Amazon and mybabyallergy.com: E-commerce Decisions for a Retail Start-Up

Description

Going on Amazon usually acts as a real spur for any firm's business, since sales tend to shoot up. But it is also true that it involves downsides that cannot be overlooked. Amazon, the undisputed leader in online sales of all kinds of products, has become a unique platform for the positioning and sales development of thousands of companies-especially for smaller firms, with a shorter track record or fewer resources available to promote their products, which, thanks to Amazon, can reach visibility and sales levels that would be unthinkable otherwise. Accordingly, many firms face the following dilemma: Should they continue committing themselves firmly to an e commerce model of their own or should they trust Amazon to make their online sales channel grow? That is the choice that is set out in the case-the big dilemma of a start-up. Mybabyallergy.com is a young start-up specializing in the sale of food products for families in which one of the members has an allergy or intolerance. César Pérez, the firm's founding partner, was very satisfied with the results of the sales made up to then through Amazon. However, he wondered to what extent he should base the growth strategy of his business on the queen of online sales platforms. Moreover, and in the event that he did opt to strengthen the link with Amazon, he had to decide on one of the three relationship models that the company proposed. Each one of them involved different things in such critical business areas as logistics and operations, the policy on pricing and promotions, and the closeness of the relationship with the final customer: FBA (Fulfillment by Amazon), FBM (Fulfillment by Merchant) or SFP (Seller-Fulfilled Prime). Facing the doubts that the different options provoked in him, Pérez sought the advice of Pablo Navarro, a fellow graduate. Navarro was the sales director of Treonis, a consumer electronics firm with an annual turnover of around €140 million. Treonis had been selling for four years already on Amazon, from which it got about 10% of its turnover. Although Navarro had a very positive assessment of Treonis going on Amazon, he gave Pérez the following warning: "If you work with Amazon, you have to get used to the 'additional charges' and to the relationship of dependence that you generate." Navarro was referring to the effort, in time and money, that the relationship with Amazon demanded in aspects such as the maintenance of the catalog, storage and logistics, the negotiation of the annual contract, delivery times, inventory returns, promotions, advertising, and knowledge of the final customer. Nonetheless, it was clear to Pérez that he should measure very carefully the steps to take. The alliance could be decisive for the future of his business, so it was advisable for him to analyze the pros and cons very well.

Learning Objective

Assessing the options of a start-up and the decisions it has to take for the development of its own e commerce model or to develop via an online platform such as Amazon. How can a firm integrate operations with Amazon into its value chain and what is the impact on its strategy?

Keywords

Amazon E-Commerce Marketplace merchant on line Retail vendor