Executive Summary:

Amazon is trying to replicate its online retail success in offline retail segments, through Amazon Go and
Amazon Elements:

An appropriate move for the ever-growing company thanks to its large brand awareness and a huge
customer base. Still such a move is risky because the reaction of its customers and suppliers is
unpredictable, and its lack of knowledge can expose it to failure.

To compete in offline retailing and products manufacturing, Amazon is relying on its rigorous research
and development department, successful marketing, efficient supply chain, new technology, and above
all its customer-centricity philosophy that drives the two highly-demanded service outputs: convenience
and delivery time, for equal to lower prices than competition.

Amazon Go’s vision was to” Just Grab and Go. No lines, No Checkout.”: A potent project where Amazon
benefits by improving its AI technologies and expanding its presence which makes it capable of becoming
one of the biggest hybrid retailers.

Meanwhile, Amazon Elements is Amazon’s entry to the world of manufacturing. With the focus on
differentiating their offer and continuous testing (free samples of its products in the introduction phase
of their life cycles) it can be highly successful. To avoid causing tension with suppliers, Amazon Elements
is better off considering manufacturing convenience products and/or getting rid of the ownership and
marketing of other products through third party suppliers.

Finally, Amazon can run high costs without translating into profits at earlier stages, in the pursuit of
customer delight, but it will guarantee wider market share and a competitive advantage in the long term.

It is worth noting also that Amazon’s innovations are subject to illegal counterfeiting, which can be
solved by purchasing trademarks for the concerned countries.
Marketing issue:

Amazon is trying to replicate its online retail success in offline segments, through Amazon Go and
Amazon Elements, to compete in physical retailing and product manufacturing respectively.

Question 1:

Given Amazon’s resources and capabilities, the diversifications that the company went for are
appropriate yet very risky. Since Amazon is already the leader in the online retail market, opting for new
offers and developing new market sectors are completely predictable and fully anticipated steps.
Through Amazon Go and Amazon Elements, the company brought to the market the first brick-and-
Mortar convenience food store that allows customers to make purchases without a cashier. The
company moved from providing its customers with what they need in 2-3 days to provide them right
away through brick-and-mortar stores. Amazon’s combination of competitive advantages and financial
resources allows them to succeed in the offline market as well and supports this diversification. They
own a strong and innovative Marketing through which they could target the market towards them. Also,
they have a deep understanding of the needs and purchasing habits of the customers owing to their
large customer database. In addition, they have efficient supply chain management and innovation.
Nevertheless, these moves were risky. First of all, the company made huge investments to achieve this
diversification through buying physical stores, selling over one million shares to raise more capital, and
inventing the required technology for cashier-less payment methods. Second, only Amazon Prime
members could benefit from these new features so, this can shrink the size of their customer base right
out of the gate. Third, Amazon was lacking experience in offline retailing that was crucial to deal with
Amazon Go operations. Fourth, selling Amazon Element’s products could lead to horizontal conflicts with
the company’s suppliers especially if they succeed and achieve high sales and profits. Last, there is fierce
competition in traditional retailing with Walmart and many others that Amazon should be aware of.

Question 2:

Being successful in the first few years will be quite difficult considering the fierce competition that exists
in the market, Walmart and Target whose 70-75 % of revenues come through physical stores, and the
high costs of the offline expansion. However, Amazon can reproduce its online retail success in offline
retail segments due to its competitive advantages: supply chain efficiency, R&D, customer centricity, and
marketing plans as long as they keep operating at scale. They are not only entering the physical retailing
business; they are revolutionizing the whole shopping experience through advanced technology that
makes Just walk-out shopping (efficient, easy, and time-saving) possible and positioning themselves as an
innovative and efficient retailer once again. They are providing convenience and eliminating waiting time
– two highly demanded service outputs for the normal price or even less, which reflects their customer-
centricity and makes them attractive to customers even more so than a regular offline store. It can also
eliminate theft. Moreover, being the biggest online retailer, Amazon has financial resources, high brand
awareness, and a big customer base that would be interested and even loyal to them. Amazon Go is only
accessible to members of Amazon Prime (36 million by 2016) which may limit their target segment for
now but on the other hand, ensures loyalty and exclusivity within the brand. As long as they keep slowly
testing and improving their MVP, they can guarantee a spot among the biggest offline retail players and
be able to go against the trend of grocery shopping.

Question 3:

Being an initiator in checkout-free convenience stores, Amazon has a competitive advantage over other
retailers since they got the attention of the media (free publicity through blogs, posts, videos, and word-
of-mouth...), the interest of the customers (especially early adopters and any Amazon Prime members)
and a market that’s completely new for them to shape. Amazon must constantly update the technology
used making sure the system is always accurate, to avoid any conflict with the customers, and develop
the AI technologies found inside the physical stores.

With the Amazon Go idea, the punch line was “No Lines, No Checkout, Just Grab and Go”. As Amazon is
that the first mover during this technology-driven shopping space, the firm currently incorporates a
niche market which essentially has eliminated the red ocean for the nowadays

The same applies to Amazon Elements. In order to avoid any negative feedback from customers, Amazon
needs to control the quality of the products produced in the name of its private brands. Customer loyalty
is one of Amazon’s main assets; thus, it must focus on improving its B2C strategies to maintain its current
customers and attract new ones.

