Rev.

Confirming Pages

108 Part Two Designing the Service Enterprise

Interactive The class breaks into small groups, formulates criteria to judge Internet sites, and then
Exercise using the criteria selects a superior Internet site to defend before the class.

Amazon.com9 CASE 5.1

Amazon.com opened its virtual doors in July 1995. Since then, wants to give a friend a book as a gift, for example, can make
the retailer has served millions of customers in 160 countries a selection from the friend’s wish list.
and grosses more than $20 in sales per second on its Web Amazon also makes personalized recommendations to indi-
site.10 Many people regard Amazon.com as the “golden child” vidual customers. Some of these recommendations are based
of the Internet. on the customer’s past purchases, and other recommenda-
The company is the concept of Jeffrey Bezos. The young tions are based on the behavior of past customers who have
CEO started Amazon with the intention of establishing a strong made purchases similar to those of the customer. If a consumer
brand name that he could leverage into other products. He purchases a book on Amish quilts, for example, Amazon.com’s
marketed books first, because he believed they are ideal cyber- software will search for all the people who purchased this same
space products. Customers do not need much physical interac- book. Using a mathematical process called collaborative filter-
tion with the product or with a salesperson to purchase books. ing, the software determines what other books are popular
Books, therefore, are well suited to marketing over the Web. with people who read the Amish quilt book. It then develops
A key success factor for Amazon.com is that it captures a list of proposed titles for the customer to read based on this
market share and fosters brand loyalty by focusing on cus- information. Amazon.com uses this technique to provide the
tomer needs. Bezos believes that paying too much attention to same friendly and personalized reading advice that a local
short-term gains means forgetting about long-term customer bricks-and-mortar bookstore operation can, but it achieves
satisfactions. This long-term customer focus comes at a price. greater accuracy and convenience at a fraction of the cost.
Despite impressive sales growth, Amazon did not turn a profit One flaw of early collaborative filtering was its inability to
quickly, but that hasn’t stopped Amazon from becoming a distinguish gift purchases. Someone buying his or her mother
dominant force in online retailing. The Amazon Web site now a book on quilting, for example, would receive recommenda-
includes products and services such as music, software, toys, tions on this topic despite a lack of personal interest. Recently,
and online auctions. Amazon.com solved this problem by including a check box
on the order page so the customer can indicate if the item is a
AMAZON’S GUIDING FORCE—THE CUSTOMER gift. Another problem can arise because the power of collabo-
Amazon’s guiding philosophy is to provide superior service rative filtering is based on the customer’s history. If a person
to its customers. Bezos and his management team spent one changes e-mail addresses frequently and uses a new Amazon.
year creating the Web site and database programs that drive com identification, all of the data are lost.
Amazon.com. They sought to create a friendly site that would In addition to collaborative filtering, the company uses
not demand a high level of computer literacy. other strategies to achieve its mission. When repeat custom-
Bezos recognized that Internet commerce would shift the ers log on to the Web site, a personalized Web page greets
balance of power toward consumers. Consequently, Amazon. the customer by name and allows him or her to view the new
com builds customer relationships by customizing its service, recommendations made by the collaborative filtering tool.
involving its Web site visitors in the service, and creating a Bezos compares this personalized front page with “walking
communal spirit. Focus on the consumer is the cornerstone for into your favorite store and finding only items that you want
developing customer loyalty. on the shelves near the door.” Amazon also allows custom-
ers to store information on the company’s secure server.
CUSTOMER AS COPRODUCER AND SERVICE Customers can authorize Amazon.com to keep a record of
CUSTOMIZATION their credit cards and mailing addresses, for example. This
Amazon.com integrates customers into the service delivery technology, called 1-Click, streamlines the service so that cus-
process in several ways. Customers may participate in the tomers don’t have to reenter the information every time they
Discussion Board service. This service presents an opportunity make purchases.
to read comments from readers about books of interest to the Amazon.com doesn’t wait for customers to come to its
customer. The customer also can chat with other Discussion site to provide its service. If a customer doesn’t visit the site
Board participants. The “wish list” is another service that in a certain length of time, Amazon sends an e-mail encour-
Amazon.com offers. A customer can enter titles of books he or aging him or her to visit Amazon.com, and gives a list of
she would like to have in a personal wish list. Someone who recommendations on books to check out on the next visit.

