Will Amazon split itself in 2019? part 2
This is the 2nd article in series of several pieces, covering shortly Amazon’s cost obsession, natural for all successful retailers. If you are interested, first part you can check out here: PART 1
Interesting fact is that Amazon’s best moves come from internal need to cut the costs down, not so much on how to bring the incremental revenues up. In the ecommerce domain Amazon took the Walmart’s playbook and is following it step by step:
- Efficiency to the breaking point (including employees) in the supply chain
- Strong-arming suppliers to the max
- Opening new categories to put the flag in case some market lifts off (unexpectedly) high
- Play the economy of scale game as fast as possible
The question is how many cost savings you can do and still keep the customer satisfaction, employee engagement and supplier cooperation ?
Few examples indicate that Amazon is getting really creative with the projects, meaning there are no more easy things to do:
- new HQ selection — what seemed as a good idea on paper (let’s divide and conquer and cut the cost of the locations we already decided on) backfired, and created new challenges which were probably not in a business case (negative PR, lowering your negotitation position in future deals with government and local authorities). It seems that people got aware how big and strong Amazon really is, if it can make politicians act crazy so easily and actually openly promoting that they want to give more money to the richest American… Combine this with minimum salary negotiation and you can expect your PR department working really frenzy hours…
- building up its own delivery network with partners — now speaking from personal experience — in Austria, Amazon launched partner program for delivery companies. As far as I can see — it works more or less like Uber — if you have a delivery truck and a driver’s licence — you are eligible to become a partner. As always, building a partnership network (delivery, sales, other…) too fast has a counter effect of deterioratting quality in execution, even if target KPIs are being met. If you feel this change as a customer, it means it is not working properly. And I’ve felt it… Out of 4 recent deliveries — 1 was left outside of the building (?) and 1 had its (Amazon) packaging torned. Comparing these experiences with my expectations based on previous partner (Austrian Post), I can say it is now 50% lower… Should I check for alternatives, as price advantage of Amazon is minimal (if any)? Am I the only one with the same experience ?
- Announcing pilots for drone delivery, leaving packages in the car trunk, acquisition of Ring, a door bell producer — for me all these moves, pilot projects, acquisitions serve as a tactic to negotiate better terms from existing partners, and hoping that in long term some of those project will go live (is there a better argument in negotiation than showing that the other party is dispensable ?). And of course it helps if vertical integration of Ring brings better sales margins on the way…
- Demanding a change in product packaging just to optimize delivery costs and this is my favourite example of influence that Amazon has on customers and suppliers:
Brands are ready to change their products just to fit better to Amazon’s delivery operations. Again we come to the comparison with Walmart — powerful enough to press the suppliers to change fundamentals of their product and their brand. Retailer with such a strength usually spells TROUBLE for suppliers…
