Questions you need to answer

1.Problem identification

2.SWOT (situation) analysis

3.Presentation of options

4.Analysis of options (decision criteria, pros/cons of each)

5.Chosen option with justification

6.Implementation plan

THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT A07-20-0007 B. Tom Hunsaker Mary B. Teagarden William E. Youngdahl Amazon: Merging Digital and Physical Worlds for Market Growth Physical-world retailing is a cagey business. Jeff Bezos, CEO, Amazon Retail shopping models had long been considered binary-either e-commerce or brick and mortar. In practice, the industry involved a long spectrum with pure e-commerce on one end and pure brick and mortar on the other end. In between, many different models were emerging, like ordering online and picking up in-store (Walmart's Grocery Pickup'), shopping in-store and ordering online (Warby Parker and Bonobos' made their name in this space-largely facilitating the showroom behavior of consumers), digitally enhanced physical shopping (several companies hold parents in this space with virtual reality promising to push this model), and many others. By 2019, Amazon was the world's most valuable online retailer exceeding $1 trillion (USD).* So, when the company announced the purchase of Whole Foods and further committed to the expansion of Amazon Go store locations, many questioned the strategic value.' Why would a pioneering company so clearly successful in the digital realm seek to enter the more traditional brick and mortar space? Amazon For use only in the course Retailing Management BUSI 3332 at Mount Saint Vincent University from 1/9/2023 to #/30/2023. Use outside these parameters is a copyright violation Amazon was founded in 1994 by Princeton graduate and former Wall Street vice-president, Jeff Bezos, who quit his job and moved to Seattle to participate in the internet boom of the time. On the early cusp of the digital economy, Bezos launched Amazon.com in 1995 to sell books online-fueled by the notion of the "virtual" warehouse-allowing for a wider selection without the cost of extensive inventories. Envisioning the internet's broader reach, shortly thereafter Bezos created a list of more than 20 products he thought could be successfully sold online. The company's IPO in 1997, under the symbol AMZN, further capitalized the expansion of book sales and allowed the company to market other merchandise. Over the next decade, Amazon prioritized volume and market share growth over profitability, a strategy supported by patient investors. By the early 2000s, Amazon had developed the reputation for convenient online shopping featuring a vast array of products. 2013 marked the beginning of a meteoric valuation climb for the company, fueled largely by growing global interest in the digital economy and Amazon's ability to leverage its online retail position to support ancillary digital offerings in media, cloud computing, and more through Amazon web services, and a bevy of other sectors. In addition to price accessibility and sales growth, the company focused extensively on customer convenience hups://www.sec.gov/Archives/edgar/data/1018724/0001 19312507093886/dex991.hmm. Retrieved 12 May 2019; https:// www.produceretailer.com/articleews-article/ walmart-snagging-these-shoppers-grocery-pickup. https://www.warbyparker.com/. Retrieved 4 June 2019. 'hups://bonobos.com/. Retrieved 7 June 2019. * NASDAQ: AMZN. Retrieved May 14, 2019. `wholefoodsmarket.comews/amazon-and whole foods-market-announce-acquisition-to-close-this-monday-wil. Retrieved January 10, 2019. Copyright @ 2020 Tinderbird School of Global Management, a wait of the Arizona State University Knowledge Enterprise. This case was written by Professors B. Tom Hunsaker, Mary B. Teagarden, and William E. Youngdald for the sole purpose of providing material for class discussion. Is is not intended to illustrate either effective or ineffective handling of a managerial situation. Any reproduction, in any form, of the material in this case is prohibited wales permission is obtained from the copyright holder.and loyalty. Amazon Prime provided unlimited two-day purchase deliveries and a range of ancillary services (e.g., online movie viewing), first in the United States and then in a variety of other countries for an annual fee. Experiments with aerial drones and other proprietary delivery services sought to reduce the company's input costs and enhance customer value. Despite Amazon's online retailing success, the company depended largely on a single modality that constrained the overall customer experience and potentially limited growth. For example, some existing and potential customers liked to hold a physical book before buying it. Others were not comfortable with packages being left at unsecured doorsteps. Home security videos of package-grabbers appeared frequently on social media, especially during holiday seasons. Additionally, while some items, like food, could be delivered to homes, many customers liked the option of being able to touch and smell their fresh produce before buying it. But it wasn't clear if experimenting with different modalities could cause Amazon to lose any of its highly focused and well- honed advantages in online retail. Amazon Books Amazon opened its first Amazon Books retail store (see Exhibit 2) in Seattle in November 2015. The company implemented some interesting changes from traditional bookstores. For example, books were displayed face our instead of showing just the spine. Placards listed the average Amazon customer rating for each