An analysis of customer relationship and expectation management for Amazon
Amazon.com, Inc. is a multinational company operating in the technology sector. Headquartered in Seattle, Washington, Amazon has a workforce of more than one million people and focus areas of the business include artificial intelligence, e-commerce, digital streaming and cloud computing (Lang et al., 2012). Amazon brand is among the most valuable brands in the world and the organization also serves as a cultural and economic force shaping the business environment globally. Since the organization is operating at such a huge scale, it becomes challenging for Amazon to effectively manage the customers and meet all their needs and expectations. This report is compiled to assess the challenges in customer relationship management and customer expectation management for the business (Kaur, 2016). The customer relationship management perspective is evaluated by making use of the customer segmentation model. Amazon works with a lot of intermediaries who ensure the continuity of service provisioning by the company. The service delivery mechanism of the organization is evaluated with the help of the perception expectation gap model to identify the challenges in the customer expectations management and present recommendations for the same.
The methodology adopted for conducting this study makes use of data from the secondary sources. This includes the scholarly journals, books, articles and researches that have been previously conducted on the topic of service operations. The tool that has contributed to analyzing the customer segmentation practices by Amazon is the customer segmentation model where the customers are categorized on the basis of their attitude and the activity level demonstrated by them (Johnston & Kong, 2011). The tool used for assessing the expectation-perception approach of Amazon and the perceived service quality by the customers of the organization is the perception expectation gap model that helps in identifying the gaps between the expectations of the customers and the perception that they hold towards the company. These gaps and contributing factors to the mismatch between the perceptions of the customers and their expectations are also presented in the report for evaluating how the marketing initiatives and the communication by Amazon is directed to keep the customers satisfied and to meet their expectations. The report also presents recommendations that can be adopted by Amazon for improving the customer segmentation and management practices and for better understanding the source of expectation and perception gap and bridging it (Premkanth, 2012).
Being a technology company, customers of Amazon include any individual or organization who is receiving the services provided by the company. There are various models that can be used for the classification of the customers for better management of their relationship with the organization (ChannelReply, 2016). Among these, the most suitable method for the classification of customers of Amazon includes classifying the customers as intermediaries or end-users. The intermediaries who are selling their products on the Amazon e-commerce platform are also the customers of the company and it can become challenging for Amazon to balance the needs of both these customer types. However, segmentation is a popular marketing approach that is used for assessing the customers on the basis of different characteristics, and classifying the customers with similar characteristics in the same categories (Imran, 2014). The purpose of carrying out customer segmentation is not only to enhance the efficiency of marketing and developing better target marketing approaches but also to ensure that the company has the required facilities and appropriate infrastructure for efficient service delivery, improved customer experience and better performance outcomes.
Developing a better understanding of the individual needs of the customers and the resultant behavior demonstrated by them can allow the organization to effectively carry out the segmentation and also address their needs efficiently. Understanding the customer type can also help Amazon in ensuring that the customers are provided quality service as per their needs and the staff of the organization is able to deal with them better. Developing an understanding of the customer types can significantly improve the relationship management of the company with its customer segments and result in overall efficiency in the operations (Siddiqa, 2018). Effective customer relationship management is the key to business sustainability and long term profitability. While the E-Commerce platforms have made it very easy for the customers to avail the services, it has also lead to reduced switching costs for the customers, encouraging them to compare the services and the prices across all the platforms available and choose from them instead of sticking to any particular brand or vendor. This has made it challenging for Amazon to earn customer loyalty and has also increased the competition for the company (Gambhir, 2019).
Classifying the customers on the basis of their behavior, rating it from negative to positive and activity that ranges from the customers being passive to very active is carried out in the model discussed here and depicted in the figure below (Magento, Inc., 2019).
Figure 1: Customer segmentation
The classification of the customers on the basis of their attitude and activity into the four quadrants is carried out as discussed in the table below.
