Management Information Systems Project

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BU131

Project

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PROJECT DESCRIPTION

Project Introduction:

Dirt Bikes U.S.A. is a small company headquartered in Carbondale, Colorado. It manufactures and sells its own brand of

off-road motorcycles. The company, founded in 1993, produces customized dirt bikes for racing and off-road

recreational riding using the best quality components from all over the world. Today, the company faces a new set of

challenges and opportunities. You have been asked, as a consultant, to apply your knowledge of information systems

to help Dirt Bikes U.S.A. solve some of the problems it is encountering.

 

Course Objective Tested:

1. Project the future impact of information systems on businesses and on your career.

2. Use information systems to enhance a business’s reach, competitive advantage, and operational efficiency.

3. Choose appropriate hardware, software, and Information technology (IT) management infrastructure for a

business.

4. Choose appropriate security, backup, virus protection, and control measures for a business’s information

systems.

5. Use enterprise systems, supply chain management (SCM) systems, and customer relationship management

(CRM) systems to achieve operational excellence.

6. Use e-commerce and M-commerce to achieve operational excellence and customer intimacy.

7. Use knowledge management techniques to improve the decision-making process and operational efficiency.

8. Design an appropriate information system to solve business problems.

 

 

 

 

BU131

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PROJECT SUBMISSION PLAN

 

Project

Part

Description/Requirements of Project Part Evaluation Criteria

1 Dirt Bikes U.S.A.—Case Study

 

Task 1:

Examine the Dirt Bikes U.S.A. case study and review How

to Analyze a Case Study. After reading the case study,

review the following information:

 Company History and Background

 Organization Chart and Employees

 Products and Services

 Sales and Marketing

On the basis of this information, answer the following

questions:

1. Which products should the company restock?

2. Which stores and sales regions would benefit

from promotional campaigns and additional

marketing?

3. When (what time of year) should the company

offer products at full price and when should it

offer discounts?

 

Task 2:

Dirt Bikes’ management wants to be sure that it is

pursuing the right competitive strategy. You have been

asked to perform a competitive analysis of the company

to find the information you need. Prepare a report that

analyzes Dirt Bikes using the value chain and competitive

forces models. Your report should include the following:

1. Which activities at Dirt Bikes create the most

Criteria Points

Assigned Points Earned

Did the students answer the specified case study questions?

35%

Did you provide answers that follow a logical pattern and include an explanation for assumptions and appropriate examples?

45%

Did you include appropriate spreadsheet data to support their answers?

20%

 

 

 

 

 

 

 

 

 

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Description/Requirements of Project Part Evaluation Criteria

value?

2. How does Dirt Bikes provide value to its

customers?

3. Who are Dirt Bikes’ major competitors? How do

the prices of their products compare with those

of Dirt Bikes’? What product features do they

emphasize?

4. What are the competitive forces that can affect

the industry?

5. What competitive strategy should Dirt Bikes

pursue?

6. What information systems best support that

strategy?

7. (Optional) Use electronic presentation software

to summarize your findings for the management.

 

Task 3:

Dirt Bikes would like to implement new software for

production planning, quality control, and scheduling. The

software will be used by 25 members of the company’s

manufacturing staff. The management is wondering

whether to purchase the software from a commercial

vendor along with the hardware required or to use a

hosted software solution from a Software as a Service

(SaaS) provider. (The hosted software runs on the service

provider’s computer.) You have been asked to help the

management with this rent-versus-buy decision by

calculating the total cost of each option over a three-year

period. The cost of purchasing the software includes the

initial purchase price of the software (licensing fee of

$100,000 in the first year), and the cost of implementing

 

 

BU131

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Description/Requirements of Project Part Evaluation Criteria

and customizing the software in the first year ($20,000).

Hardware costs include a server to run the software (a

first-year purchase of $4,000), one information systems

specialist devoting half his or her time to support the

software ($55,000 in full-time annual salary and benefits

with a 3 percent annual salary increase each year after

the first year), and user training in the first year

($10,000).You also need to account for the cost of annual

software upgrades ($5,000). On the other hand, the costs

of renting hosted software include the rental fees ($2,500

annually per user), implementation and customization

costs ($12,000 in the first year), and training ($10,000 in

the first year).

1. Use your spreadsheet software to calculate the

total cost of renting or purchasing this software

over a three-year period. Identify the lowest-

price alternative that meets Dirt Bikes’

requirements.

2. What other factors should Dirt Bikes consider,

besides cost, while determining whether to rent

or buy the hardware and software?

3. (Optional) If possible, use electronic presentation

software to summarize your findings for

management.

4.

Submission Requirements:

 Submit your findings in an MS Word document.

 Submit the updated spreadsheet and database

files.

 Font: Arial; 12-point

 Line Spacing: Double

 

 

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Project

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Description/Requirements of Project Part Evaluation Criteria

Assigned: Week 1

Due: Week 3

Grading Weight: 12.5%

2 Dirt Bikes U.S.A.—Redesign Database

 

Task 1:

Dirt Bikes U.S.A. sells primarily through its distributors.

Click here to download the database file. It maintains a

small customer database with the following data:

 Customer name

 Address (street, city, state, ZIP code)

 Telephone number

 Model purchased

 Date of purchase

 Distributor

The distributors collect this data after each sale and then

forward it to Dirt Bikes. Dirt Bikes would like to be able to

market more aggressively to its customers. The marketing

department would like to send customers e-mail notices

of special racing events and of sales on parts. It would

also like to learn more about customers’ interests and

tastes, their ages, years of schooling, other sports in

which they are interested, and whether they attend dirt

bike racing events. In addition, Dirt Bikes would like to

know whether its customers own more than one

motorcycle. If a motorcycle was purchased from Dirt

Bikes, the company would like to know the date of

purchase, model name, and distributor from whom it was

purchased. If the customer owns a non-Dirt Bikes

motorcycle, the company would like to know the

Criteria Points

Assigned Points Earned

Did you prepare a report containing answers to the case study questions?

35%

Did you include appropriate tables, reports, and databases to support their answers?

25%

Did you design a solution as instructed in the Dirt Bikes U.S.A case study?

40%

 

 

 

BU131

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Project

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Description/Requirements of Project Part Evaluation Criteria

manufacturer and model of the other motorcycle (or

motorcycles) and the distributor from whom the

customer purchased that motorcycle.

On the basis of the above information, perform the

following activities:

1. Redesign Dirt Bikes’ customer database so that it

can store and provide the information needed

for marketing. You will need to develop a design

for the new customer database and then

implement it using database software. Consider

using multiple tables in your new design.

Populate each new table with 10 records.

2. Develop reports that would be of interest to Dirt

Bikes’ marketing and sales department (for

example, lists of repeat Dirt Bikes customers, Dirt

Bikes customers who attend racing events, or the

average ages and years of schooling of Dirt Bikes

customers) and print them.

 

Task 2:

The management is concerned that Dirt Bikes’ computer

systems could be vulnerable to power outages,

vandalism, computer viruses, natural disasters, or

telecommunications disruptions. You have been asked to

perform an analysis of system vulnerabilities and disaster

recovery planning for the company.

Answer the questions below. You may refer to Table 7.2,

“Examples of Computer Crime,” on page 242 of your

textbook for more information.

1. Identify the threats to which Dirt Bikes’ systems

are most vulnerable.

 

 

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Description/Requirements of Project Part Evaluation Criteria

2. Classify the most critical systems at Dirt Bikes.

What would be the impact on the company if

these systems could not operate? How long

could the company survive if these systems were

down? Which systems are the most important to

back up and restore in the event of a disaster?

3. Use the Internet to locate two disaster recovery

services that could be used by a small business,

such as Dirt Bikes. Compare them in terms of the

services they offer. Which of the two services

should Dirt Bikes use? How would these services

help Dirt Bikes recover from a disaster?

 

Task 3:

Dirt Bikes cannot fulfill many of its orders on time

because of delays in sourcing some important motorcycle

components and parts, such as fuel tanks. Complaints are

mounting from distributors who fear losing sales if the

dirt bikes they have ordered are delayed too long. Dirt

Bikes’ management has asked you to help address some

of its supply chain issues. Based on this information,

answer the questions listed below:

1. Use the Internet to locate alternative suppliers

for motorcycle fuel tanks. Identify two or three

suppliers. Find out the time and the cost of

shipping a fuel tank (weighing about five pounds)

by ground (surface delivery) from each supplier

to Dirt Bikes in Carbondale, Colorado. Which of

these suppliers is likely to ship the fuel tanks in

the shortest amount of time and at the lowest

cost?

 

 

BU131

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Description/Requirements of Project Part Evaluation Criteria

2. The management wants to know about any

supply chain management software that would

be appropriate for a small business, such as Dirt

Bikes. Use the Internet to locate two providers of

supply chain management software. Briefly

describe the capabilities of the two software

applications and indicate how they could help

Dirt Bikes. Which of these products would be

more appropriate for Dirt Bikes? Why?