book. To some, this venturing into bricks-and-mortar bookstores served as an irony since it was entering the very market that many accused it of destroying with its online bookselling business. Amazon Prime members could use their Prime mobile app to scan the front of any book to reveal the Prime pricing for the book that was generally lower than the retail pricing for non-Prime shoppers. The company hoped to merge technology with elements of the online buying experience, such as ratings, that had become so familiar to its online retail customers. For use only in the course Retailing Management BUSI 3332 at Mount Saint Vincent University from 1/9/2023 to #30/2023. Amazon Hub Locker Amazon Hub Locker resulted from friction the company perceived in doorstep delivery, with a particular focus on the United States. For some, largely business-to-consumer customers, doorstep delivery was not always the most convenient, and certainly not the most secure, buying experience. Random deliveries largely conducted during the day were challenging for many who worked or who otherwise couldn't be available to receive their package. Leaving parcels unprotected on doorsteps was also problematic, especially in large apartment complexes that experienced significant foot traffic and transient populations. By installing an Amazon Hub Locker in a large apartment complex, residents could enter a secure code to access a locker from which they could retrieve their packages. While the Hub Locker was a physical facility, it was completely integrated with Amazon's cloud-based applications that drove its retail business. Describing their Amazon Locker offering, the company outlined: Amazon Hub Locker provides you with a self-service delivery location to pick up and return your Amazon.com packages. Lockers are currently available in a variety of locations throughout the U.S. Instead of delivering a package to your home or business address, you can select an Amazon Hub Locker location and pick up your package at a time that's convenient for you. Once your package is delivered to the locker location, you'll receive an e-mail notification with a unique pickup code that includes the address and opening times for your selected locker location. When you arrive to collect your package, enter your pickup code or scan the barcode using the barcode scanner and follow the instructions on the screen. All packages delivered to Amazon Hub Lockers must be picked up within three days. If you're not able to collect your package within this timeframe, the package will be returned to us for a refund.* " hups://www.amazon.com/gp/help/customer/display.html?nodeld-201530900. Retrieved 25 May 2019.Amazon Go Amazon Go, founded in 2018, reimagined the convenience-store customer-buying experience in altogether new ways by introducing physical scores with self-serve virtual check out (see Exhibit 3). Employing Just Walk Our Shopping Technology, Amazon Go introduced customers to the ability to completely bypass checkout lines. A team of Amazon executives tested the Go store concept in a 15,000-square-foot mock supermarket in a converted rented warehouse in Seattle. They then introduced the idea to Amazon founder Jeff Bezos in 2015. The first real Go store, open only to employees as of December 2016, provided opportunities to test and debug the Go store model. Amazon did not open the store until January 2018. The announcement of the first store opening led to a 2.5% jump in Amazon's stock price. This change increased Jeff Bezos' net worth by $2.8 billion in a single day." Bezos commented, "With Amazon Go, we had a clear vision. Get rid of the worst thing about physical retail: checkout lines. No one likes to wait in line. Instead, we imagined a store where you could walk in, pick up what you wanted, and leave." To achieve this goal would require significant fusion of Industry 4.0 capabilities, including computer vision, Al deep learning algorithms, and sensor fusion solutions to achieve the level of automation required for self-service checkout that would be secure for both customers and the company. Sensor fusion combined data from cameras and scales and bar codes to verify purchases. Amazon developers created the Amazon Go app for IOS and Android mobile devices. The app served as the primary payment method. It was easy for app users to add family members to their account so they could make purchases. One industry analyst for RBC Wealth Management described Amazon Go as "Almost like the experience of shoplifting, except it's legal, and you don't need to hide the stuff in your jacket... Its in-store technology enables shoppers to have a very efficient and pleasant shopping experience... The overall opportunity is huge." By Spring 2019, the company had 18 Go store locations in Seattle, Chicago, San Francisco, and New York City. Amazon 4-star Amazon opened its first 4-star store (see Exhibit 4) in September 2018. The concept driving 4-star stores was to For use only in the course Retailing Management BUSI 3332 at Mount Saint Vincent University from 1/9/2023 to #30/2023 Use outside these parameters is a copyright violation promote items sold online at Amazon.com. Items had customer ratings of 4.0 or above, or they were top sellers or new and trending items. Item categories included Amazon devices, consumer electronics, kitchen, home, toys, books, and games." The 4-star stores provided customers with the opportunity to have a physical experience that closely mirrored online shopping. They experienced the benefit of social media-like customer ratings