[An Analysis of Online Retailing Industry]
[Amazon.com vs. Best Buy]
Table of Contents
Executive Summary....................................................... 3
1. The Role of Internet In the Retailing Industry....... 4
2. Comparison Between Two E-Businesses.................. 6
3. Conclusion................................................................ 12
This report is built up by two parts. In the first section, this report will conduct a critical analysis of the roles of Internet played in the online retailing industry. By using Porter’s Five Forces (1985) as a framework, this report infers that the online retailing is a high competitiveness industry. This report claims that Internet bridges the gap between the offline world and online world. Moreover, Internet plays an important role in the retailing industry because it not only fuels market disruption, but also helps businesses create value and competitive advantages. It enables a company to advertise and sell its product more efficiently.
In the second section, this report will try to compare and contrast e-marketing strategies between Amazon.com and Best Buy from their e-marketing mix strategies (Price, Product, Distribution and Communication). For example, Amazon uses business intelligence to optimize supply chain flows, which effectively reduces the inventory and stock-outs and improves products and services’ quality and efficacy. After having a full analysis, the report will make a conclusion of which online retailer is more competitive in the global market. That is, Amazon excels Best Buy in numerous ways.
1 The Role of Internet In the Retailing Industry
A growing number of smartphone subscribers and internet-accessibility have helped to drive people to go online shopping. According to statistics from International Telecommunication Union, mobile phone subscribers are increased from 22.1% in 2012 to 29.5% in 2013(See Table 1) and there is a growing number of people subscribe 4G and 3G networks (See Table2).
Table1: Active mobile broadband subscriptions by region in 2012 and 2013
Table 2: Global mobile 4G and 3G subscribers in Q2 2013: Informa
Internet plays an important role in the retailing industry. It not only fuels market disruption, but also helps businesses create value and competitive advantages. Many retailers such as Macy’s, Target, Wal-Mart, and Starbucks are currently enacting Internet marketing strategy to enhance their revenue. Statistics has shown online retail spending in Australia comprises 6.5% of traditional retail spending in Australia by January 2014 (NAB Group Economics 2014). It can be inferred that retailing industry is booming.
Internet has provided numerous tools to the marketers (Marketing Teacher 2011). First, Companies like Amazon.com, E-bay can distribute merchandises through Internet and Internet also boosts the online merchandisers. Now they spend time tracking and trading products online. Second, Companies can use Internet to build relationship with their customer. Dell, one of the famous computer brands, uses social networking to build and maintain its customer relationship. Third, Internet has changing customer’s shopping behavior and improving the quality of products. Now products have transparent pricing. Some websites (eg. Groupon) and app software even have local and online price comparison that customers can check the price immediately. However, there are also some retailers do not make profit because of Internet. With the transparency of pricing, Customers are able to compare shopping and find lower prices online and they tend to check from a smartphone right in a Best Buy Store because online retailer may offer discounted products which they can not enjoy in a physical retail store (Fitzgerald 2013). Fourth, Internet has accelerated the process of economic growth in retailing industry through new high technology such as immediate gratification and augmented reality. Numerous examples can be illustrated. For example, Target uses the predictive analytics to expect customer’s behavior. The company has a Guest Marketing Analytics department to collect numerous data on every customer who regularly goes into its stores. If Target figures out a customer is pregnant, it will send the customer email about diapers (Duhigg 2012). When talks about immediate gratification, Apple’s iTunes store on IPhone and Ipad are able to deliver music, video, apps and electronic books wirelessly. Furthermore, Customers and marketers can transact money through Internet because transactions can be negotiated electronically. Paypal and Alipay are safe payment methods, which bridge the gap between customers and sellers. To better understand the state of retailing industry, we will rely on the Porter’s five forces (P5F) model that wrote by Michael Porter in the 1980s. In this context, an industry analysis requires assessing the threat of new entrants, threat of substitutes, bargaining power of buyers and suppliers, and the intensity of rivalries (Porter 1985). It can be inferred that the online retailing is a high competitiveness industry, because the threat of new entrants is high, threat of substitutes is high, bargaining power of buyers is high because of the nearly no switching cost as well as the high intensity of rivalries.
Internet retailers have unlimited geographic space with relatively smaller infrastructure (Bell, Choi and Lodish 2012). Traditionally, physical retailers have limitations due to store’s geography and space. According to the research made by Evans and Wurster, in a physical store, a customer who wants to buy products has to manually look through tons of thousands of choice and then makes decision. A customer usually needs to walk into different stores, or else he or she has limited information at one particular store. It could be very expensive and time-consuming (1999). However, with the help of Internet, customers can acquire the information of a particular product and know the price range because the particular product will be matched price. Thus, it actually indicates that online retailing industry is far more preferable for retailers. Internet retailers can transcend the limit of time and location and serve a wider location with relatively minimum resource. Consequently, Companies’ physical inventory costs are decreased, which represents online firms can provide access to the long tail of products and potentially make profits which traditional physical retailer can not provide.
