Introduction to Marketing (MKT333)

Case Study #7
Amazon

On November 3, 2015, after more than 20 years of selling books online, Amazon opened a bricks- and-mortar store in Seattle, Washington. Although located in an
upscale outdoor mall not far from the University of Washington, this store has little to do with selling books and everything to do with data.
Amazon is betting that the data it generates from shopping patterns on its website will give it advantages in its retail location that other bookstores can’t
match. It will use data to pick titles that will most appeal to Seattle shoppers. The company will include books that get the highest ratings from their online
customers, including little-known titles.
Jennifer Cast, vice president of Amazon Books, is careful to say the store won’t be stocked solely on data. “It’s data with heart,” she said. “We’re taking
the data we have and we’re creating physical places with it.” Some of that data includes reviews from the millions of Amazon customers who have left appraisals of
books on the website.
Dustin Kurtz, of the New Republic, reported that the store is physically odd. More like a Waldenbooks than a Barnes & Noble. “If Amazon is making a brand
statement with its store design, it’s a very modest one.” The store seems to be an extension of the Website. According to Kurtz, Amazon’s store is more of a
disruption than an innovation. “Nothing in the store is an original idea to Amazon.”
Every book will face out, rather than be stacked with only the spines showing. (Perhaps to mimic the way books are presented on Amazon’s site.) This leaves
far less space for books. Below each book on the shelf is a shelf tag that includes a capsule review from the website, a star rating, and a barcode. There are no
prices listed. To get the price you scan the barcode with your smartphone and the Amazon app. This brings up the product page for the item you’re looking at, with
full reviews, specs, and pricing. Pretty slick!
Now that you’re signed into the app with your account, Amazon is immediately able to associate its online customer records with you, the customer browsing the
shelves in its physical location. It knows your preferences, your buying history, and your status as an Amazon customer (Prime and/or credit card member). Armed with
that data it can feed you additional information or provide incentives like coupons or other discounts –whatever it needs to do to close the sale as you are holding
an item in your hand that you are considering buying.
The shelf-pricing model in the Amazon store isn’t a feature – it’s a product. By pushing pricing to the app, Amazon enables every offer, every recommendation,
and potentially every price to be personalized to each customer and timed to optimize every transaction.
Considering Amazon’s reputation as the “everything store”, the selection is sure to disappoint. One associate explained that the inventory was “highly
curated” consisting mainly of titles that earned 4 or more stars from the website’s rating and review system. What happened to Amazon’s guiding principle: that books
are all made equal and people can choose what they want with little oversight or guidance?
Today, according to their 2015 financials, Amazon’s profits are in their cloud services, the massive data centers that run infrastructure for businesses and
provide the processing power to connect mobile apps with back-end customer data.
And this means? Amazon’s secret to success in the world of bookstores is to have such power and buy in such quantity that they can dictate their own discounts
to publishers.
Questions:
1. Based on the power Amazon has in the books category, what type of channel position do they represent?

2. What advantages do bricks-and-mortar stores have over online stores? Can Amazon replicate these advantages? Why or why not?

3. If Amazon’s profits are driven by their cloud services, what benefit can you see from the operation of a bricks-and-mortar store as described?

4. Walmart is a direct competitor to Amazon’s “everything store.” Do you think the opening of this store in Seattle will have any impact on that competition?

5. How does this store support Amazon’s ideal market size of ONE?
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