while being able to see and couch the products. Additionally, Amazon Echo was prominently displayed in the stores. Customers who purchased Echo were likely to order items online using Alexa. As 4-star scores proved to be popular with its customers, Amazon decided in 2019 to close its Pop-Up stores. These stores were actually standalone kiosks that the company used to sell Amazon devices such as Fire tablets, Echo speakers, and Kindle readers. An Amazon spokesperson stated, "After much review, we came to the decision to discontinue our Pop-Up kiosk program and are instead expanding Amazon Books and Amazon 4-star, where we provide a more comprehensive customer experience and broader selection."" Whole Foods Despite these inroads into fusion of physical and digital retailing, it was clear to Amazon leadership that they had more retail market share to gain. In his 2019 letter to shareholders, Amazon CEO Jeff Bezos described this gap: 7 hups://www.investopedia.comews/jeff bezos-just-got-28-billion-richer-thanks-amazon-go/ Retrieved on December 10, 2019. "https://www.enbe.com/2019/04/12/amazons-jeff-beans-most-us-sales-still-in-brick-and-mortar-stores.html Retrieved December 2, 2019 " https://www.forbes.com/sites/andriacheng/2019/01/13/why-amazon-go-may-soon-change-the-way-we-want-to- shop/#4dhc86a76709. Retrieved May 26, 2019. 1 https://blog-aboutamazon.com/shopping/amazon-4-star. Retrieved December 9, 2019. " https://www.nytimes.com/2019/03/06/technology/amazon-pop-up-stores-closing.html. Retrieved December 4, 2019. A07-20-0007Amazon today remains a small player in global retail. We represent a low single-digit percentage of the retail market, and there are much larger retailers in every country where we operate. And that's largely because nearly 90%% of retail remains offine, in brick-and-mortar stores." Whole Foods came on the scene during a time when the natural food industry was more novelty than mainstream. Founded in Austin, Texas, the company was among the first to apply the supermarket format to natural foods when it launched its first Whole Foods Market location in 1980. By 1984, the company had expanded beyond the Austin market, opening stores in Houston and Dallas. Next came regional expansion in 1988, with an acquisition in the New Orleans market, followed by a series of acquisitions of boutique natural foods retailers that would broaden the company's footprint from California to Massachusetts and many locations in between. By the early 2000s, the company had become a household name for those who valued natural foods, and was financially positioned to take on dense urban markets like Manhaman, in New York. International expansion would soon follow with the company's first stores in Canada opening in 2004-again fueled by an acquisition strategy." As Whole Foods continued to develop natural foods market share in the United States and beyond, Amazon's appetite for quickly gaining a deep, brand-compatible physical store presence also grew. The company had been chasing the online grocery space since 2007. Returns for these efforts were largely unrequited. The grocery business itself is challenging-disproportionately rewarding the most operationally savvy and capital- rich parties and leaving others in its wake due to the segment's tremendous volumes but razor-thin margins. The advent of new modalities with unclear profitability models and other obstacles compounded the challenge, and Amazon was no exception. Many were surprised by Amazon's acquisition of Whole Foods in 2017, not because Whole Foods wasn't a good company and not because the magnitude of the grocery business wasn't an attractive target, but because this seemed to diverge from Amazon's undeviating commitment to digital customer interfacing, at least prior to the acquisition. To describe the reasons for the purchase, Jeff Bezos sent an internal memo throughout the For use only in the course Retailing Management BUSI 3332 at Mount Saint Vincent University from 1/9/2023 to #/30/2023 Amazon ranks: Today is a significant milestone in the evolution of the Amazon brand. Our offer to purchase Whole Foods will finally consolidate the largest online and offline retailers where consumers end up spending way more than they intended. Our corporate cultures are perfectly aligned. The New York Times revealed that every Amazon employee has cried at their desk, and I personally made a Whole Foods employee cry when they couldn't correctly identify their process for ensuring single-source cofee beans throughout the roasting process. It was an uncomfortable 38 minutes for both of us, but I think an experience so many of you can relate to. Improved Echo functionality. Whole Foods has maintained a laser-like focus on organic foods and sustainable facilities, and I'm excited to bring that same vision to Echo. Starting next week, when customers ask their Echo to order non-organic food products, they'll receive a 12-minute lecture on the benefits of organic and local-sourced products, while our top-notch product-marching software will send them the closest available organic item. Users on our website will find the "Customers Also Bought... " section, replacing unhealthy items with notes such as, "Cookies That Went Straight to Their Thighs" and "Beef Produced by Clear-Cutting Rainforest. " Needless to say, those products will not be available for purchase. I am beyond excited by the possibilities of this merger moving forward. and I hope the team feels the same. The combination of our two companies will account for over 85% of all hipster purchases in the United States. I'm looking forward to capturing the remaining 15%%" " https://ir.aboutamazon.com/2019-annual-meeting-shareholders. Retrieved May 17, 2019. "https://www.wholefoodsmarket.com/company-info/whole-foods-market-history. Retrieved February 22, 2019. " https:/www.mcsweeneys. net/articles/jeff bezos-email-to-employees-on-amazons-purchase of whole foods. Retrieved January 15, 2019. 