Amazon Case Competition

Team C^3G

Amazon’s next customer segment program: Our approach

Amazon

• Increase Prime Subscriptions• Encourage recurring purchase

Customer Segment

• More Selection• Lower Pricing• Better Convenience

Goals

Considerations• Identify New Customers• Incorporate Existing Products

• Unmet Needs• Segment Size

Outcomes• Increase Profits• Increase Overall Brand Awareness

• Customer Satisfaction and Loyalty• Amazon Customer Advocacy

Think Big Customer Obsession Bias for Action Deliver Results

Researched Customer SegmentationCustomer Segment Market Size Purchasing

PowerRecurring Purchases

% Online Buyer

Ease to Convert

Active/Fit

Baby Boomers

Entrepreneurs

Mothers

Movers

Students

Yuppies

Think Big Customer Obsession Bias for Action Deliver Results

Focus on lifestyle based purchasing habits – maximize recurring purchases and minimize existing customer segment overlap

Customer SegmentationThink Big Customer Obsession Bias for Action Deliver Results

Focus on lifestyle based purchasing habits – maximize recurring purchases and minimize existing customer segment overlap

Entrepreneurs: strong purchasing power coupled with low segment overlap and strong recurring purchase potential

Customer Segment Market Size Purchasing

PowerRecurring Purchases

% Online Buyer

Ease to Convert

Active/Fit

Baby Boomers

Entrepreneurs

Mothers

Movers

Students

Yuppies

Meet Ari…Ari is a sandwich lover trying to start his own Deli

• I need furniture for my store• I need point of sale systems• I need computers, websites…

“I make great sandwiches, not business purchases!”

Think Big Customer Obsession Bias for Action Deliver Results

Meet Anne…Anne aspires to become the next Coco Chanel

• I need design tools• I need books on newest fashion trends• I need a website that I can sell my clothes on

“I know fashion, not technology!”

Think Big Customer Obsession Bias for Action Deliver Results

Anne and Ari are not alone…• There are 22 million small business owners in the US that represent

$218 billion in annual spending.• They cover various industries and demographics• They share similar pains running businesses:• Tight on cash• Not enough time• Lack of technology expertise

So we thought why not create a dedicated program to reduce some of the pains so they can focus on what they do best.

Think Big Customer Obsession Bias for Action Deliver Results

Introducing: Amazon EntrepreneurLet us help you realize your business potential

and more…

Think Big Customer Obsession Bias for Action Deliver Results

Amazon Entrepreneur: DetailsThink Big Customer Obsession Bias for Action Deliver Results

Program Offer•3 months of free Amazon Prime•10% discount on all office supplies•3 months of free tier 1 Amazon Web Services•One hour of free Amazon Web Services consultation

Program Benefit•Savings•Convenience•Technology Expertise•Scalability

Amazon Entrepreneur: Risks• We believe that our AWS, Amazon Prime and Office Supplies

segments will suffer some revenue erosion from the roll-out of the new Amazon Entrepreneur:

AWS

Prime

Office Supplies

Other Retail

- 0.01%

- 0.30%

< - 0.01%

> 0.20%

Decreases

Decreases

Decreases

Increases

Overall, the indirect revenue impact on other lines of business should not be significant.

Think Big Customer Obsession Bias for Action Deliver Results

Amazon Entrepreneur: Program CostCost decreases dramatically after the first year

2014 2015 2016 2017 2018 2019 20200.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Marketing Expenses Technology & Content AWS Consultations General & Admin

Estimate Initial Program Cost: $20 Million

Key assumptions1) Marketing spend is composed of On-going Marketing Expense (estimated at 3.7% of revenue as per 10-k), plus additional advertising expense associated with

the new program ($25M, mostly in cable TV and internet advertising). It also contains an additional $6M allowance for business development costs.2) Technology & content is estimated at 9% of revenues (vs. 7.5% for all of Amazon).

Think Big Customer Obsession Bias for Action Deliver Results

Amazon Entrepreneur: Revenue Projection

2014 2015 2016 2017 2018 2019 2020 CAGR

Revenues 101.128167641791 238.999050742886 393.628158106639 564.74789450252 752.907423815898 958.676461337093 1182.64593530044 0.506597008874696

New Prime Customers 91.2 195.7 309.7 433.2 566.2 708.7 860.7 0.453704586884846

5 Year Highlights: 566,200 new Prime customers$753 million new revenue50.7% Compounded Annual Growth

5 year benchmark

Think Big Customer Obsession Bias for Action Deliver Results

2014 2015 2016 2017 2018 2019 20200.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

53.0 116.1

187.3 267.3

356.3 454.9

563.6

7.4 16.2

26.2

37.3

49.8

63.5

78.7

36.2

46.2

62.5

84.1

111.1

140.6

172.7

4.5

60.5

117.6

176.0

235.7

299.6

367.7

Breakdown of Amazon Entrepreneur Revenues (in US$ millions)

COGS Fulfillment Costs SG&A EBITDA

31.3% average EBITDA margin7.9 times higher EBITDA margin than Amazon.comRepresent 3% of the total Amazon Profit starting year 3

Amazon Entrepreneur: Profit Projection

Key assumptions1) We have taken future AMZN revenue and EBITDA projections done by Morgan Stanley.2) We have assumed an uptick from current levels of Technology & Content expense from 7.5% of sales to 10% of sales.3) We have assumed $19M in business development & initial marketing spend on year 1, $9M on year 2 and $3M on year three.4) COGS and fulfillment costs are assumed to maintain current levels as a percentage of retail segment revenues.5) All estimates include erosion of current AWS and Amazon Prime account revenues.

Think Big Customer Obsession Bias for Action Deliver Results

Thank You! Team C^3G

Think Big Customer Obsession Bias for Action Deliver Results