As highlighted in this model, the most desirable quadrant for Amazon is the customers that are having a positive attitude towards the company and who are active and involved. Amazon needs to ensure that the organization is not only attracting new customers but also retaining the old customers for generating and establishing long-term streams of revenue. This can be done with effective communication with the customers, keeping them involved through effective marketing communication that is directed and delivered through their preferred communication medium and also by constantly providing them with the information about any changes taking place in the brand and its service provisioning mechanism. Amazon can also improve the customer relationships by soliciting feedback from their customers through feedback surveys. However, it can be challenging for the organization to go through all the responses and identify the responses that are constructive and valuable. Seeking feedback can allow the organization to better understand the perception of the customers towards the brand and work towards improving it in the long run. Therefore, the strategies of involving the customer segments, counseling them and regularly communicating with them allowed the organization to improve the customer relationships (Cooil et al., 2007).
The inherent complexity in the business model of Amazon makes it challenging for the organization to continually evaluate the customer relationships and fulfill all their needs and expectations. Amazon operates in the technology sector, which is extremely dynamic and this results in continuous changes in the working environment of the business, the expectations of the customers and the strategies that need to be adopted for managing these expectations. The business model used by Amazon is that of a marketplace where the organization provides a medium for the exchange of products for the suppliers and the customers. Along with this, Amazon also operates in the video streaming and artificial intelligence technology sector that requires extensive research and understanding of the customer needs and expectations (Krishnamurthy, 2005). Customer satisfaction can be defined as the overall perception that the customers hold towards the service provided by the company as compared to the previous Expectations that they held towards it (Zeithaml et al., 1993). Any mismatch between the expectations of the customers and the actual service provided by the company can result in the perception expectation gap. The following figure highlights the two reasons for the gap between the expectations of the customers and their perception.
Figure: Perception expectation gap model
The first gap highlighted in the figure is because of the difference in the expectations of the customers and the actual service provided by the company. The second gap is the gap between the customer perceptions of the brand and service provisioning by the company. In order to successfully manage the perceptions and expectations of the customers, Amazon needs to explore both the internal and external contributors to these gaps. The first gap highlighted as the gap between the service provided by the company and the expectations of the customers can be attributed to the inability of the company to understand the customer expectations, poor service design developed by the company, insufficient availability of resources with the company or the inappropriate service specification and provisioning. Along with this, the gap between the service delivery and the expectations of the customers can also be attributed to the external causes of incorrect or unrealistic expectations of the customers from the brand and the service (Zeithaml et al., 1993).
The second gap is because of the difference for the mismatch between the customer perceptions and the service provided by the company. The internal reasons for this mismatch are the inappropriate service provisioning or the incorrect delivery of services. This gap can also be attributed to the external factor of the customers developing disproportionate perceptions of the service experience and outcomes of the experience with the company. Any mismatch in the expectations or perception of the customers towards the company and the service provided by it can directly impact the level of satisfaction that they receive from the service. Amazon is operating globally and has to work with the customers that have different perceptions, backgrounds, expectations and attitude towards the company. This makes it important for the organization to identify the most significant factors that contribute to shaping the expectations and perceptions of the customers so that they can be effectively managed (Zhang, 2018).
The price of the service provided by Amazon has a significant impact on the expectations that the customers have from the company. If the organization increases the price of the service provided by it, the customers will expect an increase in the quality of the services (William et al., 2018). Therefore, the organization needs to ensure that the price charged by the company for service provisioning is proportional to the quality of the services that it is providing and the value that these services are offering to the customers. The substitute available in the market also helps in shaping the expectations of the customers and their perception of the brand. Amazon has been a pioneer and a first-mover in various ways and because of this, the organization has managed to establish itself globally and become one of the most recognized brands (Community Futures, 2017). With time, numerous organizations have emerged as the competitors for Amazon offering similar services at similar prices, making the organization complete for maintaining and enhancing its market share. With all the major retailers entering the E-Commerce domain and the numerous video streaming platforms available for the customers to choose from, it has become important for Amazon to continuously assess the expectations of the customers through extensive market research but this process comes with certain limitations because of the time and resources consumed in conducting these studies. The data acquired through this research can be used by Amazon to make appropriate changes in its service offerings and to ensure that it continues to meet them (Munuthi, 2014).