As for avoiding failures such as the 2014 diaper brand, the company should start beta testing (MVP or
beta version), offering free samples to customers and get their feedback, and improve their products
accordingly. In addition to that, Amazon should focus on developing strong market research to be ready
for any possible challenges.

They should also keep developing the technology they use to increase efficiency and slowly expand
throughout the USA and the world (which seems they are already considering to do in the UK).
Some people are worrying that this new kind of retailer will eliminate various jobs but as usual the job
loss in one sector will lead to hiring in a different one. They may not need cashiers anymore but they do
need customer assistance in the store or online after purchase.

We also can’t overlook the company’s success in other various products they launched especially in
technology like Kindle and Amazon Web Services Inc. They should also focus primarily on manufacturing
products after thorough market research to understand what the customers want and what is lacking in
the current products available on the market to find differentiative points from other competitors, as
well as maintaining affordable prices. Lastly, opting for third-party supplier relationships to get rid of the
products' ownership and marketing while focusing solely on selling Amazon elements only on Amazon
websites or Amazon Go to establish exclusivity.

Question 4:

Amazon would be able to recreate success in its offline stores by providing a great customer experience
through the innovation and technology used in the Amazon Go stores and improving based on customer
feedback. Being the first mover in this innovative cashier-less physical retailing business ensures the
continuity of the competitive advantages. Also, customer engagement will boost by establishing more
Amazon Prime accounts. To increase potential footfall and overall market share of Amazon Go, they
should consider making Prime membership more affordable and slowly open more stores. If it seems to
be a resistance from the population when it comes to cash-less payments maybe they should consider
implementing a cashier at the front of the store until people are more familiar with the concept and
ditch cash. They ought to integrate their online and offline services to enable services like in-store
pickups, doorstep delivery.

As for differentiating Amazon Elements from the products of other suppliers on its platform, Amazon
should adopt an appealing price/quality ratio and make their products always available for purchase.
They would have a low-profit margin in the first few years considering the high costs of rent and
technology but ensure the best possible perception of the brand. They should also start with
convenience products.

Internationally, Amazon would be able to penetrate the offline retail markets through purchasing
trademarks in Germany, France, and Japan or any other aimed countries to withstand replication for any
future expansion plans.
Appendix:

Criteria Recommendation Implementation 

Accessibility Attracting more customers to Providing inclusiveness to all Amazon

Amazon Go and Amazon customers, not only Prime members and
Elements make membership more accessible in price
range.

Variety  Diversifying the reasons as to Introducing a wider range of products and

why potential customers should different locations for the stores, launching
use Amazon Go and Amazon new products into the market, and expanding
Elements the categories of products while focusing on
convenience ones.

Quality Assuring a good quality of Maintaining a competitive price/quality ratio.

products in comparison to
competitors 

Expansion Spreading the no-cashier Becoming the first retailer with a “checkout-
culture internationally free” feature in big and crowded countries
with a long time of waiting in line.

Amazon Go SWOT Analysis:

Strengths: Weaknesses:
 Access to the suppliers that offer raw  Venturing into Traditional Retail through
material at a lower cost can improve the Amazon Go takes a lot of investments and
overall business efficiency. time.
 Competitive advantages: efficient supply  Risks of failing when it comes to
chain, innovation, customer-centricity, technology and software or inventory
and  effective marketing plan. management.
 Strong financial position and great deal  The extent of population readiness to stop
of resources that can allow the firm to using cash and credit cards.
make further investments.  Fierce competition in the market.
 Brand awareness and loyalty.  Keeping low prices while spending too
 Huge customer base to base their much.
analysis on in each region.  Possible loss of jobs.
 Human capital that already understands
their infrastructure.  Lack of experience when it comes to
 Providing convenience and lowering offline retailing.
delivery time supplied which ensures
higher customer satisfaction and
encourages more purchase.

 
Opportunities: Threats:

 Strong marketing tool for Amazon Prime  Eliminating so many jobs and getting
subscriptions. backlash from labor syndicates.
 The technological advances can  improve  Other retailers replicating the technology
efficiency and result in the quick and threatening  the business.
introduction of innovative products.  The increasing number of direct and/or
 Possibility of eliminating the use of cash. indirect competitors affects the
 Increase market share when it comes to organization’s ability to sustain and
retailing and increase revenues. expand the customer base.
 Breaking international boundaries of  Failing against the competitors and losing
payments. investments.
 Failing to keep up with the diversity of
needs and life-style in different regions.

Amazon Elements SWOT analysis:

Strengths: Weaknesses:

 It reinforces the brand Image  Inferior knowledge of the field can

 Manufacturing gives better control over the cause mistakes (like the despair
cost of goods sold, thus induces higher failure)
profitability.  Amazon Elements can drive high costs
without translating into profits.

Opportunities: Threats:

 A wide range of products can be  Horizontal conflict with suppliers can

manufactured: convenience, shopping, be a reason for their withdrawal
specialty, and unsought products.  Competitors like Walmart can
 It’s a good opportunity for the R&D to manipulate prices putting high
showtheir innovation. pressure on the business.
 Cultural, legal, and political
differences need to be considered