3. (Optional) Use electronic presentation software

to summarize your findings for management.

 

Task 4:

Dirt Bikes’ management believes that the company could

benefit from e-commerce. The company sells motorcycles

and parts primarily through authorized dealers. It also

advertises in various magazines catering to dirt bike

enthusiasts and maintains booths at important off-road

motorcycle racing events. You have been asked to explore

how Dirt Bikes could benefit from e-commerce and by

selling online through a website.

1. Prepare a report for management that answers

the following questions:

a. How could Dirt Bikes benefit from e-

commerce? Should it sell its

motorcycles or parts online? Should it

use its website to advertise its products

and services or to offer customer

service?

b. How would a website provide value to

Dirt Bikes? Use the Internet to research

 

 

BU131

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Project

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Description/Requirements of Project Part Evaluation Criteria

the cost of an e-commerce site for a

small-to medium-sized company. How

much revenue or cost savings would the

website have to produce to make it a

worthwhile investment for Dirt Bikes?

2. Prepare specifications to describe the functions

that should be performed by Dirt Bikes’ website.

Provide links to other websites or systems in

your specifications.

3. (Optional) Design the home page for Dirt Bikes’

website along with an important secondary page

linked to the home page using a word processor

or a Web page development tool of your choice.

4. Identify some important website features that

can be used to create customer relationships.

Analyze the challenge that Dirt Bikes may face in

the course of creating customer intimacy and

loyalty.

 

Task 5:

Dirt Bikes promotes itself as a “learning company.” It

encourages employees to undergo training to help them

advance in their careers. As employees move on, their

positions fall vacant. These positions must be filled

quickly to maintain the company’s pace of production.

Dirt Bikes’ human resources staff would like to find a way

of quickly identifying qualified employees who have the

training to fill vacant positions. Once the company knows

who these employees are, it has a better chance of filling

open positions internally rather than paying to recruit

outsiders. Dirt Bikes would like to track each employee’s

 

 

BU131

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Project

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Description/Requirements of Project Part Evaluation Criteria

years of education and the title and date of completion of

any training that each employee has attended. Dirt Bikes’

existing employee database is limited to basic human

resources data, such as employee name, identification

number, birth date, address, telephone number, marital

status, job position, and salary. Click here to download

some sample records from this database. Dirt Bikes’

human resources staff maintains employees’ skills and

training data in paper folders.

On the basis of this information, prepare a system

analysis report describing Dirt Bikes’ problem and

suggesting a solution that can be implemented using

database software. The report should include the

following points:

 Description of the problem and its organizational

and business impact

 Proposed solution and solution objectives

 Information requirements to be addressed by

the solution

 People, organization, and technology issues to

be addressed by the solution, including changes

in business processes

On the basis of the requirements you have identified,

design the solution using database software and populate

it with at least 10 records per table. Consider whether you

can use or modify the existing employee database in your

design. Print out the design for each table in your new

application. Use the system to create queries and reports

that would be of interest to the management, such as the

names of employees who have a college education, or

have undergone training in project management or

 

 

BU131

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Project

Part

Description/Requirements of Project Part Evaluation Criteria

advanced computer-aided design (CAD) tools. If possible,

use electronic presentation software to summarize your

findings for the management.

 Submit a report including the answers to the

questions posed in this part of the project.

 Include appropriate databases to support your

answers.

 

Submission Requirements:

 Submit your findings in an MS Word document.

 Submit the updated spreadsheet and database

files.

 Font: Arial; 12-point

 Line Spacing: Double

Assigned: Week 3

Due: Week 5

Grading Weight: 12.5%

 

End of Project Description

 
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FAIR AND LOVELY CASE STUDY ( MARKETING) 782

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Question

 

