Breaking down on how to scale your Amazon Business globally

Preview:?

7 years ago in B-School, it was a time when case competitions were not only the ways to “fill the gaps in the resume” but also they were “Gateways to break into Top organizations by skipping the placement process”.

Anyways one such competition we came across?—?Amazon ACE (Amazon Customer Experience) Challenge- Consumer Business Case Breaker. This evolves around Amazon Global Selling Program to create transformative opportunities for India sellers to contribute towards “Make In India” products across the globe. This program has grown from Few Hundred Sellers in 2015 to 125000 Sellers in 2022. GOI also encouraged Indian businesses to export via e-commerce from India under MEIS scheme till 2021 and RoDTEP scheme effective from 2021 in terms of refund of indirect taxes on inputs for production.

Challenge:

Sameena, is a seller who sells on Amazon India and has able to grow her business multifold over last two years. However, she believes she can grow even further by taking her business outside India through Amazon Global Selling. In order to develop the right strategy to launch and grow her business what would be your solution.?

The proposal should address the following –

1. How should Sameena decide what products to sell and to what geography 
2. A fulfilment strategy that carefully balances business profitability with excellent customer experience for given set of products 
3. A pricing model for the selected product range basis different cost components (product cost, logistics, amazon commission, returns, warranty, liquidation, working capital?—?to name a few)        

Solution:

1. How to decide what products to sell and to what geography

A. PRODUCT:?

We had designed “Product Selection Matrix”, a decision matrix which incorporated 5 parameters (in weighted form) which enabled the new seller to have 360 degrees of the whole business scenario.

• Step 1: Identifying Selection Factors: Below are the factors which had been considered in creating the Product Selection Matrix. These factors has been chosen based on discussion with sellers on market conditions

• Step 2: Aligning the Product categories as per factors intensity:

a. Affinity towards online outlets (30% Weightage): Focuses on customer’s present and future inclination towards buying the product of a particular category from online outlets. Two underlying dimensions to this parameter are:?

• Present share of Brick-n-Mortar & online outlets in the market share.
• Futuristic growth predicted by experts in various product categories for both channels

b. Reasonable competition among Sellers (25% Weightage): Takes into consideration the extent of competition among the sellers. The higher the ranking the lower is the competition. Hence, it gives us the room to enter the market in a relatively easier manner. Source: A 2016 Webretailer survey on Amazon sellers which talks about the inclination of sellers towards certain product categories

? c. Frequency of Buying from Online Channels (20% Weightage): The parameter talks about the frequency of sale in a product category. The higher the ranking, the better is the attractiveness of a particular product category. Basis of this parameter is:

• Analysis of the Amazon sales data by “Jungle Scout” - estimated monthly sales volume as per BSR (Best Seller Rank). There are four types of categories as per BSR (Best Seller Rank) i.e. Selling 20 items/day, 10 items/day, 1 item/day and 1 item/week. For example: in Books category, a product with BSR Rank of 4000 in the 10 units/day category means the product must be in the top 4000 products to reach a sales figure of 10 units a day. Correspondingly, the estimated sales calculated by “Jungle Scout” is 473.

d. Profitability (20% Weightage)?: This factor takes into account the expected Profit Margin from different product categories. Better the ranking, higher is the Margin earned per sale. The calculations involves Profit Margin of each category as per the Industry Standards in Global Market.

e. Trade Intensity (Percentage change in Export Value) (5% weightage): Here the change in export values from India is the calculation basis. The higher is the growth, the better is the Ranking. We had taken the Export data of India to the U.S. and to the U.K. for the period from 2013 to 2016. Through which we computed the change in the export values of different categories to gauge the attractiveness of the category from the Trade perspective.

• Step 3: Elimination of categories?: Mobile, Baby Products, ELectronic devices, Laptops, Large appliances, Kitchen Products due to

a. Export doesn’t happen from India to the US?

b. Competition from Foreign products is higher vs to Indian products

c. Scheduled product despatch, Storage is difficult

• Step 4: Final Scorecard of the shortlisted category as per the metrics:

Product Selection: Based on the Weighted Score, the highlighted four categories namely Books, Watches, Apparel & Beauty Products are recommended for Sameena to venture into the Amazon Global Selling Platform.

B. GEOGRAPHY:

Following factors are considered for selection of geography:

Market share, Consumer depth, B2C E-commerce sale, Trade intensity Index, Brexit

1. Market Share: Compared to the UK market, the US market is huge in all the categories shortlisted

2. Consumer Depth: The Volume is high when it comes to the US market since lot of people shop online. Also, during the Festival season, the sales become multi times of the average sales of the UK marketplace.

3. B2C e-commerce sale: Over the years, the growth of e-commerce in the B2C category is low in UK. The US e-commerce Market is growing steadily over the years and the future trends look promising too.

4. Trade Intensity Index: The trade intensity index with US and UK shows that there is lower amount of Trade intensity between India and UK. Lower TII indicates higher risk for a seller to enter into the trade business in a newer country, hence it’s recommended to move towards USA rather UK.

5. BREXIT: The Britain’s exit from the EU also possess a threat to a new business in E-commerce due to increased International Shipping Costs and also due to drop in Pound value versus Euro and USD, which creates more problem for consumers in UK in terms of their buying power.

Recommendation: After considering all the above factors, and as both the U.S. & the U.K. markets are completely different, initially focusing on the U.S. market to understand international business would be a better option. Once the business results are positive in the U.S., Sameena can foray into the U.K. market with focus on Books and Beauty products.

