November 11, y

Amazon v Alibaba

Amazon is an American electronic commerce company headquartered in Seattle

Washington. It is the largest internet based retailer in the United States. Amazon.com first started

as an online bookstore, but it diversified by selling more than books. Amazon also offers

international services for some of its products. Jeff Bezos the founder of Amazon incorporated

the company in 1994 and the ultimate goal was to become the online bookstore of the time. They

have since grown and now are the largest online retailer in North America.

Alibaba is a Chinese ecommerce company that provides sales service to three business

platforms which includes business to business, business to consumer, and consumer to consumer.

Alibaba was founded in China by Jack Ma in 1999. Mas business strategy was to connect

western business with Chinese manufacturers. According to Forbes, the company has grown to

be the largest ecommerce in the world by gross per sale and company value, and recently went

public in the largest IPO in history. Alibabas initial public offering was $21.8 billion dollars.

Amazon is obsessed with the customer and getting them the best possible price at almost

any cost. They are very good at negotiating with their suppliers, partners and publishers to get

the price where it needs to be. Jack Ma and Alibaba have a different focus. Their goal is to help

small business grow by solving business problems through their Internet technology. They fight

to help small businesses to achieve a brighter future.

Alibaba has traditionally been known in United States as Alibaba.com which connects

Chinese factories and businesses. Alibaba Taobao division is where they make the vast majority

of their money, according to CLSA, Asias leading investment banking company, its responsible
for 80% of their sales. The Taobao marketplace is similar to eBay and allows consumers and

small businesses to list their merchandise for sale. The second platform Taobao Mall is more like

Amazon business to consumer. It allows large businesses to sell their products to consumers.

Alibaba manages the marketplace and charges a small commission but doesnt hold or

sell any merchandise themselves. On the other hand Amazon plays in both markets. On

Amazon.com, you will find thousands of products you can buy directly form third party

businesses. But Amazon is also in the business of stocking items and selling products directly to

consumers.

Amazon is primarily located in North America which generates 60% of its business and

40% of its business comes from international. On the other hand Alibabas business is mainly in

china and 84% of its business is generated there. The other 16% of its business comes

internationally.

Product Offering

On the surface both Alibaba and Amazon seem like very similar companies. Both

organizations are centered on aiding consumers in purchasing an assortment of products at an

extremely low price over the internet. Similar to Amazon, Alibaba has risen to be the top player

in its industry in its home market of China, however the similarities between these two giants

end there. The question now is, which company is more profitable? Most people would say

Amazon, however our findings show otherwise.

- Alibaba sales for 2014 are estimated at $420 Billion. In 2012 sales were $170 Billion. This

dwarfs Amazon, its closest competitor, with reported sales of $74.4 Billion. Less than half of

Alibabas 2012 sales.

- Alibabas customer base is gigantic. There are 1.4 Billion people in China. In the United

States there are 327 Million. (According to US Statista, the United States is the third largest

country)

- Alibaba claims to have 300 Million customers. They employ over 25,000 workers to service

the clientele.

We are all familiar to with Amazon and their elaborate 67 distribution centers, as well as

their own brand of products. Alibaba operates differently in the sense where they simply created

a network for buyers and sellers to connect. Alibaba themselves does not store any of the

products in-house nor do they have an in house brand of products.

A huge element of the retail industry is customer service. In this aspect Amazon has

better control over the service they deliver as it well documented the advances they have made to

ensure customers get top quality service. Amazons private label as well as their distribution

centers allows them to have tight control over the experience the customer receives. Alibaba

doesnt have this luxury because they are simply just a platform.

Through data collected on the interest we developed a SWOT Analysis on both Amazon

and Alibaba:

Alibaba

Strengths

- Alibaba is the largest online trading website, with sales topping 52 billion in 2013.
- Alibaba also has a strong understanding of the Chinese consumer as that is the market

where 84% of its sales come from China

- Cash is king. Alibabas ridiculous financial position allows them invest or buyout

existing competitors

Weaknesses

- Alibabas delivery time to all markets varies by vendor.

- Due to Alibaba only being a platform for vendors to sell on it has very little control over

the service customers get.

- Low brand recognition-many consumers in US market may stay clear of Alibaba.

Opportunities

- Untapped market segments-with 84% of its revenue coming from Chinese consumers,

Alibaba can very easily expand to other markets.

- Market share possibilities in US-due to their pricing Alibaba can be very appealing to the

US consumer who is tired of paying for goods at ridiculous markups.

Threats

- E-commerce growth in China

- Competition from rival websites.

Amazon
Strengths

- Amazon has arguable the strongest global presence of any online only retailer.

- Innovation with supply chain and delivery times/methods

- Diverse product offering

- Experience

Weaknesses

- Negative PR- Amazon constantly is coming under fire for the treatment of their

warehouse employees.

- Online only presence could be shutting out a large percentage of consumers

- Operating on 0 PM

Opportunities

- Investing in an online payment system such as Venmo

- Expanding their private label brand

Threats

- With technology evolving it is becoming very easy for new competitors to pop up such as Etsy

and Alibaba

- Competition from foreign companies with a better price point.