Cultural Norms: Fair & Lovely and Advertising
Fair & Lovely, a branded product of Hindustan Unilever Ltd (HUL – formerly called Hindustan Lever), is touted
as a cosmetic that lightens skin colour. On its website (www.hul.co.in) the company called its product, ‘the miracle
worker’, which is ‘proven to deliver one to three shades of change’.While tanning is the rage in Western countries,
skin lightening treatments are popular in Asia.
According to industry sources, the top-selling skin lightening cream in India is Fair & Lovely from Hindustan
Unilever, followed by CavinKare’s Fairever brands. HUL’s Fair & Lovely brand was the undisputed monarch of
the market with a 90 per cent share until CavinKare Ltd (CKL) launched Fairever. In just two years, the Fairever
brand gained an impressive 15 per cent market share. HUL’s shareof market for the Fair & Lovely line generates
about $60 million annually. The product sells for about 23 rupees ($0.29) for a 25-gram tube of cream.
The rapid growth of CavinKare’s Fairever (www.cavinkare.com) brand prompted HUL to increase its advertising
effort and to launch a series of ads depicting a ‘fairer girl gets the boy’ theme. One advertisement featured a
financially strapped father lamenting his fate, saying, ‘If only I had ason’, while his dark-skinned daughter looks
on, helpless and demoralised because she can’t bear the financial responsibility of her family. Fast-forward and
Plain Jane has been transformed into a gorgeous light-skinned woman throughthe use of a ‘fairness cream’, Fair &
Lovely. Now clad in a miniskirt, the woman is a successful flight attendant andcan take her father to dine at a fivestar
hotel. She’s happy and so is her father.
In another ad two attractive young women are sitting in a bedroom; one has a boyfriend and, consequently, is
happy. The darker-skinned woman, lacking a boyfriend, is not happy. Her friend’s advice? Use a bar of soap to
wash away the dark skin that’s keeping men from flocking to her.
HUL’s series of ads provoked CavinKare Ltd to counter with an ad that takes a dig at HUL’s Fair & Lovely ad.
CavinKare’s ad has a father-daughter duo as the protagonists, with the father shown encouraging the daughter to
be an achiever irrespective of her complexion. CavinKare maintained that the objective of its new commercial is
not to take a dig at Fair & Lovely but to ‘reinforce Fairever’s
positioning’.
‘We have noticed attempts by Fair & Lovely to blur our positioning by changing its communication platform from
“wanting to get married” to “achievement”, the principal Fairever theme. Since we don’t have the spending power
to match HUL, a tactical way for us to respond is to reinforce our brand positioning and the commercial will be
aired until the company’s “objective” is achieved,’ a CavinKare official said.
Skin colour is a powerful theme in India as well as much of Asia where a lighter colour represents a higher status.
While Americans and Europeans flock to tanning salons, many across Asia seek ways to have ‘fair’ complexions.
Culturally, fair skin is associated with positive values that relate to class and beauty. One Indian lady commented
that when she was growing up, her mother forbade her to go outdoors. She was not trying to keep her daughter out
of trouble but was trying to keep her skin from getting dark. Brahmins, the priestly caste at the top of the social
hierarchy, are considered fair because they traditionally stayed inside, poring over books. The undercaste at the
bottom of the ladder are regarded as the darkest people because they customarily worked in the searing sun.
Ancient Hindu scriptures and modern poetry eulogise women endowed with skin made out of white marble.
Skin colour is closely identified with caste and is laden with symbolism. Pursue any of the ‘grooms and brides
wanted’ ads in newspapers or on the web that families use to arrange suitable alliances and you will see that most
potential grooms and their families are looking for ‘fair’ brides; some are progressive enough to invite responses
from women belonging to a different caste. These ads, hundreds of which appear in India’s daily newspapers,
reflect attempts to solicit individuals with the appropriate religion, caste, regional ancestry, professional and
educational qualifications, and, frequently, skin colour. Even in the growing numbers of ads that announce ‘caste
no bar’, the adjective ‘fair’ regularly precedes professional qualifications.
Bollywood (India’s Hollywood) glorifies conventions on beauty by always casting a fair-skinned actress in the
role of heroine, surrounded by darker extras. Women want to use whiteners because it is ‘aspirational’, like losing
weight. Even the gods supposedly lament their dark complexion – Krishna sings plaintively, ‘Radha kyoon gori,
main kyoon kala?’ (Why is Radha so fair when I’m dark?) – a skin deficient in melanin (the pigment that
determines the skin’s brown colour) is an ancient predilection. More than 3500 years ago, Charaka, the famous
sage, wrote about herbs that could help make the skin fair.
Indian dermatologists maintain that fairness products cannot truly work as they only reach the upper layers of the
skin and so do not affect melanin production. Nevertheless, ‘hope springs eternal’ and for some Fair & Lovely is a
‘miracle worker’. ‘The last time I went to my parents’ home, I got complements on my fair skin from everyone,’
one user gushes. But for others, there is only disappointment. One 26-year-old working woman has been a regular
user for the past eight years but to no avail. ‘I should have turned into Snow White by now but my skin is still the
same wheatish colour.’
The number of Indians of the opinion that lighter skin is more beautiful may be shrinking. Sumit Isralni, a 22-year
old hair designer in his father’s salon, thinks things have changed in the last two years, at least in India’s most
cosmopolitan cities, Delhi, Mumbai and Bangalore. Women now ‘prefer their own complexion, their natural way,’
Isralni says; he prefers a more ‘Indian beauty’ himself. ‘I won’t judge my wife on how fair her complexion is.’
‘Sunita Gupta, a beautician in the same salon, is more critical. ‘It’s just foolishness!’ she exclaims. The premise of
the ads that women could not become airline attendants if they are dark-skinned was wrong, she said. ‘Nowadays
people like black beauty.’ It is a truism that women, especially in the tropics, desire to be a shade fairer no matter
what their skin colour. Although, unlike the approach used in India, advertisements elsewhere usually show how
to use the product and how it works.
Advertising
HUL launched its television ad campaign to promote Fair & Lovely in December 2001 and withdrew it in
February 2003, amid severe criticism of its portrayal of women. Activists argued that one of the messages the
company sends through its ‘air hostess’ demonstrating the preference for a son who would be able to take on the
financial responsibility for his parents – is especially harmful in a country such as India where gender
discrimination is rampant. Another offence is perpetuating a culture of discrimination in asociety where ‘fair’ is
synonymous with ‘beautiful’. AIDWA(All India Democratic Women’s Association) lodged a complaint in March
and April 2002 with HUL about its offensive ads but Hindustan Unilever failed to respond.
The women’s association then appealed to the National Human Rights Commission alleging that the ad demeaned
women. AIDWA objected to three things: (1) the ads were racist, (2) they were promoting son preference, and (3)
they were insulting to working women. ‘The way they portrayed the young women who, after using Fair &
Lovely, became attractive and therefore lands a job suggested that the main qualification for a woman to get a job
is the way she looks.’ The Human Rights Commission passed AIDWA’s complaints on to the Ministry of
Information and Broadcasting, which said the campaign violated the Cable and Television Networks Act of 1995 –
provisions in the Act state that no advertisement shall be permitted that ‘derides any race, caste, colour, creed and
nationality’ and that ‘Women must not be portrayed in a manner that emphasizes passive, submissive qualities and
encourages them to play a subordinate secondary role in the family and society.’ The government issued notices of
the complaints to HUL. After a year-long campaign led by the AIDWA, Hindustan Unilever Limited discontinued
two of its television advertisements for Fair & Lovely fairness cold cream in March 2003.
Shortly after pulling its ads off the air, and, coincidentally, on International Women’s Day, HUL launched its
‘Fair & Lovely Foundation’, vowing to ‘encourage economic empowerment of women across India’ by providing
resources in education and business. Millions of women ‘who, though immensely talented and capable, need a
guiding hand to help them take the leap forward’. Presumably into a fairer future.
HUL sponsored career fairs in over 20 cities across the country, offering counselling in as many as 110 careers. It
supported 100 rural scholarships for women students passing their 10th grade, a professional course for aspiring
beauticians, and a three-month Home Healthcare Nursing Assistant’s course catering to young women between the
ages 18 and 30. According to HUL, the Fair & Lovely Academy for Home Care Nursing Assistants offers a unique
training opportunity for young women who possess no entry-level skills and, therefore, are not employable in the
new economy job market. The Fair & Lovely Foundation plans to serve as a catalyst for the economic
empowerment of women across India. The Fair & Lovely Foundation will showcase the achievements of these
women not only to honour them, but also to set an example for other women to follow.
A few facts about HUL taken from
www.hul.in
Hindustan Unilever Limited is India’s largest Packaged Mass Consumption Goods company. We are leaders in
Home and Personal Care Products and Food and Beverages including such products as Ponds and Pepsodent.
We seek to ‘meet everyday needs to people everywhere – to anticipate the aspirations of our consumers and
customers and to respond creatively and competitively with branded products and services which raise the quality
of life’. It is this purpose which inspires us to build brands. Over the past 70 years, we have introduced about 100
brands.
Fair & Lovely has been specially designed and proven to deliver one to three shades of change in most people.
Also its sunscreen system is specially optimised for Indian skin. Indian skin unlike Caucasian skin tends to
‘tan’ rather than ‘burn’ and, hence, requires a different combination of UVA & UVB sunscreens.
The fairness cream is marketed in over 38 countries through HUL Exports and local Unilever companies and
is the largest selling skin lightening cream in the world. The brand today offers a substantive range of products
to consumers including Fair & Lovely Fairness Reviving Lotion, Fair & Lovely Fairness Cold Cream and Fair &
Lovely Fairness Soap.
Some information on CavinKare taken
from www.cavinkare.com
We shall achieve growth by ‘continuously offering unique products and services that would give customers utmost
satisfaction and thereby be a role model.’
Goal
In fifteen years (2012) we will be a hundred times our current turnover.
Values and beliefs of CavinKare
Integrity The company values honesty and truthfulness above everything else in all its interactions. Our thoughts,
words and actions shall be the same. We shall try oututmost to fulfil promises and honour commitments.
Fairness The company shall be fair in all its dealings with people inside and outside. We will follow rules, norms
and procedures not only in letter but in spirit as well; we will show common decency in all our dealings with
people; we will not exploit undue advantages; we will respect the rights of others.
Excellence The company values highly all efforts that lead to high standards in everyday work and results. We
shall attempt to be the best-in-class in anything we choose to work on. We shall encourage any individual or
collective effort in promoting excellence.
Innovation The company values innovative thinking, innovative approaches and innovative solutions in our
regular work life. We will always look for better ways of doing things; we will seek new ideas to solve problems;
we will experiment with new concepts, ideas and solutions.
Openness The company believes that openness to new ideas, thoughts and opinions makes relationships
stronger and productive, we shall listen to others; we shall openly discuss among colleagues all that is
appropriate; we shall welcome ideas from everywhere.
Trust The company believes that trust is an important ingredient for effective functioning within the organisation
and with the outside world. While we shall protect our legitimate business interests, we would also approach
the people, issues and associations with straightforwardness, optimism and positive outlook.
Stretch The company believes that people have infinite potential. We have an extraordinary capability to exert
and extend the limits of the possible. We shall aim for stretch goals, ambitious targets and ever-receding
horizons.
Questions
1. Is it ethical to sell a product that is, at best, only mildly effective? Discuss.
2. Is it ethical to exploit cultural norms and values to promote a product? Discuss.
3. Is the advertising of Fair & Lovely demeaning to women or is it portraying a product not too dissimilarto
cosmetics in general?
4. Will HUL’s Fair & Lovely Foundation counter charges made by AIDWA? Discuss.
5. In light of AIDWA’s charges, how would you suggest Fair & Lovely promote its product? Discuss. Would
your response be different if Fairever continues to use ‘fairness’ as a theme of its promotion? Discuss.
6. Propose a promotion/marketing programme that will counter all the arguments and charges against Fair
&Lovely and be an effective programme.
7. Based on CavinKare’s statement of values and beliefs, how would you evaluate its advertising/marketing
programmes?
 
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Amazon Go Case

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you need to write the  Alternative Evaluation  part. write 3 possible strategies Amazon could consider and support it with information from the case article. Please use bullet points for each of 3 strategies and keep the bullet points to a small paragraph.

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AMAZON GO: VENTURING INTO TRADITIONAL RETAIL1 Wiboon Kittilaksanawong and Aurélia Karp wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2017, Richard Ivey School of Business Foundation Version: 2017-06-28

Amazon.com, Inc. (Amazon), one of the largest global online retailers, decided to enter the offline retail industry in December 2016 by launching its first Amazon Go store in Seattle, offering a technologically innovative way of shopping that allowed customers to make purchases without a cashier.2 The launch was the first time that Amazon really entered the traditional retail industry. Earlier, in May 2016, the company had entered food, diaper, and housekeeping product manufacturing with its Amazon Elements brand.3 Nevertheless, these products were only available online for American Prime Members. Founded in 1994 as an online bookstore, the company had become an e-commerce giant, leading digital sales of books and electronic products. It revolutionized the way consumers purchased products, while also becoming a trusted source of product information for potential buyers. However, the company was not profitable until 2001, while it was still experiencing some financial difficulties.4 As of the third quarter of 2016, it was the fourth most valuable public company in the United States.5 In 2015, it surpassed Wal-Mart Stores, Inc. (Walmart) as the most valuable online retail company in the United States. Could Amazon reproduce its online success in the traditional offline retail segment? Could its current competitive advantages be replicated in offline retailing? Did this diversification make sense, considering Amazon’s existing key resources and capabilities, the presence of established traditional retailers like Walmart, and the market trend that was increasingly moving toward online stores? HISTORY The Beginnings: 1994–1997 On July 5, 1994, Jeff Bezos, a 30-year-old engineer graduating from Princeton University, left his job as vice-president at D.E. Shaw & Co., a global investment firm based in New York, to create an online bookstore based in Seattle. He saw the future of selling products online and thus first sold books, videos, computer hardware and software, and compact discs. He chose to sell books because of the high worldwide demand, low price per piece, and high number of titles. His aim was to provide more varieties of books online than were available in a physical store. Amazon’s main competitors were Barnes & Noble Booksellers Inc., the largest retail bookseller, and other local booksellers in the United States. The company