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Chapter 5 Technology in Services 109

OTHER UNIQUE USES OF TECHNOLOGY FOR Amazon’s presence and publicity on the Web, but it also means
THE CUSTOMER that Amazon could lose some control of its brand and image.
Amazon.com not only has used technology to personalize the Amazon has encountered some other problems. A reporter
customer experience, but it also has designed its site with cus- revealed that Amazon was selling space to publishers on a
tomers in mind. The pages are easy to understand and use. list of favorite books. Amazon also has been accused of sell-
The Web site avoids large graphics, which can take a long time ing authors extra e-mail support on the Web site for various
to load. According to Keynote systems, Amazon is one of the titles.12 The company was flooded with outraged e-mails and
fastest and most accessible sites on the Internet.11 has since stopped all paid promotions. This incident raises the
A powerful search engine is another unique feature of question, Will the loyal customer base of Amazon.com or any
Amazon.com. The company employs a “do what I mean” other electronic service tolerate being used for financial gain?
(DWIM) search function. The site recognizes the misspell- AS AMAZON LOOKS TO THE FUTURE—WILL IT
ings that customers frequently make and changes the search BECOME THE WALMART OF THE INTERNET?
function to account for these mistakes. If a customer misspells Amazon.com has been very successful turning a profit in 2004.
Fitzsimmons as Fitsimmons, for example, Amazon. com dis- Amazon’s personalized customer service and online com-
plays the book Service Management. munity strategy work well. The company claims 85 percent
MORE THAN JUST FRIENDLY TECHNOLOGY of online book sales, and it is the largest seller of videos and
Amazon’s technology has helped to create loyal customers music on the Web. An impressive 64 percent of Amazon. com’s
who not only visit the site, but, as we have noted, also inter- business is from repeat customers.13 Retention rate is crucial to
act with it. Amazon.com is an active virtual community that any business, but especially to Internet retailers. Early skeptics
involves the customer. suggested that price-sensitive buyers would constantly search
Another feature of its Discussion Board service is the Author’s the net for the lowest prices and leave companies without any
Corner, which sometimes allows readers to engage in question- pricing power or brand loyalty. Amazon has not observed this
and-answer sessions with their favorite writers. The company predicted pattern.
also encourages visitors and customers to post reviews of any Amazon.com has aggressive plans to duplicate this com-
book on the site. This review process involves the customers in munity for other products. It already has expanded into the
developing the content on the Web site, and also creates an online auction business by launching Amazon.com Auctions
information tool for other Web site visitors. Amazon also allows in March of 1999. The firm has acquired interests in other
users to form reading groups where customers can post com- online retailers also. For example, Amazon.com purchased a
ments to one another about specific books. The library of reviews 50 percent ownership stake in Pets.com and has a minority
is an important barrier to entry in a digital environment where stake in Drugstore.com.
entrepreneurs can easily copy this business model in a week. Fast expansion into other retailing areas reinforces Amazon’s
Amazon.com employees go to great lengths for the cus- goal to be a one-stop shopping site on the Internet. This
tomers and consider them as part of a community. One Walmart strategy has its dangers, however. Amazon runs the
customer reported with joy that a copy of his father’s book, risk of expanding too rapidly, which could damage or dilute
20 years out of print, had been located for him by Amazon. its brand image. Time will tell if this long-term growth strategy
The Associates Program expands this “community” beyond the will be successful.
Web sites under Amazon’s direct control. Amazon. com allows Questions
registered Web sites, such as Yahoo!, to recommend specific 1. How would you contrast Amazon’s business design with
books, CDs, videos, and other Amazon products to their visi- that of Barnes & Noble before Barnes & Noble went online?
tors using a hyperlink. If customers follow the hyperlink and From a customer’s perspective, what are the advantages
purchase the product on Amazon.com, these associates receive and disadvantages of each design?
a commission. A 15 percent commission is given on more than
2. Will Amazon continue to be successful against “click-and-
400,000 titles and 5 percent on more than 1.1 million addi-
mortar” competitors, such as Barnes & Noble?
tional Amazon products. Amazon claims “tens of thousands”
of associates are participating in the program, which expands 3. Is Amazon.com a model for the future of retailing?

Evolution of B2C E-Commerce in Japan14 CASE 5.2

THE JAPANESE KONBINI DISTRIBUTION SYSTEM Konbinis number more than 50,000 and they have an
In the United States, most convenience stores serve a car- advanced distribution network that is the target of a new alter-
mobile society so they have gasoline pumps in addition to native for distributing merchandise and receiving payment for
their shelved items. In Japan konbinis are located everywhere, items ordered through the Internet. The largest of the conven-
and it seems as if you cannot go two blocks without running ience store chains is retailing giant Ito-Yokado’s, with 8,153
into one of the country’s major convenience store chains. 7-Eleven stores.
These ubiquitous 24-hour retailers have become trendy substi- The continuing economic recession has reduced con-
tutes for larger supermarkets, and they are an important part sumer spending, resulting in a market saturation of conven-
of everyday life in Japan. ience stores. Competition between the konbini chains is fierce

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