2. A fulfilment strategy that carefully balances business profitability with excellent customer experience for given set of?products

Considering the products selected for selling in markets in the USA, following criteria are important to look at for selecting Fulfilment strategy

1. Product availability: AVAILABILITY OF STOCKS is of paramount importance in selling a product Online, where the maintenance of stocks as per delivery requirement is a difficult part of the supply chain.?

How FBA (Fulfillment by Amazon) helps: While in the MFN (Merchant Fulfilled Network) system, the onus is solely on the seller to keep track of stocks, FBA is really helpful for sellers as?

• It takes care of the maintenance of stocks as per the selling agreement,?
• It also helps in database creation of stocks.?

2. Personalization in customer service: Two things related to Customers are important in terms of Sales

• To understand the Expectation of customer?
• To handle all queries or services related to the customer service?

How FBA (Fulfillment by Amazon) helps: In MFN system, where it sometimes becomes messy in dealing with consumer’s choice and demand for product and the service associated with it.

• FBA provides the personalisation service on behalf of the seller making it a smoother and hassle-free selling process for the seller.

3. Customer expectation on delivery: In current time, most of the cases customer has 2 requirements?

• Product to be delivered on the same day?
• Expectation of having the warehouse or delivery house being in the vicinity for faster delivery and post delivery services.?

How FBA (Fulfillment by Amazon) helps: As in MFN model it’s sellers’ prerogative of managing the warehouse, design packaging, shipping etc., having a robust Logistic service (material handling, Warehouse, transport & Packaging) provides better value for money. FBA model

• helps in utilizing the advantage of having Amazon warehouse in the US or the UK at the vicinity of consumer, ckaging, shipping etc.

How to choose Fulfilment by Amazon or Merchant fulfilment network for selected products:

1. Books: Chosen fulfilment strategy: FBA (new books) & MFN (for old books):

a. Merchant fulfilment network is mostly followed for used books, where demand is uncertain. So, keeping Stock, Sourcing the books is mostly the requirement of Seller hence fulfilment should be done through MFN.

b. While for new publication, seller gets the opportunity to target new consumers, Prime consumers and also gets the brand of Amazon with it. So, considering all these factors, keeping a large stock, maintaining the database becomes smooth with FBA.

2. Watches: Chosen fulfilment strategy: FBA: Considering high value item such as watches, FBA can be chosen keeping the revenue part in mind.

3. Apparel: Chosen fulfilment strategy: FBA: Mostly sellers who are selling not so popular brands or trying to promote their own brands, it’s helpful to use FBA strategy to increase exposure.

4. Beauty Product: Chosen fulfilment strategy: FBA: Beauty Products generally require approval for selling in Amazon, also for selling more items (limit is 40) per month, FBA is the ideal fulfilment strategy to select

Recommendation: For every seller who is going for AMAZON GLOBAL SELLING Program, needs to be certain about the demand, availability of stock, expenditure incurring in transferring the item from domestic warehouse to Indian port and shipping from Indian port to US port and finally Transferring the product from US port to buyer’s address.?

Along with that It is of utmost importance that seller needs to keep the total inventory, deciding upon the amount of sale as a % of inventory each month and modifying the quantity as per profit margin and inventory turnover ratio.?

Hence for a seller who is following MFN strategy needs to keep track of all the above mentioned factors, while in FBA, it’s easy for even an experienced and well established seller like Sameena to first gauge the market with AMAZON FBA strategy keeping the expenditure and uncertainty minimum while venturing to newer territory

3. A pricing model for the selected product range basis different cost components:

A. Creating the Basic assumptions as foundation of the pricing model?:

1. No of products sold per month in individual categories:

These numbers have been chosen by the BSR (Best Seeler Rank) provided to individual category through “Jungle Scout” application for estimated sales.?

Here the product chosen is supposed to be of Indian brand which are procured from India and sold in AMAZON.COM. So the rates mentioned as COST OF GOODS are the minimum price in India at bulk purchase, so that the seller can attain a minimum margin while selling the items at a MARKED UP PRICE in AMAZON.COM.

2. Monthly Refund Rate for products belonging to individual categories:

These have been chosen according to category industry standard which predicts the return percentage of each category by analyzing customer data.

B. Fees:

Fees included in the calculation are

C. The Pricing Model calculations?:?

Pricing Model

D. Net Working Capital and Financing options:

a. Net Working Capital Calculation

b. Financing: The working capital has been sourced via 2 methods.

a. Through Bank loan

b. Through personal finance (From previous retained earnings)

We recommend that the Financing should be in the form of 75:25 ratio (Bank Loan & Personal Finance) to minimize the risk involved in venturing into newer territory.

E. Additional Suggestions on Future Pricing Strategy:

1. Bundling Strategy: Having a proper correlation between products can give Sameena a way to grow the sale through Bundling, For example: Apparel and Beauty products.
2. Introduction of coupons: Coupons are generally useful in US market which can attract more consumers.
3. Subscription based Savings: Consumer can save a lot of money while buying in case they subscribe the seller through Mail, and seller can give precedence to them while selling the products.

Sources:?

1. For overall analysis:

https://www.amazon.in/

https://www.amazon.co.uk/

https://www.amazon.com/

2. For analysis of present and predicted market scenario:

a. Euro monitor data

b. Nielsen Global E-commerce and the new retail report

3. For calculation of reasonable completion: Amazon sellers survey-2016, Webretailer.com

4. For frequency of buying pattern: https://www.junglescout.com

5. For India’s Export and Import Data:

• World Integrated Trade Solutions
• Export-Import data bank ministry of commerce and industry, Govt. of India
• Worldbank data: Trade
• TradeMap: International Trade Centre

6. For Referral fees, Closing Fees and Refund fees?: https://sellercentral.amazon.com

7. For estimated Sales of Product Category: https://www.junglescout.com/estimator/