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Page 2 9B17M092 was named Amazon.com in the year after it was created. Through a partnership with Ingram Book Group LLC, Amazon could access books at wholesale prices and sell them online at cheaper prices than physical bookstores. Within its first two months, Amazon’s online sales covered more than 45 countries with sales revenue of US$20,0006 per week. In June 1997, it went public and entered the Nasdaq stock exchange at an initial price of $18 per share, raising $54 million. Global Expansion and Laborious Financial Results: 1998–2004 In 1998, Amazon began to expand internationally, first by entering the United Kingdom and Germany, and then moving to Europe and Asia, including France, Japan, and China. The company included different languages on its websites to serve these international markets. Bezos was not expecting to make any profits during the first four or five years of the business. Shareholders were not satisfied with the company because it was not profitable and not growing fast enough. However, this business model, with slow but efficient growth, saved Amazon from suffering too much from the 2001 dot-com bubble, and the company realized its first profits in 2001. Nevertheless, its profit was only $5 million from revenues of over $1 billion. Since 2001, the company had significantly diversified its products, from books to computers, electronics, clothes, and beauty products. Diversification, Early Steps in the Service Industry, and Own-Brand Products: 2005–2010 Amazon continued to extend its services through AmazonFresh, a grocery service, and Amazon Music, an online music store. The company increased its product offerings through the Fulfilment by Amazon program, where products were stored in Amazon’s fulfilment centres and then quickly picked, packed, and shipped to customers. It also created Amazon Prime to provide a two-day shipping service in the United States for only $79 a year. It launched Amazon Web Services Inc., which offered inexpensive, reliable, and scalable cloud computing services, including Amazon Mechanical Turk, a crowdsourcing Internet marketplace that enabled individuals and businesses to coordinate the use of human intelligence. This period also marked the beginning of Amazon’s own-brand products, including the 2007 launch of the Amazon Kindle, one of the very first e-books readers, three years before the launch of Apple Inc’s iBooks. Innovating and Diversifying at a Faster Pace: 2011–2017 The company kept innovating to improve its products and services. It launched Amazon Locker, a parcel delivery service that allowed buyers to pick up purchases at secure, self-service kiosks, and Amazon Prime Air, a cargo airline and drone-based delivery system. In February 2017, the company announced that it would invest $1.5 billion to build an air cargo hub to support the increasing size of its fleet.7 Amazon also entered new segments with its Kindle Fire and Fire HD, which competed with Apple’s iPad. Amazon acquired several companies, including GoodReads, an online social networking site for sharing books and reviews, and LoveFilm, a DVD-by-mail and streaming video-on-demand provider that competed with Netflix in Europe. It acquired Kiva Systems to develop robots that efficiently moved products in warehouses, thereby shortening delivery times. The company launched Amazon Video Direct to compete with YouTube,8 and it also developed and operated Amazon Video, an Internet video-on-demand service where customers could buy, rent, and instantly watch digital movies and TV shows. Amazon opened its first physical bookstore, Amazon Books, in Seattle, selling

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Page 3 9B17M092 products at the same prices as those available in the online stores. These strategic moves allowed Amazon to become a global online retail giant. By 2015, its market capitalization surpassed that of Walmart. AMAZON’S DEVELOPMENT Headquartered in Seattle, Amazon was one of the big four global digital companies: Google, Apple Inc., Facebook Inc., and Amazon. It had worldwide operations, with websites serving markets in 14 countries in North America, Europe, and Asia, and shipping services in 75 countries.9 Its business was expanding rapidly. The number of full-time and part-time Amazon employees increased 47 per cent in one year to reach 268,900 in 2016.10 This was 23 times more employees than its online competitor EBay and twice as many as Apple, but it was less than 12 per cent of the employees of its offline competitor Walmart. Amazon announced a plan to hire 100,000 full-time employees in the United States from January 2017 to mid-2018, potentially becoming one of the largest technology employers in the country.11 Amazon offered a wide range of products on its website, including books, apparel, and even food. As of February 2017, Amazon.com had 48 categories of products—both new and used—that were created and sold both by Amazon itself and by other companies. Most products were in the digital and multimedia sectors. The company had diversified a lot over the years but mainly within online businesses. The company’s revenues from online retail sales largely surpassed those of its competitors: in 2015, its online retail sales were 5.5 times greater than those of Walmart, making it the leader in the online retail market12 (see Exhibit 1). Amazon made $71.84 billion in online retail sales between November 2014 and November 2015. This was more than the combined online sales of Apple, Walmart, Sears, Roebuck & company, The Gap Inc., Costco Wholesale Coporation, Target Corporation, The Kohl’s Corporation, Best Buy Co., and The Home Depot Inc.13 In the second quarter of 2016, Amazon hit a record profit for the third straight quarter—$857 million ($1.78 per share) on revenue of $30.4 billion.14 This record far surpassed analysts’ estimates of profits per share of $1.11 and revenues of $29.5 billion. In 2016, its online retail sales accounted for half of all online retail sales in the United States.15 According to Amazon’s chief financial officer, Brian Olsavsky, these positive financial figures were a result of “working very hard on efficiency” and “benefits of operating at scale.”16 For years, as Amazon’s online retail sales and profits increased continually, the company kept on investing in research and development (R&D) to improve its offers and to develop new market sectors. In 2016, Amazon decided to enter food and consumable goods manufacturing through Amazon Elements, available only online for American Prime Members, and offline retailing through Amazon Go in Seattle, the first brick-and-mortar convenience food store that employed mobile e-commerce, machine learning, and computer vision to allow customers to make purchases without a cashier.17 However, Amazon’s performance in the third quarter of 2016, especially in terms of profits, was lower than expected, and this caused its stock price to decrease by 7 per cent. While its revenues were as expected, at $32.7 billion, its profits were $252 million, which was much lower than in the second quarter.18 Earnings per share were only $0.52—below the estimated $0.78. Still, as of the third quarter of 2016, Amazon was the fourth most valuable public company in the United States. This poorer performance resulted largely from increased investments in improving existing offers and developing new offers. Such investments were expected to increase as Amazon entered offline retail segments, which required at least buying physical stores. As Olsavsky said, “We are in a period of advancing up our investments in the second half of 2016, even more so than in prior years.”19 In May 2016,

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Page 4 9B17M092 to raise more capital, Bezos sold over one million of his shares—the largest amount he had ever made—for $671 million. In August 2016, he sold another record one million shares for $756.7 million, reducing his shares in Amazon to 16.9 per cent (see Exhibit 2). AMAZON’S COMPETITIVE ADVANTAGES Amazon’s success was not only due to its first-mover advantage but also came from a combination of competitive advantages related to marketing, supply chain, innovation, and customer-centricity. Brand Awareness and Innovative Marketing Amazon’s marketing strategy relied on its strong brand awareness. As Bezos said, “Brand names are more important online than they are in the physical world.”20 In another interview, he noted the importance of communicating the story of Amazon’s brand: “You can have the best technology, you can have the best business model, but if the storytelling isn’t amazing, it won’t matter . . . Nobody will watch.”21 The company implemented innovative marketing to receive free press coverage and to increase good customer perception of its products and services. Its community banana stands gave away about 4,500 free bananas daily to Seattle inhabitants to create more links with customers and improve its brand image. Since bananas were also the most popular item sold by Amazon’s rival, Walmart, some analysts thought this campaign could be seen as a way of attacking Walmart by showing that Amazon also sold good-quality fresh items.22 Amazon chose to advertise its first unexpected offline retail venture, Amazon Go, through video teasing, which successfully created a buzz among the general public. Amazon did not really need to spend a lot of money to advertise this brand-new offline offer, as media outlets were already talking about this innovative retail marketing approach. Amazon’s competitors also started to react to the resulting widespread public awareness by creating their own videos, which generated even more visibility for Amazon Go. In 2015, Amazon spent $2.8 billion on digital marketing, an increase of 40 per cent from the year before.23 The company also established partnerships with digital celebrities to promote its products.24 However, these marketing activities were not the only reason for Amazon’s success, and Amazon focused less on offline advertising than digital brands like Apple and Samsung. As Bezos said, “In the old world, you devoted 30 per cent of your time to building a great service and 70 per cent of your time to shouting about it. In the new world, that inverts.”25 Efficient Supply Chain Management to Create a Convenient Shopping Experience As an online retailer, Amazon revolutionized the way customers shopped for products through its efficient supply chain management, which made a wider range of products available and delivered those products faster than its competitors. The company’s global presence and available worldwide shipments allowed customers to easily buy almost anything from any country from Amazon. Unlike Walmart, Amazon did not need a physical shop; it just needed a warehouse to store products. It also had products delivered directly from the producer to the customer. Its fast delivery came from the strategic location of its warehouses, the high levels of available product inventory, its fast order management, and its partnerships with delivery companies. For example, in Japan, Amazon partnered with Yamato Holdings Co., Ltd., allowing buyers to receive products within a day of their orders.26 This very efficient delivery also came from its investments in robotics.

