

• Cash-on-delivery• Extra charges levied by logistics providers to collect cash from

customers

• Delays in remittance of cash collected by logistics providers

• Poor returns management and associated costs

• Warehouses location• Tax reduction guides decisions on the location of warehouses

due to the non uniform tax structure and multiple tax rates across states

• Complex tax structure for the retail sector in India

• Implementation of GST expected to eliminate most tax issues

Lack of touch-and-feel a mental barrier for online shopping

Increased competition with the entry of global players

Low margins prompting e-Commerce players to look at new business models

BUSINESS MODEL EVOLUTION1995 • Online book retailing

1999 • Auctions and zshops

2000 • Marketplace

2001 • Partnership & logistic services

2002 • Ecommerce platform / web services

2007 • Ebooks/kindle

2009 • Amazon Publishing

2013 • Amazon AutoRip

Business model Innovation

• Found a new channel to the customer

• 1 click check out

Eliminate

• Next generation platform & infrastrucutre

Raise

• Amazon web services

Create

• Short term Profitabililty

Reduce

Analysis of business modelOnline retail

• Earth’s biggest selection

• Lowest cost , small profit

• Serves as a channel for other retailers

• Long tail retailer

• Seller market place

Internet services

• Deeply intertwined

• Amazon Prime - free two-day shipping on retail purchases, on-demand video streaming, free access to the Kindle library

• Amazon Web Services (AWS)

Kindle eco system

• Manufacture & Distribute

• Originally an electronic book reader , now a fully functional tablet.

• Library of e books , online games and videos.

Distribution Network

Amazon service concept model

Auctions

Amazon marketplace

AmazonFresh

Amazon MP3

Amazon appStore

AutoRip

Amazon Web Services

Amazon Simple storage service

Facilitating elements

Books Consumer Electronics Apparels Baby products Beauty products Gourmet food Groceries Health and Personal care

items Industrial and Scientific

supplies Kitchen items Jewellery and watches Sporting goods

Core offering

Guaranteed single day delivery Cash on Delivery option Buyer friendly returns policy Delivery through drone Predictive analytics in shipping

Delivery processes

Pricing

Amazon does make millions of price changes daily

Some categories are more price dynamic than others

Price dynamism varies by season

Service process flow

Customer searches for the product on

Amazon

Customer selects product from catalog and places in his/her

Cart

Customer is prompted to log in or create an

account with Amazon

Delivery details are obtained and

estimated time-to-delivery provided

Mode of payment is selected

• customer is redirected to the payment gateway if necessary

Order is confirmed

• Customer is provided an order and tracking number

Order details are passed to the seller to

initiate order processing

• Throughput:• Whole process from product selection to payment can be completed within 5 clicks

• Global average for permissible page load time: 3 seconds

• Capacity:• Amazon has one of the largest server clusters in the world: Estimated to be over 150,000

• Amazon claims the number of ‘objects’ stored on its S3 servers crossed the trillion mark in 2012

• Assuming 1 object occupies 1 Mb of memory, size of Amazon’s servers = 1 exabyte

• Currently, number of products sold on Amazon:

Source:http://www.clustrix.com/company/news-and-events/press-releases/clustrix-releases-industrys-first-specialized-database-e-commerce/

Source: http://export-x.com/2013/12/15/many-products-amazon-sell/

Implications for customers

• Consumers• The one-stop shop for everything

• The ultimate convenience store

• At-a-glance comparisons across categories and products

• Sellers• At its peak (2013) Amazon sold over

400 items per second

• Be where the customer is

• Fulfilled by Amazon: Amazon as a logistics partner

Promotion through offer products and

services

Customer friendly interface

Easy scalability

Efficient use of products and

services of affiliates

Utilizes universal behaviors and

mentalities

Use existing communication

systems

Amazon- Six pillars of marketing strategy

• Technology enhancement to help customers for simple navigation• Convenient one payment order processing

• Continuous analysis of web traffic• Simple-to-use and faster site functionality • Amazon engages in under-the-table investigations to garner new information through noiseless

experiments

• Model to draw more traffic to their websites• Advertisers pay the website owners or publishers when their sponsored ads on their pages are clicked• Amazon purchase PPC advertisements on Google to direct their potential customers to their website

Pay per click advertising

• Amazon realized that offline advertising methods are 10 times less effective than online direct marketing• Lower customer acquisition costs

Continuous website improvement

Streamlined ordering and navigation

Reduced offline advertising spend

Amazon- Sublime/Indirect marketing

• Amazon has signed contracts with many partners to operate, host and manage websites of other partner retailers along with its own websites.

• This results in listing of Amazon products when partner sites are searched and diffuses the customer checkout enjoyed by Amazon to it’s partners

• Amazon’s web services helps small online firms to create a reliable and scalable platform to revolutionize their business

• E commerce fulfillment programs offered by Amazon allows merchants to direct their inventories to Amazon’s fulfillment centers thereby freeing them from complex ordering process

• Amazon affiliates ( third-party OR associate retailers) agree to place links in their websites directing to Amazon.com or specific amazon products.

• The third party can also place their links on the affiliate websites if they list their products in Amazon• Associates receive a fee if customer visits Amazon through their website and extra commissions for a

completed purchase.

Strategic partnerships and web services

Affiliate marketing

• Customer reviews and ratings on the products listed and purchased from Amazon• Acts as a believable trigger for purchase• High focus on customer service by engaging customers through phone and e-mail

• Amazon engages in permission marketing through e-mails which results in better attention from customers as it is done with their consent

• Helps to target relevant information to the customer resulting in customer satisfaction

Customer service and opinions

Email marketing

Future marketing strategiesThird-party sales loom as an important part of Amazon’s business future.

To grow exponentially through Amazon Web Services

Pushing its Kindle tablet which can act as a catalyst in promoting its merchandise sales

Focus on absolute cash flows rather than percentage margins-will continue to offer deep discounts to push its sales

Innovate with payments: Those solutions could come in the form of one-click payments (similar to iTunes) outside of its main website, either through third-party offerings or, more likely, through a major acquisition

Push Amazon's bundle strategy: Amazon Prime, Prime Fresh Services

Focus Areas in Future

Focus on collaborations

Increased collaboration with partner Channels

Communicate to clients in the global market

Enhanced integrated marketing

Promote products and servicesForward Integration

Innovative strategies and devices to provide competitive advantage in electronics market

Continued focus on R &D

Continuous focus on customer serviceCustomer Service

E-commerce in EuropeContributes significantly to growth and job creation

• E-commerce in Europe has reached a stage of maturity• Higher than most parts of the world• Low prices and time are the most important drivers

• As spending increases, people are shifting to online purchase• Online share is high in music and travel, and low in apparel and grocery• UK, France and Germany account for 60% of European E-commerce

Amazon in France• Most visited website with more than 14 million visits per month