Amazon and the limits of growth: The Red Queen effect confirmed

Headlines like this dominated the online and offline media last week: The recent takeover of Whole Foods for almost $ 14 billion by Amazon sent shock waves to observers and high street retailers.
Should we be surprised by the news? Personally I am not surprised at all; Diversification and continuous expansion is a strategy that Amazon consistently pursuits since the beginning of its times.

Is that right? In 2004 I published a research paper in the Management Decision titled: "Strategies for surviving the Internet meltdown: The case of two Internet incumbents" * Although this article won the title of the best paper award of the journal for that year it never became so popular with only 24 citations so far.
In this study I reviewed the strategic decisions made by Amazon and one more of the survivors of the dot.com disaster (E-Trade) at the beginning of the 21st Century, looking for clues why these Internet pioneers did not follow the fate of the thousands of dot.coms that went bankrupt after the 90's dot.com hype.
My study was focused on the major and minor strategic decisions made in the period 1997 - 2001. I classified these decisions according to the well- known Growth Matrix of Ansoff; this matrix identifies as most of us know, four types of growth strategies: Market Penetration, Market Development, Product Development and Diversification.
During the period in question Diversification was the main strategic approach for growth pursued by Amazon: Although Diversification is the most risky of the four options this strategy worked and not only helped Amazon survive the Internet debacle but also transformed Amazon from an online bookstore to an online (and increasingly traditional) retail giant that it is today. We must not forget that Whole Foods is not the first traditional retail venture of Amazon, they operate already a number of physical bookstores; interestingly books is the first product category that help Amazon to be launched as e-shop back in 1995.

As I mentioned, to me the expansion of Amazon to traditional retailing did not come as a surprise. In my 2004 article I came to the following conclusion when discussing the findings:

"An alternative strategic option for both Ž firms (i.e. Amazon and E-Trade) could be to concentrate on the present business domains and pursue further grow by expanding their physical activities rather than the virtual ones, at the cost of traditional players; such a strategy is likely to trigger reactions of traditional, physical Ž firms."

This conclusion was based on the findings that in the case of Amazon (and to a lesser degree of E-Trade) their strategy was looking to be inspired by the Red Queen Effect. My impression was that when Amazon will sell online whatever is possible to sell it might turn to the traditional retailing  in order to maintain its survival and growth.

The interesting thing about the emerging high-street presence of Amazon (and for sure more e-businesses will follow it) is that it can have many negative effects for established retailers but it could have also some positive ones: Is the expansion of e-tailers to the High Street a way to revitalize city centers suffering from shop closures and increasing difficulty to attract buyers in shopping centers?

Interesting issue to follow-up. One thing is sure, the distance between online and off-line becomes once more a bit smaller.

*Efthymios Constantinides, (2004) "Strategies for surviving the Internet meltdown: The case of two Internet incumbents", Management Decision, Vol. 42 Issue: 1, pp.89-107, https://doi.org/10.1108/00251740410510190

Potential and problems with Big and Smart Data

An interesting post in the MIT Sloan web site about the problems around Big Data. Needed: a new generation of executives who can work with Big Data and extract relevance from it. http://sloanreview.mit.edu/article/better-decisions-with-smarter-data/?utm_source=WhatCounts+Publicaster+Edition&utm_medium=email&utm_campaign=DA+Enews+Feb+25+2014&utm_content=Read+more

EuroTrip 2013: What are the effects of the Euro crisis on Greek businesses

With a group of 22  of our 2nd and 3rd year students we start from Monday the EuroTrip 2013, a study trip that is part of our Business Administration curriculum on the University of Twente organised by the study association STESS. A busy program with one lecture in the Athens University of Economics and Business and 7 business visits the students will try to figure out what are the effects of the crisis in the country worst hit by it on their strategy and marketing activities.
It promises to be a very interesting and educational trip

Details in my Twitter and this blog the most interesting news from the trip.

Marketing in crisis: what's the way out?

In his 2004 book Marketing As Strategy Nirmalya Kumar expressed his views on how the marketing profession can escape from the destructive route it is riding the last years and transform to a business activity that will regain the respect of the public and CEOs. If we believe the latest findings of the study conducted by the of the Fournaise Marketing group in 2011 not much has changed since: Marketers are still not seen by the majority of CEOs as a a real asset: "73% of CEOs think Marketers lack business credibility: They can't prove they generate business growth".
This is a worrying fact and a red flag that field marketers and academics should take seriously. We academics must realize that there seems to be a gap between what we teach our students in college, what they will be asked to do when they enter the field and what their CEOs expect from them. Field marketers on the other hand must understand the big change in the marketplace called customer empowerment. One of the symptoms of this change is the fact that the public is mistrusting marketers, mainly those insisting on monologues, one way communication and those who still think that they know better than their customers what they need and want.
One of the interesting issues highlighted in the report is the perception of  the majority of CEOs that "They (Marketers) are focused too much on the latest trends such as social media, because they believe they represent the new marketing frontiers - but can rarely demonstrate how these trends will help generate more business for the company".
Interesting remark but it should not surprise us, there are very few marketing activities that can really and clearly demonstrate how they help generate more business for the company, so in fact we do not talk about a new problem here.
To my opinion the whole issue is simple, many marketers never learned to be critical of themselves and were also never critical of trends and hypes. In a number of earlier posts in this blog I highlighted the Social Media "experts" explosion threatening to derail the social media marketing. The social media is indeed an important marketing landmark as well as an important social phenomenon; it is also a major challenge to marketers who have to learn new ways of dealing with the new customer. This simply means listening to the customer's (social) voice, engage customers and stop broadcasting; the customer is now the powerful party and the sooner marketers realize this the better.
Douglas McGregor wrote in 1960 book The Human Side of Enterprise where on the basis of the X - Y theory he urged organizations to pursue their objectives by engaging their personnel rather than managing it. That means to look for ways to develop and use the potential of their employees rather than trying to manage them by means of control and punishment. Marketers should in analogy look for ways to help their customers to meet their objectives and needs by listening to them, getting them involved in their business processes and becoming their advocates. This will be The Human Side of Marketing that the empowered customers expect to experience today.

So if we talk about a way out of the crisis in Marketing theory and practice the best course to follow is to get back to the basics: Listen to the customer voice and try to understand who the new customer is. This will help us marketers to transform our picture based on the mass marketing era and device ways to communicate with the customer on personal, individual level. A basic requirement here is to understand that we are not the powerful party any more and that our brand is not our property any more either. Successful business of the future will be those finding ways to engage the customer successfully, address the individual customer needs and use the customer intelligence as a source of innovation.