AMAZON’S KIRANANOW: THE INDIAN ONLINE GROCERY MARKET Case Study solution
- Industrial analysis of Amazon’s KiranaNow keeping in view factors impacting it using five force framework,
SUMMARY OF CASE STUDY : AMAZON’S KIRANANOW: THE INDIAN ONLINE GROCERY MARKET
•In 2015, the Indian retail industry contributed around 10 per cent to India’s gross domestic product (GDP), and online retail had a growth rate of 85 per cent.
•In the same year, food and grocery made up 60 per cent of the Indian retail market, and the online grocery segment was estimated at US$0.6 billion.
•To capture its share of this market, Amazon launched its own online grocery arm, KiranaNow, its business model.
•As it set out carve out a space for itself in the online grocery market, KiranaNow knew that changing consumption patterns among consumers reflected the positive transformation that was seeing an increasing customer preference to buy groceries online.
•The case focuses on Amazon’s KiranaNow for Indian consumers, taking into account the various market forces.
•It maps the growth of the Indian online grocery market, analyzes the current scenario and the competitive landscape operating within that market.
•KiranaNow faced various challenges, including the question of whether its chosen business model was sustainable for the Indian market.
TASK ONE : After reading the case study Amazon’s KiranaNow: The Indian Online Grocery Market, comment on the industry analysis by:
•Analyzing the macro-environmental factors affecting Amazon’s KiranaNow using the Porters Five Force framework.
TASK TWO : Your task two is to analyse Amazon’s increasing competition and implications for consumers:
•What challenges is KiranaNow facing and what strategies should it use to overcome these challenges?
SOLUTION TO CASE STUDY
TASK ONE: Comment on the industry analysis by Analysing the macro-environmental factors affecting Amazon’s’s KiranaNow using the Porters Five Force framework.
Analysis of Macro environmental factors of Amazon’s’s kirananow using five force model:
|1. Threat of new entrants|
|Huge capital requirement to enter industry||√|
|Regulatory framework to enter in the industry is flexible.||√|
|Customer switching cost is low.||√|
|Access to distribution channel and supply chain by new entrants is easy.||√|
|Product differentiation and offering of unique experience to customers by new entrants.||√|
|Customers’ loyalty towards Amazon’s kirananow creates barrier to new entrants.||√|
|Technological upgradation and continuous improvement to keep consumers associated by new entrants.||√|
|Achievement of economy of scale by new entrants is lengthy process.||√|
|2. Bargaining power of Suppliers|
|Availability of large number of suppliers in a particular region||√|
|Cost of switching from one supplier to another supplier is low||√|
|Less number of suppliers for products whose demand is high||√|
|Very few buyers for products of suppliers||√|
|Forward integration by supplier increases competition||√|
|Less knowledge of market by kirananow creates vulnerability and increases suppliers’ dominance.||√|
|3. Bargaining power of buyers|
|Customers are spatially distributed in large geographical regions all around the country.||√|
|Buyers can easily switch as switching cost is very low||√|
|Difficult for individual buyers to do backward integration||√|
|Corporate customers ability to do backward integration||√|
|Discounts and promotional offers reduce ability of buyers to switch.||√|
|4. Threat of Substitutes|
|Switching cost from Amazon’s KiranaNow to offline purchase is very low.||√|
|Substitute products offer low level of performance and quality as compared to products available on kirananow.||√|
|Price of substitute products are either less or same in offline market than Kirananow.||√|
|Psychological satisfaction of customers derived from substitute products are less as compared to products offered on Kirananow.||√|
|Switching cost to substitute products is high.||√|
|5. Rivalry among existing firms|
|Online grocery business growth is tremendous.||√|
|Large numbers of firms are operating in the industry thus creating intense competition in the online retail industry.||√|
|Products offered for sale by existing online retailers are same.||√|
|Loyalty of customers towards Amazon’s Kirananow is low||√|
|Huge loss is to be incurred in case of exit from industry due to huge investment in technology, distribution channel and supply chain management.||√|
|Intense competition to achieve market leadership in the industry.||√|
|Same market is being targeted by all existing firms in the industry.||√|
Comments on industrial analysis of Amazon’s’s KiranaNow keeping in view factors impacting it using five force framework:
1. Threat of new entrants:
Amazon’s KiranaNow can work on increasing brand loyalty of consumers through effective and efficient customer relationship management and offering discounts and multiple offers on products available on KiranaNow. It will help to keep customers associated with the brand and increase psychological switching cost of customers.
Long term contractual relationship with its distributors can help Amazon’s KiranaNow to target new markets easily thus availing products at low price to its customers.
Continuous improvement in technology to render unique experience to its customers will help it to tap more and more customers and widen its reach among online shoppers.
It should increase its funding and investment to discourage new entrants.
It should focus on its marketing strategy to differentiate and position itself as unique brand and establish itself as market leader to influence customers emotionally and psychologically thus increasing switching cost of customers.
It should focus on attaining economies of scale thus availing products at lower price to its customers and keeping customers intact with Kirananow to create obstacles for new entry.
