Research Paper on Sales Promotion and Public Relations

Sales Promotion and Public Relations

Within the scope of this research, we will consider a company that does business in E-commerce, namely Amazon. The e-commerce activities of retail companies have been the subject of substantial examination, certainly more than other e-commerce sectors. Observers have been able to gain an especially clear perspective of the successes and failures associated with retail-focused e-commerce. This perspective reveals that customer service, a willingness to change a failing e-commerce strategy, and measures to determine what specific products are most appropriate for e-commerce are keys to retail e-commerce success.

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Online price wars do not typically lead to profitability. Repeat customers do. Companies wishing to establish a credible online presence should not typically focus on using temporarily low prices to attract customers without loyalty or a likelihood of repeat business. Rather, companies should to use e-commerce to acquire and retain customers who are likely to maintain long-term relationships with the company. Elements that have proved successful in promoting such customer retention include well-developed Web site design, liberal return policies, and targeted customer incentives based on records of customer activity.

Amazon was established in Seattle as a micro-enterprise in 1994. In 1995, Amazon opened its Web site, as a site with a modest discount for books, and quickly established a reputation for offering a larger selection of books than any bookstore, with a selection of 1.1 million titles. In 1998, it diversified into music and quickly became a leader in that category. It has since expanded into thirteen primary categories and an offering of 18 million items. Amazon also recognized quickly that simply being a distributor would subject it to online price wars and reduced margins. Its first expansion into other roles came in 1996, when it began the Amazon Associates program, which linked customers to Amazon through other content sites. Affiliates received commissions of 5 to 15 percent.

Another program is the Advantage program, which allows independent publishers to sell books on Amazon’s site; Amazon pays the publisher 45 percent of list price. Another development was the zShops program, in which Amazon hosts small providers on its site, providing its distribution technology in exchange for a commission. Amazon also receives benefits from the additional traffic and the ability to cross-sell.

Finally, Amazon developed larger distribution partnerships. In August 2000, it created a strategic alliance with Toys ‘R’ Us to provide logistical support for a co-branded Web site. Amazon received a small percentage of revenue, per-unit payments, and fixed payments. Amazon handled site development, order fulfillment, and customer service, while Toys ‘R’ Us handled inventory. The deal boosted sales for both companies and forced a pure-play competitor, rival eToys, to fold.

In August 2001, Amazon took over operations for Borders.com, providing inventory, fulfillment, site content, and customer service. The Borders site adopted Amazon’s one-click ordering and personalization. In teaming up with Borders, Amazon gained both customers and an offline presence. In 2002, the deal was enhanced to include the ability to check physical stores’ inventory online and for Borders stores to accept returns from Amazon. It also took over operations for CDNow, a leader in online music sales owned by Bertelsmann, a major stakeholder in barnesandnoble.com.

Amazon has designed most of its own functions, including the search system, customer accounts system, and IT infrastructure. The design of Amazon’s site contributes heavily to its high repeat customer rate. A key aspect of Amazon’s site design is its personalization technology, which tracks customer preferences and informs customers, both on the site and through email, of products that might appeal to them. Amazon content is provided both by Amazon’s staff and by users, who may submit reviews and other forms of feedback on products.

For customer service, Amazon offers dedicated email addresses that deal with specific customer topics, areas, and other functions. It also began offering free shipping on larger orders, an idea which it considered and scrapped in summer 2001. Later in 2002, it reduced considerably the purchase minimums for free shipping.

Another major advantage is Amazon’s negative cash conversion cycle, because it collects sales payments from customers before it must pay distributors and vendors. By 2003 Amazon had 37 million customers. Though growth was strong, Amazon continued to lose money until January 2002, when Amazon reported its first quarter of profitability. Barnes and Noble’s first reaction to Amazon was to design a store using America Online, which launched in 1997, nearly two years after the launch of Amazon. The site, however, was criticized as being slow and difficult to use. The site was also overloaded with orders at times, especially during the holiday season, without the technological capabilities to handle them. There were also no signs of integration with retail stores.

Barnes and Noble’s offline business had always been centered around low prices, in contrast to its main offline competitor, Borders, which had competed on its wide assortment of titles. The core of the strategy was scale in distribution infrastructure and administration and in-store discounts. In 1998, Bertelsmann bought a 50 percent stake in the Web site for $200 million.

The new barnesandnoble.com was first designed as a separate unit, and eventually spun off as a stand-alone separate company. The Web site’s headquarters was a colorful, open, and high-tech environment, designed to imitate the feel of a pure-play company. In 1999, its IPO raised $486 million, which was used primarily to improve the Web site and fulfillment operations. This relaunch of the Web site overhauled both front-end and back-end operations. The site itself was redesigned to be more like Amazon’s, making ordering simpler and faster for customers. Amazon successfully sued Barnes and Noble, however, for too closely imitating its checkout technology.

In 2002, Barnes and Noble saw sales increase and net losses fall, leading to the company’s first projections of profitability in 2003. In addition to higher revenue, the site benefited from cuts in operating expenses and more efficient shipping. But its slow move into e-commerce and poor integration with its bricks and mortar operation has kept it to a small fraction of the size of Amazon.

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