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Page 5 9B17M092 From the beginning of its business, Amazon sold many products at highly competitive prices, usually cheaper than those of offline competitors. Bezos even said, “There are two kinds of companies, those that work to try to charge more and those that work to charge less. We will be the second.”27 This ability to reduce prices came from the high economies of scale Amazon could generate on some products because of their high turnover. Unlike offline retailers, Amazon did not pay expensive rent for physical shops but efficiently managed warehouses at strategic locations to maximize its inventory turnover. Its strategy to sell more at a low price meant the company’s margins were usually lower than those of competitors, and this was one reason why it was not profitable for many years. Customer-Centricity and Innovation Bezos’s strategy had always been to focus on customer needs. He said, “We’ve had three big ideas at Amazon that we’ve stuck with for 18 years, and they’re the reason we’re successful: Put the customer first. Invent. And be patient.”28 Since the beginning of online business, Amazon kept innovating to create the best possible user experience. The company emphasized the ease of use of its websites. It also reduced product delivery time, proposing even same-day deliveries in some cities. This customer-centric approach allowed the company to be more innovative. As Bezos said, “If you’re competitor-focused, you have to wait until there is a competitor doing something. Being customer-focused allows you to be more pioneering.”29 The company increased the number of products it offered over the years to satisfy customer needs, particularly through partnerships with prominent players such as retailer Toys “R” Us Inc. AMAZON’S PRIVATE LABELS AND OFFLINE RETAIL OFFERS Amazon had already launched a bookstore in a university in Seattle, which offered over 6,000 book titles, and it planned to open a second one in San Diego. Although Amazon did not have much experience in the traditional manufacturing and retail business, it decided in 2016 to enter grocery product manufacturing and brick-and-mortar food retailing. This decision went against the general trend of business models followed by many competitors, which were increasingly moving from offline physical stores to online stores. However, Bezos did not see this decision as a risk. Instead, he saw it as a normal evolution of business, and said, “What’s dangerous is not to evolve.”30 New Brands After developing many electronic devices under its own brand, Amazon decided to enter the higher-margin grocery and household goods sectors. In May 2016, the company announced the launch of three brands available for purchase online on its websites: Happy Belly (which offered grocery products including milk, coffee, cereals, and pasta), Wickedly Prime (which offered ready-to-eat prepared foods), and Mama Bear (which offered baby products including baby food, cleaning wipes, and diapers).31 Amazon thus not only sold grocery and household products online but also produced them through private labels, allowing the company to have potentially higher margins.32 On its websites, the company explained that this move was driven by its customer-centric capabilities. 33 According to Amazon, the product offerings would be improved based on the clients’ feedback. It wanted to create and promote brands that would be seen by customers as more trustworthy than others. While Amazon Elements products had been available only in the United States and only to Amazon Prime members, a small segment of Amazon’s entire customer base, Amazon contracted with multiple manufacturers to produce this new range of products. These manufacturers included TreeHouse Foods Inc.,

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Page 6 9B17M092 which was also manufacturing similar goods for other retailers. This development could be seen as an attempt by Amazon to catch up and compete even more with other retailers such as Walmart and Target, which had had their own product brands for years. Because Amazon’s brand awareness was so high, it could develop these new offers easily without having to spend millions of dollars on advertising and other marketing activities. Amazon could adapt its product offers to meet consumer demands by utilizing its enormous customer databases. However, as Amazon had not been a traditional retailer before, this strategic move might be seen as risky. Indeed, this was not the first time that Amazon had tried to produce baby products. In 2014, the company had launched its own diapers on its websites, but removed them from Amazon.com only few weeks after the launch due to manufacturing defects and negative customer feedback.34 Nevertheless, Bezos was not the kind to give up easily after one failure. He said, “If you’re not stubborn, you’ll give up on experiments too soon. And if you’re not flexible, you’ll pound your head against the wall and you won’t see a different solution to a problem you’re trying to solve.”35 These new Amazon-branded products could also create tensions with suppliers who were currently presenting their products on Amazon.com, potentially putting Amazon in an even tougher position to negotiate with them.36 Should Amazon’s own brands be showcased on its websites while the company aimed to be a leader in the sale of its own-brand products? Should these own-brand products be marketed the same way as products available from other suppliers? Was the launch of its own-brand products considered unfair competition? Amazon Go Amazon’s business model was designed under the assumption that retail businesses were all growing and moving toward the online environment. However, with Amazon Go, the company clearly revised its business model to combine online and offline retailing. The company opened its first brick-and-mortar food store on December 5, 2016, near its headquarters in Seattle. It announced this new initiative only by posting a video about the Amazon Go concept that day.37 Immediately after the post, media outlets around the world wrote about it. The store was accessible only to the company’s employees for beta testing, while a public opening was planned for early 2017. It seemed that Amazon might be planning to extend Amazon Go to the United Kingdom. According to the Guardian, the company had registered a British trademark for the store concept in December 2016, on the same day it opened the Seattle store.38 The company refused to comment to the newspaper about this potential U.K. expansion. However, such an expansion would not be surprising given that the company had often before used the United Kingdom as its first non-U.S. market to test new offers. These strategic moves implied that Amazon might be thinking of developing the Amazon Go concept globally. The Amazon Go store, which sold staple foods, was 1,800 square feet (over 160 square metres) in area. Its uniqueness was its fast and convenient electronic payment system. Customers just entered the store, picked up the products they wanted, and left the store without having to queue to process payments.39 When customers took products from the store, sensors would concurrently transmit information about the purchases to its online processing system, which would debit the price of those products directly from the customers’ Amazon Prime accounts before the customers left the store.40 Amazon Go and Amazon.com had the same aim: to revolutionize the way people consumed in their everyday life and to offer the best possible customer experience. According to the company, this shopping technology was really not a new concept, as Amazon’s teams had already been working on it for four years.41

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Page 7 9B17M092 The automated grocery store raised significant concerns among Amazon’s employees due to the potential job cuts in Amazon stores. It was estimated that, through this technology, Amazon’s grocery stores might eliminate thousands of jobs in the long term.42 COMPETITION IN THE OFFLINE RETAIL MARKET Amazon Go and Amazon’s private labels, including Amazon Elements, targeted markets that were quite similar to those of its major grocery retail competitors, Walmart and Target. Over the years, Amazon had surpassed these large retailers in terms of online sales, but would the company be able to reproduce this online success in the offline markets? Though it might generate greater profit margins, the offline retail market was extremely competitive, requiring much larger investments. Importantly, Amazon had no solid experience in managing physical chain stores. Many competitors, particularly established grocery retailers, viewed such announcements with humour. Amazon was clearly a latecomer without sufficient knowledge of brick-and-mortar retail markets, while efficient delivery systems allowed more customers to shop for products online. Monoprix S.A., a major French retail chain located in key areas in city centres, made a parody of Amazon Go’s video, saying that Amazon should have better served its customers’ needs.43 This reaction was similar to the response to Amazon’s entrance into the online food market, in which it became a big player. By 2016, the Amazon Prime service had over 63 million users; these users could be potential users of Amazon Go and Amazon Elements as well.44 Amazon’s biggest competitor in the online retail market was Walmart, an American retailer operating in both offline and online markets through its own brick-and-mortar stores and websites. It was the largest offline retailer in the United States and the second online retailer after Amazon. Amazon and Walmart had been competing in the online market for years. Walmart had even sued Amazon in 1998 for hiring former Walmart executives and thus stealing its trade secrets.45 Doug McMillon, the president and chief executive officer of Walmart, commented that Walmart’s high number of stores gave it a competitive edge over purely online stores such as Amazon and that, by being in both offline and online markets, the company could do “quick last minute delivery that is free, cheaper, pushes cutoff shopping during holidays, and . . . brings people into stores.”46 The opening of Amazon Go stores and the development of Amazon’s own-brand grocery products could thus become a serious threat to Walmart. CONCLUSION The launch of Amazon Go and Amazon Elements, as well as other private labels, clearly demonstrated Amazon’s intention to move from being online only to becoming a mixed offline and online retail and manufacturing company. Amazon Go and Amazon Elements had several similarities: they were offline, were reserved only for Amazon Prime members, were in the grocery segment, and had the same competitors. These initiatives, which were seen as good opportunities for Amazon to generate higher profits, meanwhile put the company into a riskier position due to its lack of experience in traditional retailing. In online retail sales, Amazon’s performance had surpassed its mixed online and offline retail competitors over the years, demonstrating its strengths in marketing, supply chain, and customer-centricity in online segments. Could Amazon replicate the competitive advantage that contributed to its online success in the offline retail markets? Could the company leverage its existing online assets and capabilities in the offline segments? Given this diversification, how could Amazon manage the efficiency of its operations and the quality of its products in the long term? Did the company have capabilities to do so? Would Amazon Go change the way people bought and consumed as Amazon.com had done so successfully before? Would the company be

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Page 8 9B17M092 able to go against the trend of grocery shopping, which was increasingly moving toward online markets? Could the company develop these offline retail offers globally? Could competitors easily imitate this innovative shopping technology? Finally, given potential job cuts, would Amazon face resistance from store employees and unions?