107-20-0007Beyond the "fir" benefits outlined in the Bezos internal memo, there were potentially even more strategic and disruptive benefits." The Whole Foods acquisition created the potential for further expansion of Al (artificial intelligence) and the lo I (internet of things) into retail grocery shopping. Al would provide valuable customer data enabling heightened customer insights that could guide Amazon's use of bors and other automated mechanisms to serve customers more effectively. Additionally, the company's executives believed Al technology would open new services and revenue streams, including providing a more detailed insight into the history of the food we buy, such as food security dynamic like where the food came from, how long it has been in transit, and storage temperatures. The same types of Al that had already been successful in online retailing could dramatically change customer behavior tracking and personalization. By applying beacons, geofencing, visual recognition, and other loT technology, Amazon could make highly personalized Whole Foods promotion recommendations while a customer was in the store or even nearby. Io T opportunities would be enhanced as well through close integration with Amazon's IoT products-Alexa, Echo, and Dash-thus enhancing the Amazon ecosystem. By spring of 2019, Amazon had 479 Whole Foods Markers stores (see Exhibit 4). This acquisition, as opposed to methodical build and resting from the ground up, represented a step-function increase in market share, yet it also required significant effort to integrate an existing business with so many stores into the Amazon ecosystem. Next Steps Amazon's executives knew that growth would depend on increasing share of many large markets. Whole Foods was a compelling experiment, given the then $700 billion grocery industry. Leveraging Amazon's digital capabilities while enhancing physical customer experiences would make the grocery industry a feasible target and expand the business models that Amazon could consider. But seeing the opportunity was different from delivering results. Amazon would need to not only acquire or build physical retail assets, but also develop the related supply chain, capabilities, and mindset shift associated with no longer being an exclusively digital company. Company executives would also have to contemplate the seemingly fine line between enhancing the For use only in the course Retailing Management BUSI 3332 at Mount Saint Vincent University from 1/9/2023 to #30/2023. customer experience and resting the limits of customers' desire for privacy. For example, in 2017, the company Use outside these parameters is a copyright violation fielded a parent for a technology that enabled Amazon to identify a customer's internet traffic when they accessed one of their store's Wifi networks and sense when the user was trying to access competitor websites. This would allow Amazon several options. They could shut down or slow access to the site-precluding customers from comparison shopping. They could redirect customers to a site of the company's choosing. Perhaps a message could be sent to a store attendant prompting her to assist the customer. Amazon could even use this technology to send instantaneous offers or discounts to the customer via text or other method. Anchored in the digital with increasing physical sales modality ambitions, Amazon needed to continue to build, rest, and deliver a series of strategic bridges to link the digital and physical domains. But would the fusion of digital and physical retail worlds make customers feel uncomfortable with the degree of control Amazon would have over their buying intentions and choices? How could Amazon reasonably predict success for each interaction expansion? 15 hups://venturebeat.com/2017/10/04/amazons-acquisition-of whole foods-will-bring-zi-technology-to-grocery-stores/. Retrieved November 1, 2019. A07-20-0007 5Exhibit 1. Amazon Locker Homepage Description Benefits of using lockers w Opan early and late He wilting in Inm Deliverin and returns How to use Locker 0OOOO 1. Shop is usual 5. Go and pickup Source: hupall www.theverge.com/2015/11/2/966135clanscon-books-firm- physical-bookstore-opening-scamle. Retrieved December 6, 2019. Exhibit 2. Amazon Books Store amazon books For use only in the course Retailing Management BUSI 3332 at Mount Saint Vincent University from 1/9.2023 to 4/30/2023 Use outside these parameters is a copyright violation. Source: hupal/www.theverge.com/2015/11/2/9661356/ammon-books- first-physical-bookstore-opening-seattle. Retrieved December 6, 2019. Exhibit 3. Amazon Go Homepage Description amazon go Source: hup://wwwamazon.com/bic-UTF8&mode-1600858901 1. Retrieved December 3, 2019.Exhibit 4. Amazon 4-star Store amazon 4 star . 4 Stars & Above . Top Scle . New & Trending Source: hope / www.amazon.com/amazon-4-starib/?node-1798835201 1. Retrieved December 6, 2019. Exhibit 5. Whole Foods Homepage Featuring Amazon Prime Service Learn about California and French wines What makes them unique, laver notes and more. prime Firee 2-howr delivery LOCAL Source: hope:/www.wholefoodsmarket.com/amazon/prime. Retrieved December 8, 2019