Amazon has created one of the world’s best fulfillment systems. It’s so innovative and advanced that they can guarantee to deliver anywhere within 2 business days.
To become such an enormous retailer, Amazon have used distribution and logistics as a competitive advantage.
Where amazon is comparable to traditional retail is its use of an intensive distribution channel and a ‘pull strategy’ to attract consumers. This consists of advertising directily to consumers – Amazon in 2013 spent nearly USD $160bn on Google Ads. This equates to about 20% of their overall advertising budget for 2013 .
It is quite clear from the large sums spent that Amazon have good success by targeting internet users / those surfing online and drawing users to the Amazon site.
Where Amazon differs and allows it to run enormous economies of scale is by maximising the usage of their fulfillment system – Amazon have created their Fulfillment by Amazon (FBA) service.
Amazon’s retail strategy here is to allow other retailers to use its website and distribution centres to sell their products and they take a cut of every purchase. Amazon maintains its status as a destination website, but does not have to maintain inventory on slower-selling products. It also allows Amazon to expand its available selection without a corresponding increase in overhead costs (Parker 2012).
Some of the well-known advantages of online retail versus traditional store outlet include; information, 24/7 operation, geographical reach, lower overheads from shop leases, heat and lighting, and ease of selecting products and completing a transaction. Retail shops can cater for the retail experience, the touch and feel of the tangible good, and the demonstration and maybe recommendation by a sale person on a more suitable product choice.
Traditional retailers have been trying to close the gap on the online purchasing format by introducing ‘click and collect’ – allowing shoppers to purchase online and collect instore. The results have been mixed, with some retailers finding it adding to their cost base, whereas others have found that when consumers go to collect, 69% of them are making additional instore purchases. (Gustafson 2016)
Amazon also responded to consumer needs by providing deliveries on Sundays during the Christmas period.
As Jamie Stephenson head of UK Logistics comments, ‘’We know customers really appreciated the immediacy of Sunday deliveries during the Christmas period and we were able to deliver thousands more parcels in this way in those four weeks.” Amazon was able to do this by using vertical expansion and having its own delivery drivers.
There is no question that Amazon is an innovative company, and so it does not come as a big surprise that there R&D department are testing drones to deliver parcels of the future.
Some of the benefits include delivery around the clock (subject to regulatory support) and targeted at consumers who need items within 30 minutes and under 5 pounds in weight. Doing a simple maths calculation and assuming that drones fly at a speed of 50km/h and delivering within 30 minutes, this means that Amazon’s depots can over a circumferential distance of 25km or approx. 2,000 Sq KM. This would imply the need for a lot of depots to cover the whole state of NSW of 809,000sq km whereas Sydney is 12,800Sq km and 6 well positioned depots should do it.
Currently Amazon uses 80 massive multi-football arena sized warehouses (Wolhson 2014) and fulfilment centres. How this plays out with the need to be more local depots and delivery within 30 minutes for small product items remains to be seen.
Blogged by David Wan (username / Deakin: Wadavi)
Gustafson K 2016 http://www.cnbc.com, Retail’s big advantage over Amazon is not foolproof. Available at: http://www.cnbc.com/2016/01/29/retails-big-advantage-over-amazon-isnt-foolproof.html Accessed on 15 May 2016
Parker, G, 2012 www.businessinsider.com Amazon’s unconventional Business Model – Available at: http://www.businessinsider.com.au/why-amazon-is-so-hugely-successful-2012-12?r=US&IR=T Accessed on 12 May 2016
Wolhson, M 2014, www.wired.com Available at: http://www.wired.com/2014/06/inside-amazon-warehouse/ Accessed on 12 May 2016.