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Page 9 9B17M092

EXHIBIT 1: DIGITAL SALES WORLDWIDE, BY RETAILER (IN $MILLIONS)

Amazon.com 71,844 Walmart 13,188 Apple 10,740 Macy’s 4,710 Home Depot 4,267 Best Buy 3,672 Costco 3,498 Nordstrom 2,620 Gap Inc. 2,505 Target 2,491 Williams-Sonoma 2,459 Kohl’s 2,282 Sears Holdings 2,084

Source: Phil Wahba, “This Chart Shows Just How Dominant Amazon Is,” Fortune, November 6, 2015, accessed April 16, 2017, http://fortune.com/2015/11/06/amazon-retailers-ecommerce/.

EXHIBIT 2: AMAZON’S YEAR END FINANCIAL RESULTS

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Revenues (million $) 14,835 19,166 24,509 34,204 48,077 61,093 74,452 88,988 107,006 135,987

Gross Margin (%) 22.6 22.3 22.6 22.3 22.4 24.8 27.2 29.5 33.0 35.1

Operating Income (million $)

655 842 1,129 1,406 862 676 745 178 2,233 4,186

Operating Margin (%) 4.4 4.4 4.6 4.1 1.8 1.1 1.0 0.2 2.1 3.1

Net Income (million $)

476 645 902 1,152 631 −39 274 -241 596 2,371

Earnings Per Share ($)

1.12 1.49 2.04 2.53 1.37 −0.09 0.59 −0.52 1.25 4.90

Source: “Amazon.com Inc. AMZN,” Morningstar, accessed April 16, 2017, http://financials.morningstar.com/ratios/r.html?t=AMZN.

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Page 10 9B17M092 ENDNOTES

1 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of Amazon.com, Inc. or any of its employees. 2 Andrew Melville, “Amazon Go Is about Payments, Not Grocery,” Forbes, January 20, 2017, accessed April 16, 2017, https://www.forbes.com/sites/groupthink/2017/01/20/amazon-go-is-about-payments-not-grocery/#41fd22df67e4. 3 Greg Bensinger, “Amazon to Expand Private-Label Offerings—From Food to Diapers,” Wall Street Journal, May 15, 2016, accessed April 16, 2017, https://www.wsj.com/articles/amazon-to-expand-private-label-offeringsfrom-food-to-diapers-1463346316. 4 “Amazon Posts a Profit,” CNN Money, January 22, 2002, accessed April 16, 2017, http://money.cnn.com/2002/01/22/technology/amazon/. 5 Tomi Kilgore, “Amazon Passes Exxon to Become 4th Most Valuable Company in the U.S.,” MarketWatch, August 2, 2016, accessed April 16, 2017, www.marketwatch.com/story/amazon-passes-exxon-to-become-4th-most-valuable-company-in-the- us-2016-08-01. 6 All currency amounts are in US$ unless otherwise specified. 7 Darrell Etherington, “Amazon Will Build Its Own 1.5 Billion Air Cargo Hub,” Techcrunch, Feb 1, 2017, accessed April 16, 2017, https://techcrunch.com/2017/02/01/amazon-will-build-its-own-1-5-billion-air-cargo-hub/. 8 Ron Amadeo, “‘Amazon Video Direct’ Takes Aim at the Professional Side of YouTube,” Ars Technica, November 5, 2016, accessed April 16, 2017, https://arstechnica.com/business/2016/05/amazon-video-direct-takes-aim-at-the-professional-side- of-youtube/. 9 “Amazon.com,” accessed April 16, 2017, https://www.amazon.com. 10 Nat Levy, “Amazon Reaches New High of 268,000 Employees—Skyrocketing 47% in Just One Year,” GeekWire, July 28, 2016, accessed April 16, 2017, www.geekwire.com/2016/amazon-employment-2nd-quarter/. 11 Don Reisinger, “Amazon Is Planning to Hire 100,000 Full-Time Employees,” Fortune, January 12, 2017, accessed April 16, 2017, http://fortune.com/2017/01/12/amazon-full-time-employees/. 12 Phil Wahba, “This Chart Shows Just How Dominant Amazon Is,” Fortune, November 6, 2015, accessed April 16, 2017, http://fortune.com/2015/11/06/amazon-retailers-ecommerce/. 13 “How Much Does Amazon Spend On Digital Marketing,” Spinutech, August 9, 2016, accessed April 16, 2017, https://www.spinutech.com/blog/digital-marketing/how-much-does-amazon-spend-on-digital-marketing/. 14 Jason Del Rey, “Amazon Just Posted a Record Profit for the Third Straight Quarter,” Recode, July 28, 2016, accessed April 16, 2017, https://www.recode.net/2016/7/28/12315690/amazon-earnings-q2-2016. 15 Jason Del Rey, “Amazon’s Complete Retail Domination in One Tiny Chart,” Recode, December 23, 2015, accessed April 16, 2017, https://www.recode.net/2015/12/23/11621690/amazons-complete-retail-domination-in-one-tiny-chart. 16 Eugene Kim, “Amazon CFO Had to Explain It’s Not a Bad Thing Amazon Had Its Highest Quarterly Profit Ever,” Business Insider, July 28, 2016, accessed April 16, 2017, www.businessinsider.com/amazon-cfo-defends-profit-on-conference-call- 2016-7. 17 David Jones, “Amazon’s Register-Free Grocery Shopping Could Disrupt Retail,” TechNewsWorld, December 6, 2016, accessed May 15, 2017, www.technewsworld.com/story/84141.html. 18 Eugene Kim, “Amazon Misses, Stock Falls,” Business Insider, October 27, 2016, accessed April 16, 2017, www.businessinsider.com/amazon-earnings-q3-2016-2016-10. 19 Ibid. 20 Bill Murphy, “‘Follow the Money’ and Other Lessons from Jeff Bezos,” Inc., August 6, 2013, accessed April 16, 2017, www.inc.com/bill-murphy-jr/follow-the-money-lessons-from-jeff-bezos.html. 21 Aly Weisman, “Here’s How Jeff Bezos Chooses Which Amazon Shows to Green-Light,” Business Insider, July 15, 2015, accessed April 16, 2017, www.businessinsider.com/what-jeff-bezos-wants-in-an-amazon-show-2015-7. 22 Jacob Demmitt, “Amazon Opens ‘Community Banana Stand’ at Seattle HQ to Give Away Free Fruits,” GeekWire, December 3, 2015, accessed January 6, 2017, www.geekwire.com/2015/amazon-opens-community-banana-stand-to-give- away-hundreds-of-free-snacks-at-seattle-hq/. 23 “Amazon Upped Its Digital Marketing Spend 40% Last Year to $2.8 Billion,” PR Newswire, January 27, 2015, accessed April 16, 2017, www.prnewswire.com/news-releases/amazon-upped-its-digital-marketing-spend-40-last-year-to-28-billion- 300026351.html. 24 Celine Mingot, “Mister V et Cyprien Choisis pour Promouvoir le Programme Amazon Premium Jeunes [Mister V and Cyprien Selected to Promote the Amazon Premium Youth Program],” Influenth, December 5, 2016, accessed April 16, 2017, www.influenth.com/mister-v-cyprien-choisis-promouvoir-programme-amazon-premium-jeune/. 25 Jessica Stillman, “7 Jeff Bezos Quotes That Outline the Secret to Success,” Inc., May 7, 2014, accessed April 16, 2017, www.inc.com/jessica-stillman/7-jeff-bezos-quotes-that-will-make-you-rethink-success.html. 26 Chris Cooper and Kiyotaka Matsuda, “Amazon Surge in Japan Lifts Yamato’s Express Deliveries Freight,” Bloomberg, August 15, 2014, accessed April 16, 2017, https://www.bloomberg.com/news/articles/2014-08-14/amazon-surge-in-japan- lifts-yamato-s-express-deliveries-freight. 27 George Anders, “Jeff Bezos’s Top 10 Leadership Lessons,” Forbes, April 4, 2012, accessed April 16, 2017, https://www.forbes.com/sites/georgeanders/2012/04/04/bezos-tips/#3dee7902fce4. 28 Paul Farhi, “Jeffrey Bezos, Washington Post’s Next Owner, Aims for a New ‘Golden Era’ at the Newspaper,” Washington Post, September 3, 2013, accessed April 16, 2017, https://www.washingtonpost.com/lifestyle/style/jeffrey-bezos-washington- posts-next-owner-aims-for-a-new-golden-era-at-the-newspaper/2013/09/02/30c00b60-13f6-11e3-b182- 1b3bb2eb474c_story.html.

