Amazon Smile Business Model and Critical Success Factors

This article discusses the business model of Amazon Smile, its building blocks, revenue streams, and critical success factors. It also explores the downside risks and business model changes that the company can make to increase its profits. The subject is e-commerce, and the course code is not mentioned. The course name and college/university are not mentioned either.

Running head: NEW BUSINESS
New Business
Name:
Institution:
Date:

NEW BUSINESS
Table of Contents
Introduction.........................................................................................................................................3
Business Model....................................................................................................................................4
Building Blocks....................................................................................................................................4
1. Customer segments..................................................................................................................4
2. Customer Relationship............................................................................................................5
3. Key partners.............................................................................................................................5
4. Value proposition.....................................................................................................................5
6. Distribution channels...............................................................................................................5
7. Revenue streams......................................................................................................................6
8. Key resources...........................................................................................................................6
9. Cost structure...........................................................................................................................6
Interrelationships................................................................................................................................7
Critical success factors........................................................................................................................7
Down side risks....................................................................................................................................8
Business Model Changes.....................................................................................................................9
Conclusion............................................................................................................................................9
Recommendations................................................................................................................................9
Appendix 1...........................................................................................................................................10
Appendix 2.........................................................................................................................................11
References..........................................................................................................................................12
List of Tables
Table 1: Amazon SmileNumbers of stores worldwide..…………………………….7
Table 2: Amazon Smile revenues and subscribers……………………………………..7
Table 3 : Amazon SmileBusiness Model Canvas of Amazon Smile…………………11

NEW BUSINESS
Table 4: Amazon Smile Performance comparatives and indicators…………………11

NEW BUSINESS
Introduction
Amazon Smile is an e-commerce company was lauched in by Jeff Bezos in 2013 and
is headquartered in Seattle. The company seeks to provide an avenue where shoppers can get
discounted rates on whatever they purchase on the site and can still help in charity activities
(Agarwal & Wu, 2015). The company operate in an industry where there are dominant
players and stiff competition from companies such as Ebay. The company is an online retail
company that offers discounted prices on a wide variety of products that it offers to its
subscribers (Akter & Wamba, 2016). The company serves and was intended for online
shoppers around the world (Aversa et al., 2015).. Since its launch the company has managed
to become among the leading online selling platforms in the world beating seasoned
platforms such as Best Buy and Sears. Being an affiliate to Amazon.com , the company has
managed to gain track in profits.
Though there is competition in this industry, statistics show that the growth of e
commerce sales from 2014 to 2020 are expected to grow. The projections of e retail revenues
from 2017 to 2021 are projected to grow from 2.3 trillion US dollars to almost 5 trillion US
dollars . This means that this market has still a potential to grow and due to consumers
behavior who are starting to embrace online shopping Amazon Smile will still thrive in the
industry.

NEW BUSINESS
Fig 1: Growth in Revenues of E commerce
Business Model
Amazon Smile was started as a charity foundation where the company would get its profits
when customers give away to charity organizations after ding their shopping. The $50
subscription would be renewed annually for the B-2-C customers who would want to buy
their products at a discounted price (De Jong & van Dijk, 2015).. The products are to be sold
at break even prices where the consumer would save on the cost of delivery. The founders
envisaged a situation where the shoppers would pay a small fee every time they do their
shopping from the subscription and this could have a net effect of 15%-25% reduction in
price as compared to other companies such as Amazon Smile (Einav, Levin & Sundaresan,
2014)..
Building Blocks.
1. Customer segments

NEW BUSINESS
Amazon Smile targets the millennial urban dweller in the world but mostly those in the US
and Europe. The company plans to use individual leverage and group leverage on the pricing
to attract customers.
2. Customer Relationship
The company offers self-service as well as automated service to give potential customers an
experience that they won’t forget.
3. Key partners.
Amazon Smile key partners include a network of sellers including Wallmart, authors and
publishers, logistics partners such as FedEx, DHL. Other partners include retailers that fall
into the beauty, clothing, electronics e.g Nike , Samsung, Panasonic etc.
4. Value proposition
The company seeks to provide:
 Convenience
 Great pricing
 Vast selection of goods
 Instant fulfilment with e reader.
5. Key activities
The company’s key activities will include merchandising and production and design.
6. Distribution channels