2 Comparison Between Two E-Businesses
2.1 Positioning of Amazon.com and Best Buy
Amazon dominates the online-retailing and e-book markets in many countries. It is positioning itself as the provider of innovative companies. Amazon is one of the most innovative companies all over the world according to Forbes’s listing (2013). Amazon began as one of the major companies to sell products on the Internet. Amazon was close to bankruptcy in 2000 and 2001 because it went years without turning a profit. However, it is now becoming the world’s largest online retailer by using several successful strategies.
By 2013, the sales revenue of Amazon generated is $75 billion. Amazon’s supply chain has massive reach with consumers and more than 215 million customers are its active users. At the end of second quarter of 2013, the number of its Prime members has reached 11 million (Spangler 2013). Amazon is now clearly engaging in a wide-ranging multi-front war. For example, Amazon began with online bookstore, now it has introduced Kindle Fire successfully, giving Ipad an attack and has become a major player in the digital media market.
In contrast, Best Buy is America’s largest specialty electronics retailer. Best Buy focuses on more high-end merchandises and new interactive features to positions itself as the provider of quality service and sales and help consumers who are confused by high-tech products. BestBuy, which announced a whole year sales of $ 45 billion, has 900 stores in United States and is the nation’s largest electronics seller (Wharton 2009). What’s worth mentioning is that in the “price war” between Wal-Mart and best Buy, Best Buy comes in second behind the big retailer Wal-Mart. Best Buy offers many products including consumer electronics, movies, music, computers, mobile phones and appliances. It also offers services like installation and maintenance, technical support, subscription for mobile phone and Internet services to assist consumers.
Larger companies like to use different e-marketing mix strategies and have a better understanding the impact of mixed e-marketing strategy in enacting business tactics (Hasan 2011). The following paragraphs will compare and contrast mixed e-marketing strategies between Amazon.com and Best Buy.
2.2 Amazon vs. BestBuy
In terms of price, product, distribution and communication, each of the company has similar or different e-marketing strategies.
Turning focus on price strategy, in 2012, Best Buy announced that it would initiate a price matching with nineteen online retailers including amazon.com, Target and Wal-Mart. Best Buy has lost $1.2 billion because of customers constantly checked from a smartphone to find lower prices online. However, Strategies such as restore its online stores and connect its online store more tightly to its network of more than 1,400 locations help Best Buy to gain customers. Then Best Buy is making profit again and its stock has tripled in value (Fitzgerald 2013). Best Buy now is becoming a cost effective alternative compared to other major brands.
Best Buy deploys QR Codes as one of their marketing strategies. QR Codes offer most of their service that mainstream customer value. For example, tradition advertising requires shoppers to remember a web address, or a phone number. Information could be easily lost and forgotten by potential customer. Best Buy adds QR Codes in their product information tag. In the past, Best Buy should frequently reprint price tags to ensure prices displayed at store are the newest and correct ones. According to estimation, Best Buy need $312 million to update price information tags assuming product tags are reprinted twice a month (Retailgeek 2010). However, Best Buy can change the linked material while QR Codes remain the same, thus reduce cost and increase profit with help of QR Codes. Consumers sometimes hesitate to buy products. Now consumers can read customer reviews and make decisions. QR Codes help Best Buy construct a direct “conversation” between customer and themselves and help them obtain a sense of loyalty.
Internet has allowed online retailer to share both characters: a variety of selection and lower price. Similar to Best Buy, the aim for Amazon is also to offer its customer the lowest price. Therefore, low price is always Amazon’s dominant strategy. The product selection has gained Amazon many returning and new customers. However, some critics have questioned its low pricing strategy and argued it may not very sustainable. But in fact, Amazon was founded on the basis of the strategy, that is, a variety of selection and better prices. To date, it has worked very well.
According to the product strategy, Best Buy has wide product selection, but online product category doesn’t match up to in-store. Best Buy sells products that are developed by other companies, however, it brands as their own. What’s more, it differentiates itself in the market by offering “Omni-Channel Retailing”, which means multiple ways to retail. In physical retail store, Best Buy’s strategy is to offer customers knowledgeable service that caters to large businesses. It makes customers understand what consumers need in the market. There are knowledgeable staffs to help customers out. In online retail store, Best Buy bundles the laptops with extended warranties, antivirus protection, and Geek Squad service. According to