 

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Page 11 9B17M092 29 David LaGesse, “America’s Best Leaders: Jeff Bezos, Amazon.com CEO,” U.S. News, November 19, 2008, accessed April 16, 2017, https://www.usnews.com/news/best-leaders/articles/2008/11/19/americas-best-leaders-jeff-bezos-amazoncom-ceo. 30 Michael Shick, “Jeff Bezos—What’s Dangerous Is Not to Evolve,” Fast Company, March 3, 2010, accessed April 16, 2017, https://www.fastcompany.com/1569357/jeff-bezos-whats-dangerous-not-evolve. 31 Greg Bensinger, op. cit.; Flore Fauconnier, “Amazon va Lancer sa Propre Marque Alimentaire [Amazon Launches Its Own Food Brand],” Journal du Net, May 29, 2015, accessed April 16, 2017, www.journaldunet.com/ebusiness/commerce/amazon- mdd-alimentaire-0515.shtml; “Amazon Vendra Sa Propre Nourriture [Amazon Will Sell Its Own Food],” Infopresse, May 16, 2016, www.infopresse.com/article/2016/5/16/amazon-vendra-sa-propre-nourriture. 32 “Amazon va Bientôt Vendre de la Nourriture et D’Autres Produits sous Sa Propre Marque [Amazon Will Soon Sell Food under Its Own Brand],” Kulture Geek, May 16, 2016, accessed April 16, 2017, http://kulturegeek.fr/news-84373/amazon- vendre-nourriture-dautres-produits-propre-marque. 33 “Amazon Elements,” Amazon.com Inc., accessed April 16, 2017, https://www.amazon.com/Amazon-Elements-Premium- products-Transparent- origins-Exclusive-to-Prime/b?ie=UTF8&node=10166275011. 34 Omar Belkaab, “Amazon Lance Ses Propres Marques D’Alimentation, de Détergents et de Couches Culottes [Amazon Launches Own Brand of Food, Detergents, and Coats],” Numerama, May 16, 2016, accessed April 16, 2017, www.numerama.com/business/170495-amazon-lance-propres-marques-dalimentation-de-detergent-de-couches- culottes.html. 35 John Greathouse, “5 Time-Tested Success Tips from Amazon Founder Jeff Bezos,” Forbes, April 30, 2013, accessed April 16, 2017, https://www.forbes.com/sites/johngreathouse/2013/04/30/5-time-tested-success-tips-from-amazon-founder- jeff-bezos/#384564c2370c. 36 Jason Del Rey, “Amazon Is Going to Sell Its Own Lines of Food, Detergent and Diapers, and It’s Going to Be a Really Big Deal,” Recode, May 15, 2016, accessed April 16, 2017, https://www.recode.net/2016/5/15/11680080/amazon-happy-belly- mama-bear-private-label. 37 “Introducing Amazon Go and the World’s Most Advanced Shopping Technology,” YouTube video, 1:49, posted by Amazon, December 5, 2016, accessed April 16, 2017, https://www.youtube.com/watch?v=NrmMk1Myrxc. 38 Sean Farrell, “Amazon Go Checkout-Free Stores Look Set to Come to UK,” Guardian, December 9, 2016, accessed April 16, 2017, https://www.theguardian.com/business/2016/dec/09/amazon-go-stores-uk-trademark-us. 39 Andrew Melville, op. cit. 40 Sean Farrell, op. cit. 41 “Frequently Asked Questions,” Amazon.com, Inc., accessed April 16, 2017, https://www.amazon.com/b?node=16008589011. 42 Erik Sherman, “Amazon’s Grocery Would Eliminate Thousands of Jobs,” Forbes, December 7, 2016, accessed April 16, 2017, https://www.forbes.com/sites/eriksherman/2016/12/07/amazons-grocery-would-eliminate-thousands-of-jobs/. 43 Nicolas Scheffer, “Monoprix Ironise à Propos D’Amazon Go [Monoprix Ridicules Amazon Go],” Les Echos, January 3, 2017, accessed April 16, 2017, https://business.lesechos.fr/directions-marketing/communication/communication- digitale/0211641428346-monoprix-ironise-a-propos-d-amazon-go-304014.php; Angela Natividad, “This Grocery Chain Just Mocked Amazon Go as a Latecomer With Snarky Remake of its Ad,” AdWeek, January 3, 2017, accessed April 16, 2017, www.adweek.com/creativity/grocery-chain-just-mocked-amazon-go-latecomer-snarky-remake-its-ad-175322/. 44 Audrey Shi, “Amazon Prime Members Now Outnumber Non-Prime Customers,” Fortune, July 11, 2016, accessed April 16, 2017, http://fortune.com/2016/07/11/amazon-prime-customers/. 45 “Wal-Mart Sues Amazon,” CNN Money, October 16, 1998, accessed April 16, 2017, http://money.cnn.com/1998/10/16/companies/walmart/. 46 Phil Wahba, op. cit.

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Executive Summary

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MKT 408

Phase 3

 

Prepared by:

Tables of Contents

Ⅰ. Executive Summary………………………………………………………………………3

Ⅱ. Objective…………………………………………………………………………….…….4

Ⅲ. Background………………………………………………………………………………4

Situation Analysis…………………………………………………………………

Current Marketing Strategy………………………………………………………..

Marketing Challenges/Issues ……………………………………………………..

Current Positioning………………………………………………………………….

Ⅳ. Market Analysis……………………………………………………………………….XX

Demographics ……………………………………………………………………..

Psychographics…………………………………………………………………….

Motivations………………………………………………………………………….

Personal, Social, and Cultural……………………………………………………… Influences…………………………………………………………………………..

Situational Influence……………………………………………………………….

Purchase Process…………………………………………………………………….

Post-purchase Experience………………………………………………………………

Ⅴ. Recommendation………………………………………………………………………XX

Ⅵ. Bibliography & Footnotes…………………………….………………………………XX

Ⅶ. Appendix………………………………………………………………………………XX

Executive Summary (Do this one)

 

 

Objective

 

Our objective is to be able to provide helpful suggestions in which the Kellogg’s team can then implement in order to better their current marketing strategy. Kellogg’s company is currently facing a marketing issue in that their cereal sales have been decreasing over the years. The decrease in sales has been forcing Kellogg’s to come up with new products while also “pairing their operating costs in order to increase sales and profits” (Peltz, 2016). Another marketing issue the company is facing is that they are having trouble convincing consumers to eat cereal, and more specifically, why they should eat Kellogg brand cereal instead of a competitors such as General Mills.

 

 

Our team suggests that an objective that Kellogg should do is increase their media presence like that of competitors General Mills. In where they produce ads and tv commercials aimed at tugging on consumers feeling of nostalgia of having cereal as well as highlighting the nutritious benefits of their cereal. We would suggest that Kellogg perhaps pay merchandisers for premium eye level spots in their shelves, and end caps where their cereal will most likely get a consumer’s attention. Kellogg’s could also benefit from making their different variations of their cereal in order for it to be friendly for all diets such as gluten free, whole grains, and fiber. Lastly, our other suggestion would be for Kellogg’s to join the breakfast on the go movement and make products that can be easily consumed while on the run. Some ways that they can do this is by making breakfast bars, and investing in hot cereal in to-go cups where the consumer can just add hot water and instantly have a hearty and filling breakfast wherever they may be. Our goal is that by implementing some or all of these suggestions Kellogg Company will be able to see an increase on their brand cereal consumption, as well as in increase in sales, and overall brand awareness.

 

Background

 

Kellogg’s is an American multinational food manufacturing company that sells cereal, cookies, crackers, waffles and other snack varieties. Kellogg’s first began in 1898 when the W.K Kellogg and his brother Dr. John Harvey Kellogg failed their attempts to create granola bars. The brothers accidently flaked wheat berry during their experiments. WK. Kellogg kept experimenting until he flaked corn thus creating the infamous Kellogg’s corn flakes. (Kelloggs, 2017)

 

With Kellogg’s new creation of flake corn, W.K Kellogg launched a company name as Battle Creek Toasted Corn Flakes. He realized that for his product to expand, he would need advertising and promotion. The company spent a third of its working capital on an ad in Ladies Home Journal. From this early ad, Kellogg’s corn flakes sales skyrocketed. In 1907, outputs had reach 2,900 cases day with a net profit for about a dollar a case. However, in June of 1907, a fire destroyed the main production building of corn flakes. According to Reference for Business, after the fire, W.K Kellogg bought out his brother’s share of the company. Battle Creek Toasted Corn Flakes had been renamed to Kellogg’s Toasted corn flakes. In 1922, Kellogg’s Toasted corn flakes lost the trademark of toasted corn flakes as it no longer accurately described the company, thus becoming Kellogg’s.