Some other factors affecting the perception that the customers hold towards the brand and their expectations include the marketing messages and communication by the company. This includes the advertising campaigns, the image of the brand and marketing communication media used by the company. Amazon works towards creating an interface that is customer-friendly and also makes use of affiliate marketing along with social media marketing and search engine optimization for promoting its services and the brand (Zhang, 2018). The increase in the annual global marketing expense of Amazon over the years is presented in the figure below.
Figure 3: Amazon marketing expense (Clement, 2020)
Even though there is a steady increase in the total marketing expense of the company, the organization needs to ensure that the marketing message sent out through the different channels is consistent and it is also promoting positive word of mouth because this direct marketing can have a stronger impact on the customer perception (Dudovskiy, 2020).
The pandemic and changing perceptions
Amazon has faced profound implications because of the covid-19 and the resultant restrictions on the movement of the people. The operations of the organization were strained for some time but the organization continued to register an increase in the customer orders because of more and more customers embracing the digital shopping and payment options. Online shopping and e-commerce platforms provided an excellent opportunity for the customers to avoid going out and travelling to the neighborhood stores and supermarkets and these changes in the customer shopping habits also lead to changes in the expectations and perceptions from the brand (Amazon.com, Inc., 2020). With the sudden increase in the number of orders, the customers faced longer delivery times, product shortages and longer waiting time but Amazon was quick to make the necessary changes in the working of the company to gradually get back to the standardized stock rotation and order fulfillment process. While the changes in the perceptions of the customers are not always beneficial for the companies, this change was welcomed by Amazon and other e-commerce platforms because it led to the growth of the business and the business opportunities with only a slight readjustment of the supply chain (Amazing, 2020).
In conclusion, it can be stated that there are several challenges faced by Amazon as it goes on managing customer relationships and expectations. This is because of the diverse service portfolio of the company and also the globally diverse customer base (Noe & Weber, 2019). After carrying out the assessment of the challenges and evaluating them through the customer segmentation and customer perception expectation gap model, the following recommendations are presented to the company.
As identified from the customer segmentation model, the strategies that can be adopted by Amazon for improving customer relationships include:
- Increase engagement
The organization needs to adopt the right marketing Communication practices for enhancing customer engagement and for keeping them involved. Providing timely and regular updates and information to the customers and soliciting feedback through feedback surveys. However, it can be challenging for the organization to go through all the responses and identify the responses that are constructive and valuable. Gathering information from selected high-value customers can help Amazon in increasing engagement and ensuring that the attitude of the customers towards the brand remains positive (Reddy & Divekar, 2014).
Some customer segments may require additional counseling and support from the company in the form of continuous engagement and personalized communication for ensuring that they remain active and hold a positive attitude as highlighted in the customer segmentation model (Barber & Goodman, 2011) but the organization needs to ensure that the value offered by the customers is evaluated before carrying out their counseling.
- Net Promoter Score
This is a popular tool that allows the organizations to measure the willingness of the existing customers to recommend the company and its services to others. The NPS rating for the organization varies from 0 to 10 and maintaining and tracking the score can allow Amazon to gain significant insights about any requirement for improvement in its customer relationship management practices (Pathak, 2015).
For effective management of the customer expectations and perceptions, Amazon needs to incorporate the following hygiene and enhancing factors in its operations and marketing communication:
- Hygiene factors
These are the factors that do not contribute to making the customers delighted, but their absence can lead to dissatisfaction. For Amazon, the hygiene factors include the availability of the services, their reliability, the security of the customer information collected by the company and ensuring basic functionality of all the services and platforms run by the company (Eger & Micik, 2015).
- Enhancing factors
These are the factors that can add to customer delight and Amazon can incorporate the enhancing factors like service flexibility, additional convenience to the customers, attentiveness and brand friendliness for contributing to improved customer expectation and perception management (Clark, 2018).
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