NEW BUSINESS
Amazon Smile has Affiliates that provide distribution channels in major states in the U.S
primarily through its website.
Table 1: Numbers of stores worldwide
USA Europe
stores 78 56
Sales per store $000 15,121 0
7. Revenue streams
The company revenue streams are the customers’ subscriptions.
Year 2014 2015 2016
Revenues in
$
450,650,000 789,000,000 1098,000,000
subscribers 4,200,000 6,250,000 10,512,000
Table 2: Amazon smile revenues and subscribers
8. Key resources
The key resources of the company include the proprietory software it uses to calculate the
prices, physical warehouses and the human resource team that provides web application and
development.
9. Cost structure

NEW BUSINESS
Economies of scale from the products bought through the site and and the IT infrastructure
that the company has invested in gives it a manageable cost structure. The company aims at
minimizing cost expenses through low price value propositions and automation.
Interrelationships
Amazon Smile does conventional advertising like any other company in this industry. From
the adverts potential buyers are identified and are mostly the millennial urban dwellers who
generate more than 80% of the sales turnover of the company. There is a strong relationship
between key partners such as the publishers and authors as well as suppliers such as Walmart
with the potential buyers.
The company’s value proposition which is convenience and great pricing is a direct link to
the buyers in terms of providing a distribution channel that enables them to get products in a
more convenient and fast way. The company also derives its profits from the customer’s
subscriptions by having a good customer relationship with the buyers. The company’s
partnerships with firms such as Walmart which is the biggest store in the world ensures that
the customers’ demands are met and that there is no time that stock would run out which
consequently lead to improved revenues due to consumer confidence that they will always
get what they want from the company. The pricing tactic that allows customers to get
discounts from the products purchased ensures that there are many return customers and that
the stock is continuously moving which is linked to the improved revenues of the company.
Critical success factors
There are several factors that have been critical to the success of Amazon Smile
as an online retail company. Among the factors are:
The company has managed to provide value to its clients since its inception. Sellers who are
key partners to the company have managed to offer product line that attracts the targeted

NEW BUSINESS
consumers at a price that is competitive just as it happens in the non electronic environment.
Customers get a lot of quality products from Amazon Smile (Falk & Hagsten, 2015)..
The company offers a friendly shopping experience to its customers, an experience that is
interactive such as could be achieved when the customer is buying in a face to face situation.
Also, provision of an attractive web page that is simple to use, great colours, and different
typographies has increased the success of this company (Hong, Tam & Yim, 2016).. By
providing discounts in every purchase that the customer does, Jet provide an incentive for
return customers which is one of the major factors that has led to the sudden success of the
company.
The company also provide shopping suggestions and customized special offers to clients to
provide them with products that they would otherwise spend a lot of time searching. It also
provides a sense of community where chat areas or forums are created to give the customers a
sense of belonging (Morganti et al., 2014).. Jet also provides security and confidence for
shoppers to do their shopping by having parallel servers, fail safe technology, providing
encryption and firewalls that make e commerce work all the time (Pappas et al., 2016).
Amazon Smile has also optimized the business processes through re engineering
technologies. The company has also helped consumers by expanding comparative
information during product searches and also providing information on hygiene and safety
components which has helped consumers by defining buyers work (Ritala, Golnam &
Wegmann, 2014).. The company has also build a solid business model which has enabled it
to succeed. Another critical success factor that has enabled Amazon Smile to succeed is that
it is build with enough agility and systems that respond to social economic and physical
environment of the company (Stephen, 2016)..