 

Kellogg’s has been strategic of their marketing strategies. Kellogg’s used television advertising in 1950 to attract the postwar baby boomers. To appeal to the younger audience, Kellogg’s introduced sugar into their breakfast cereal. This was when Tony the Tiger was introduced. With the introduction of Tony the Tiger, sales and profits doubled over the decade. The previous marketing strategy used by Kellogg has been shown to be very effective.

 

Situation Analysis

 

External Situation

Industry, Competition, and Marketing Boundaries

 

The Kellogg Company is a global business. Kellogg’s products are manufactured in 21 countries and marketed in more than 180 countries worldwide. The company is best known for its cereal brands Corn Flakes, Rice Krispies, Mini Wheats, Fruit Loops and Frosted Flakes. (Kellogg Company, 2016) As Kellogg first discovered how to make corn flakes, they excelled in the cereal business for some time. Today, Kellogg competes with General Mills for the title of the biggest vendor in the United States. These two companies have been long-term rivals. For years Kellogg was the leading seller of breakfast cereals. In recent years, with shares dropping, General Mills has become the market leader. Kellogg’s fell slightly behind them with a market share of 25%. (Statista, 2015) Other competitors of Kellogg company, although not as threatening, are Kraft, Nestle, Cadbury, and Quaker Oats.

 

Kellogg is not just competing with other cereal brands. Kellogg is competing against the morning food industry. There is a growing demand for healthier and more convenient options, which is leaving Kellogg’s cereal products on the shelves. U.S. cold-cereal sales dropped 4.1% in a four-week analysis conducted by Bloomberg Intelligence (Lachapelle, 2017). Kellogg has competed, and expects to continue to compete for sales of all of their main products in their major product categories. This competition is seen both domestically and internationally. (Kellogg Company, 2016)

 

Business Ecosystem

 

Kellogg Company cereal products are generally marketed under the Kellogg name and sold to the grocery trade through direct sales forces for resale to consumers. For certain products, Kellogg uses broker and distributor arrangements. They also use this strategy in less-developed market areas or in market areas outside of their focus. Kellogg’s convenience foods are marketed under a variety of trademarks and trade names, which include Keebler, Cheez-it, Murray, E.L. Fudge, Austin and many others. Kellogg’s products generally are sold through their own sales forces, through broker and distributor arrangements, and are commonly resold to consumers in retail stores, restaurants, and other food service establishments. (Kellogg Company, 2017)

 

Internal Situation

Organizational Structure/Decision-making dynamics

 

Kellogg Company is separated into two operating segments: Kellogg North America and Kellogg International. The majority (68%) of Kellogg’s revenue is generated in North America. (Kellogg Company, 2016) Kellogg Company’s Chief Executive Officer is Steven A. Cahillane. Kellogg’s Board of Directors, unanimously elected Cahillane in October 2017, when CEO John Bryant decided to retire. Bryant will continue as Executive Chairman of the Board until March 15, 2018, which then Cahillane will assume that role. (Kellogg Company, 2017) Kellogg Company has executive officers for their departments of finance, global supply chain, global human resources, and corporate development. Kellogg also has a President for Kellogg International. Recorded December 31, 2016, Kellogg had an estimate of 37,369 employees. (Kellogg Company, 2016).

 

Kellogg’s research to support and expand existing products, and develop new products, are carried out mainly at the W.K. Kellogg Institute for Food and Nutrition Research in Battle, Creek Michigan. Kellogg’s research and development also takes place at other locations around the world. In 2016, Kellogg’s expenditures for research and development were about $182 million. (Kellogg, 2016)

 

Product Lines

 

Kellogg produces cereal and convenience foods. These foods include cookies, crackers, toaster pastries, cereal bars, fruit-flavored snacks, and frozen waffles. Kellogg Company’s acquisitions are what have kept them successful. In 2001, Kellogg made its largest acquisition, when they acquired the Keebler Company. In 2012, Kellogg became the world’s second-largest snack food company by acquiring the Pringles brand. Some of Kellogg’s most iconic and recognizable products are Keebler, Pringles, Cheez-its, Pop-Tarts, Nutri-Grain, Kashi, Fruit snacks, and Eggo. While Kellogg has produced a number of cereal products, some popular ones are: Fruit Loops, Apple Jacks, Corn Flakes, Frosted Flakes, Rice Krispies, Raisin Bran, and Mini-Wheats. Of the 68% revenue generated, snacks make up 33%, cereal 24%, and frozen foods 11%. (Kellogg Company, 2016)

 

Current Performance

 

Kellogg’s best selling segment, U.S. morning food, fell behind the U.S. snacks segment in 2013. In 2015, Kellogg’s total net sales were about 13.5 billion dollars. Kellogg’s morning food segment only made up 2.99 billion of those net sales. (Statista, 2015)

 

As previously stated, in October 2017, Kellogg welcomed a new CEO, Steve Cahillane, to their team. Just four days onto the job, Cahillane signed off on a $600 million deal for protein bars. Kellogg bought Chicago Bar Company LLC, a protein-bar company who makes the RXBAR. This bar is made from eggs, fruits, and nuts, and prominently displays the ingredients on the front. This decision stems from Kellogg’s want to pursue a more health-conscious strategy. (Lachapelle, 2017)

 

Current Marketing Strategies

 

Target Market

The target consumers for Kellogg are everybody who eats breakfast. Kellogg target children. This group of consumers should be able to identify Kellogg of cereal boxes in the grocery stores. Kellogg designs attractive to children. The cover of the park is the tiger, or rooster then head attract children attention. When children get attention from the cover pack of Kellogg’s cereals, their parent to buy Kellogg’s. This is a visual message that children can easily understand. Therefore, for children, it is a convenient and easy way for children to find what they want as well as to buy them. People who don’t like to purchase an unhealthy product for the child likewise, an adult would not buy unhealthy foodstuff. The Kellogg provide various product adding more nutrition product. Such as Special K more nutrition for someone thinks cereals is unhealthy.

 

Positioning Strategy

Kellogg offered common variables such as quality, energy, taste, natural ingredients, and price, utilizes the popular variable of healthy and convenience breakfast for their customers. Kellogg’s by using its extensive experience to develop and position the cereal, appears to have understood and delivered its consumer needs.

 

Market Analysis -Anna

 

Bibliography & Footnotes

 

Baines, P. & Page, K. (2013). Essentials of Marketing. Oxford: Oxford University Press.

Baker, M. & Hart, S. (2016). The Marketing Book. London: Routledge.

Kell, J. (n.d.). Decline in cereal sales bites into Kellogg’s results. Retrieved November 09, 2017, from http://fortune.com/2014/10/30/kellogg-breakfast-sales-drop/

 

Kellogg Company- Company Profile,Information,Business Description,History, Background Information Kellogg Company. (n.d.). Retrieved November 09, 2017, from http://www.referenceforbusiness.com/history2/91/Kellogg-Company.html .

 

Kellogg Company. (2017, September 28). Steven A. Cahillane Named Kellogg Company CEO as John A. Bryant Retires. Retrieved November 01, 2017, from http://newsroom.kelloggcompany.com/2017-09-28-Steven-A-Cahillane-Named-Kellogg-Company-CEO-as-John-A-Bryant-Retires

 

Kellogg Company. (2016). Annual Report

http://investor.kelloggs.com/~/media/Files/K/Kellogg-IR/Annual%20Reports/kellogg-2016-ar-10-k.PDF

 

Kellogg. “Our Business.” – Kellogg Company, investor.kelloggs.com/our-business#overview.

 

Lachapelle, T. (2017, October 26). Kellogg, It’s Grrr-oan! Retrieved November 09, 2017, from https://www.bloomberg.com/gadfly/articles/2017-10-26/kellogg-needs-brands-that-don-t-snap-crackle-flop

 

Peltz, J. F. (2016, October 10). Why Americans are eating less cold cereal for breakfast. Retrieved November 09, 2017, from http://www.latimes.com/business/la-fi-agenda-breakfast-cereals-20161010-snap-story.html .

 

Statista. Breakfast cereal market share of the Kellogg Company worldwide in 2010 and 2015. (2015, December). Retrieved November 01, 2017, from https://www.statista.com/statistics/507939/kellogg-company-global-breakfast-cereal-market-share/

 

Who we are. (n.d.). Retrieved November 09, 2017, from http://www.kelloggs.com/en_US/who-we-are/our-history.html

 

 

Appendix

 

Kellogg Company Comparisons 2014-2016

 

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Decline of 2014-2015 Fiscal Year

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