Partnership strategy

As Amazon grew, its share price growth enabled partnership or acquisition with a range of companies in different sectors. Marcus (2004) describes how Amazon partnered with Drugstore.com (pharmacy), Living.com, Pets.com (pet supplies), Wineshopper.com (wines), HomeGrocer.com (groceries), Sothebys.com (auctions) and Kozmo.com (urban home delivery). In most cases, Amazon purchased an equity stake in these partners, so that it would share in their prosperity. It also charged them fees for placements on the Amazon site to promote and drive traffic to their sites. Similarly, Amazon charged publishers for prime position to promote books on its site which caused an initial hue and cry, but this abated when it was realised that paying for prominent placements was widespread in traditional booksellers and supermarkets. Many of these new online companies failed in 1999 and 2000, but Amazon had covered the potential for growth and was not pulled down by these partners, even though for some, such as Pets. com, it had an investment of 50%

Analysts sometimes refer to ‘Amazoning a sector’, meaning that one company becomes dominant in an online sector such as book retail such that it becomes very difficult for others to achieve market share. In addition to developing, communicating and delivering a very strong proposition, Amazon has been able to consolidate its strength in different sectors through its partnership arrangements and through using technology to facilitate product promotion and distribution via these partnerships. The Amazon retail platform enables other retailers to sell products online using the Amazon user interface and infrastructure through their ‘Syndicated Stores’ programme. Similarly, in the US, Borders, a large book retailer, uses the Amazon merchant platform for distributing its products. Toy retailer Toys R Us has a similar arrangement. Such partnerships help Amazon extend its reach into the customer base of other suppliers, and of course, customers who buy in one category such as books can be encouraged to purchase from other areas such as clothing or electronics.

Another form of partnership referred to above is the Amazon Marketplace which enables Amazon customers and other retailers to sell their new and used books and other goods alongside the regular retail listings. A similar partnership approach is the Amazon ‘Merchants@’ programme which enables third-party merchants (typically larger than those who sell via the Amazon Marketplace) to sell their products via Amazon. Amazon earns fees either as fixed fees or as sales commissions per unit. This arrangement can help customers who get a wider choice offers a wide range of methods of linking to its site to help improve conversion. For example, affiliates can use straight text links leading direct to a product page and they also offer a range of dynamic banners which feature different content such as books about Internet marketing or a search box.

Amazon also uses cooperative advertising arrangements, better known as ‘contra-deals’, with some vendors and other third parties. For example, a print advertisement in 2005 for a particular product such as a wireless router with a free wireless laptop card promotion was to feature a specific Amazon URL in the ad. In product fulfilment packs, Amazon may include a leaflet for a non-competing online company such as Figleaves. com (lingerie) or Expedia (travel). In return, Amazon leaflets may be included in customer communications from the partner brands.

Amazon’s associates programme directs customers to its websites by enabling independent websites to make millions of products available to its audiences with fulfilment performed by Amazon or third parties. It pays commissions to hundreds of thousands of participants in its associates programme when its customer referrals result in product sales.

In addition, it offers everyday free shipping options worldwide and recently announced Amazon.com Prime in the US, its first membership programme in which members receive free two-day shipping and discounted overnight shipping. Although marketing expenses do not include the costs of free shipping or promotional offers, it views such offers as effective marketing tools.

Q253

Questions

1 By referring to the case study, Amazon’s website for your country and your experience of Amazon offline communications, evaluate how well Amazon communicates its core proposition and promotional offers.

2 Using the case study, characterise Amazon’s approach to marketing communications.

3 Explain what distinguishes Amazon in its uses of technology for competitive advantage.

4 How does the Amazon ‘culture of metrics’ differ from that in other organisations from your experience?