NEW BUSINESS
Down side risks
Amazon Smile business model of relying on customer’s subscription exclusively for
revenue has not gone down very well since many online shoppers have devised a way of
purchasing many products at once (Chaffey,2015). . This is not a model that is sustainable
mainly due to the reason that there may not be a large number of subscribers compared to
companies such as Amazon Smile that has been in the industry for a long time and has been
able to build a name for itself. This tactic resulted to stagnation of revenues until the
company was bought by Walmart for $3.3 billion and has since changed its business model
(Clemons et al., 2016).
The movement in forex market can have an adverse effect on the company because it is also
used in other countries. These movements in FX markets can add costs to global businesses.
This movements leads to increased costs and also prices for the products being sold
(Bohnsack, Pinkse & Kolk, 2014).
Business Model Changes
I would move towards a model where the company does not solely depend on
subscriptions as the only revenue source. Amazon Smile would increase its profits by
offering a discount that is larger than other market dominant companies such as Ebay but
still ensure that it gets a share of profits from any product purchased from the platfor even if
its 5% (Bogue, 2016).. So they should reduce the discounts to lets say 10%-15% from the
current 20-25%. The company should also expand to other markets such as the UK where
the online shopping bug has hit and take advantage of the low competition in these markets.
Conclusion
Amazon Smile is a company that is vital to growth of this industry. Many countries have
started embracing online shopping as the mainstream method of buying . The company
should adjust its operation according to consumer behaviour.

NEW BUSINESS
Recommendations.
1. Move from a model where the only source of revenues is annual subcription to
charging a small fee from every purchase made.
2. Expand to other countries in Europe.
Appendix 1

NEW BUSINESS
Table 3 : Business Model Canvas of Amazon Smile
Appendix 2
Table 4: Amazon Smile Performance comparatives and indicators

NEW BUSINESS
References
Agarwal, J., & Wu, T. (2015). Factors influencing growth potential of E‐commerce in
emerging economies: An institution‐based N‐OLI framework and research
propositions. Thunderbird International Business Review, 57(3), 197-215.
Akter, S., & Wamba, S. F. (2016). Big data analytics in E-commerce: a systematic review
and agenda for future research. Electronic Markets, 26(2), 173-194.
Aversa, P., Haefliger, S., Rossi, A., & Baden-Fuller, C. (2015). From business model to
business modelling: Modularity and manipulation. In Business models and modelling (pp.
151-185). Emerald Group Publishing Limited.
Bogue, R. (2016). Growth in e-commerce boosts innovation in the warehouse robot
market. Industrial Robot: An International Journal, 43(6), 583-587.

NEW BUSINESS
Bohnsack, R., Pinkse, J., & Kolk, A. (2014). Business models for sustainable technologies:
Exploring business model evolution in the case of electric vehicles. Research Policy, 43(2),
284-300.
Chaffey, D. (2015). Digital business and e-commerce management. Pearson Education
Limited.
Clemons, E. K., Wilson, J., Matt, C., Hess, T., Ren, F., Jin, F., & Koh, N. S. (2016). Global
differences in online shopping behavior: Understanding factors leading to trust. Journal of
Management Information Systems, 33(4), 1117-1148.
De Jong, M., & van Dijk, M. (2015). Disrupting beliefs: A new approach to business-model
innovation. McKinsey Quarterly, 3, 66-75.
Einav, L., Levin, J., Popov, I., & Sundaresan, N. (2014). Growth, adoption, and use of mobile
E-commerce. American Economic Review, 104(5), 489-94.
Falk, M., & Hagsten, E. (2015). E-commerce trends and impacts across
Europe. International Journal of Production Economics, 170, 357-369.
Hong, W., Tam, K. Y., & Yim, C. K. B. (2016). E-service environment: Impacts of web
interface characteristics on consumers’ online shopping behavior. In E-Service: New
directions in theory and practice (pp. 120-140). Routledge.
Morganti, E., Seidel, S., Blanquart, C., Dablanc, L., & Lenz, B. (2014). The impact of e-
commerce on final deliveries: alternative parcel delivery services in France and
Germany. Transportation Research Procedia, 4, 178-190.

NEW BUSINESS
Pappas, I. O., Kourouthanassis, P. E., Giannakos, M. N., & Chrissikopoulos, V. (2016).
Explaining online shopping behavior with fsQCA: The role of cognitive and affective
perceptions. Journal of Business Research, 69(2), 794-803.
Ritala, P., Golnam, A., & Wegmann, A. (2014). Coopetition-based business models: The case
of Amazon Smile. com. Industrial Marketing Management, 43(2), 236-249.
Stephen, A. T. (2016). The role of digital and social media marketing in consumer
behavior. Current Opinion in Psychology, 10, 17-21.