 Alibabas 4 Ps

Product

1. Virtual Product

a. Convenient and prompt issuance and management of information

b. China tailored payment instrument

c. Sound evaluation system

2. Brand promotion Strategy

3. Service Strategy

Price

At the very beginning, Alibaba provided free registration and information services for its clients

in order to elbow its way to the e-commerce market. After a considerably big number of clients

have registered at Alibaba, it began to charge membership fees to seek sources of revenue

(Shanghai Reuters - Alibaba)

Place

Alibaba was established in Hangzhou, the capital city of Zhejiang Province and the east of

China, developed its customers in the Yangtse Delta Region, finally its customers have extended

to all over the world.

In order to get the lions share of the world market, Alibaba has localized its e-commerce

services by creating different websites in different languages and tailored their designs and

layouts to the local cultures and traditions in the local markets overseas. They did this because

they understood that cultural differences can make a differences and so they were committed in

breaking the language barrier as well as selling past time zones troubles. They applied

wealth of information about customs and practices in other countries they

did business in. (International Sourcing- This isn't Kansas Anymore)

Promotion

Alibaba precisely ascertains its clients, namely the small and medium sized enterprises and

individual businessman

Because Alibaba had limited financial resources in its early stage of development, it established

forums and added its site links to those forums in order to advertise its services, expand its

recognition and make sales promotions, and achieved good results.

Amazon 4 Ps

Price

1. Cost Leadership Potential

Amazon endeavors to offer its customers the lowest possible price as they consider low prices

as a strategic factor for future success. Their strategy also includes free shipping offers, and since
2005, members of the Amazon Prime program can benefit from free two-day shipping and

discounted overnight shipping.

Place

The company benefits from having a globally recognized website where it allows customers to

purchase their products through an online interface. The nature of Amazons placement makes it

easy for customers to conveniently purchase its products

Promotion

Amazon.com is a household name, reaching current and potential customers by Internet

advertisements, television commercials, and tailored email alerts.

This enablesAmazon to inform clients on promotions, deals, and new offerings quickly. In

addtion, Amazon.com can mine their databases to gauge a specific shoppers desires, measure

his or her means, instantaneously tailor products to fit that shoppers behavior, and price products

accordingly (Armstrong & Kotler, 2011, p. 296).

Product

Sell a variety of products moreover theyve had much success with Amazons Kindle, a

commercial e-reader. The product addressed consumers desire for a portable reading device that

could store multiple work in a small profile. The Kindles primary competition are e-readers and

other tablets like the Nook, iPad, Samsung Tablet etc. A clear segment that Alibaba hasn't

touched on yet.

Demographics

While on the surface we see similarities between Amazon and Alibabas product

offerings, pricing, and promotions, there are clear difference between who these companies are
selling to and how much money they are making in the end. Amazons target market and

demographics seem to be evenly split between older men and women. These consumers are

usually older, wealthier, and better educated than the average shopper. Statistics show that more

than one quarter of Amazon Shoppers are over 50 years old, 64 percent are childless, and more

than half earn over $60,000 a year. On the other hand, more than half of Alibabas shoppers are

female and overwhelmingly large statistics have received less than a college education. The most

obvious difference within these two companys demographics is their overall geographic focus.

As we have mentioned already, Alibabas primary money making operations are within the

boundaries of China while Amazon seems to do most of their work within the United States. For

this reason, it is surprising to learn hat 40 percent of Amazons overall business actually comes

from outside North America. While America seems to have a better track record of expanding

outside of their home market, business forecasters still claim that Alibabas entrance into the U.S.

market should be feared.

 Profitability

In the end, the comparison of these two e-commerce companies is based on who is

generating more profit within a specific amount of time. In 2013, Alibaba reported that more

than $250 billion worth of transactions were made within the year while Amazon by contrast had

only $61 billion in product revenues. Although Alibabas number is drastically larger, it can be

misleading since Amazon does not count any of the sales made by third party merchants through

their website. For this reason, Amasons actual value for the year of 2013 could be in the range of

twice what was listed. It is important to understand that income fees are charged to third party

merchants, allowing a small profit to the larger company whether it is Amazon or Alibaba. That

being said, Alibaba still comes out on top from a product sales standpoint this time.
 When it finally comes down to which company is making more profit, it is clear that

Alibaba sells more product overall while Amazon generates significantly higher fee revenues.

Alibabas profits have consistently grown alongside the company itself within the past few years,

while Amazons have decreased, causing them to even loose money back in 2012. The reason for

this being that Alibaba does not need to compete within warehouse costs like Amazon does,

allowing them to keep the majority of the money they make as they grow. In the end, the

monumental difference between the business practices of Alibaba and Amazon is the difference

between software business and warehouse business. Although Amazon has to work and spend to

build their vast warehouse network, it is beneficial because software sales tend to scale better

than warehouse sales.

 References

Alibaba vs. Amazon: An In-Depth Comparison of Two ECommerce Giants." ECommerceFuel.

N.p., n.d. Web. 20 Apr. 2015.

"Amazon Vs. Alibaba: The Showdown [Infographic]." Amazon Vs. Alibaba: The Showdown

[Infographic]. N.p., n.d. Web. 20 Apr. 2015.

Levy, Michael, and Barton A. Weitz. Retailing Management. 8th ed. Boston: McGraw-Hill Irwin,

2004. Print.

Team, Trefis. "How Amazon Plans On Driving Future Growth." Forbes. Forbes Magazine, 5

May 2015. Web. 20 Apr. 2015.

Kenneth Martinez

Alex Marrero

Mary Mongiello

Olsi Muskaj

Merchandising and Comparison Shopping:

Amazon vs. Alibaba

MKTG 307

April 20, 2015