2. Bargaining power of suppliers
Amazon’s KiranaNow should explore more and more suppliers and establish long term contracts with them to reduce its dependency on few suppliers in its distribution and supply chain channel and increase efficiency of its supply chain network.
It can enter into backward integration for products whose demand is high and very few suppliers have dominance over such products.
It should employ people who are experts of retail grocery industry and have strong hold in market among suppliers and targeted market to avail minute details of market and thus create strong hold on suppliers.
Amazon’s Kirananow can partner with manufacturer directly and invest in its production facility to reduce dominance of suppliers and also maintain quality of products consistently.
3. Bargaining power of buyers
Amazon’s Kirananow should focus on increasing its customer base and targeting new market and new customers to reduce bargaining power of its customers.
It should offer diversified range of products and increase number of alternative products for one category to its customers thus engaging them to purchase their grocery from kirananow.
It should keep on offering discounts and rebates for returning customers to make them loyal and offer them quick returns on products which customers want to return thus offering unique experience to them.
It should offer rewards to its customers while recommending KiranaNow to friends’, relatives and any known thus increasing switching cost of customers and reducing bargaining power of buyers.
It should conduct research and development in getting customer information and thus introduce new and innovative products on its platform to lure more and more people to buy groceries through Kirananow.
4. Threat of substitutes
Amazon’s Kirananow should run campaign on social media channels regarding inferior quality of substitute products and its demerits as compared to products available on Amazon’s kirananow to make customers aware and convince them to buy products available on Kirananow.
It should convince customers regarding superior products available on Kirananow by offering unique experience and value for money as against low quality and cost substitute products.
Offering high quality and differentiated products at low margin will increase switching cost of customers’ thus discouraging purchase of substitute products.
Kirananow should focus on delivering high quality products consistently to win hearts of customers and keep them loyal.
It should focus on creating emotional relationships with customers to impact their buying decision psychologically thus remain associated with products of Amazon’s kirananow.
5. Rivalry among existing firms
Amazon’s Kirananow should explore new market and add new products in its portfolio to give better experience to its customers than its competitors.
Multiple Programs to maintain Long term relationship with customers should be executed to increase switching cost of customers.
Kirananow should run customer loyalty campaign to increase loyalty of customers towards Amazon’s kirananow.
It should introduce latest technology on its online grocery platform for easy search of products, access to customer care executive in seconds, resolution of queries of customers promptly, simple and easy return for products return by customers and other such features that increases customers’ experience and offer simplicity and easiness while shopping online.
It should focus on achieving cost leadership in market thus beating its rivals in terms of availing products at lower price than its competitors to increase switching cost of customers as well as lead the industry by creating value proposition for its customers for purchase of products on Kirananow.
It should focus on needs and expectation of customers’ data for which can be collected through conducting research on customer expectations from industry and thus creating differentiation to meet customer expectations and create a niche market for its customers and also differentiate it among its rivals in the industry.
Task 2. What challenges is KiranaNow facing, and what strategies should it use to overcome these challenges.
Various challenges faced by Amazon’s Kirananow in its operations include:
Inability to control quality of products delivered to customers which are supplied by local retailers with whom KiranaNow has collaborated. Difficulty in Standardization of quality of product has become an issue for KiranaNow due to supply of products by different retailers to customers.
Maintaining quality and delivery of Perishable products with freshness and without damage is a severe challenge Kirananow faces and it incurs huge cost in maintaining freshness and quality of products to be delivered to customers. In case of damaged products, Kirananow has to offer return without question. Cancellation and return policy increases cost of operation for the company.
High attrition rate of employees pose severe challenge to Kirananow. Huge cost involved in hiring and training of delivery staff to offer unique experience to its customers pose another major challenge in terms of increasing operation cost and delivering products on time to customers.
Local retailers fall short in adoption of technology thus creating impediment in value chain process and logistics management making it difficult for Kirananow to manage database of products availability and integrate with local retailers. Failure in Order processing and updating of inventory level creates mismanagement of information system.
Delivery staffs are not comfortable in learning and adopting technological requirement making it difficult to connect merchants with other partners.
Quality of Database available to Kirananow on customer expectations and needs are very poor, thus making it difficult to target market and customers properly. Customers prefer to buy groceries offline rather than online on platform such as Kirananow. Concern on quality of products and price negotiation is easy for customers while buying offline. Rate of adoption of technologies to shop online by customers is very slow creating challenge for Kirananow to attract more and more customers to buy groceries online.
Competition in the industry is intense due to sprouting of many new and traditional companies offering groceries online to customers. Nearby traditional Kirana stores are now delivering products to its customers free of cost in their locality. Hyperstores such as Big Bazaar are now selling its products online thus creating new issue for Kirananow. Strategic deal of Flipkart with Wal-Mart creates another challenge for Kirananow to offer unique experience, better services to its customers and attain cost leadership to create value proposition for its customers on their spending.
Indian customers have habit of buying groceries from local stores due to credit granted by local Kirana stores to them, which is again a hindrance for Kirananow to convince customers to buy groceries on its platform where such facilities are not available.
Perishable natures of many products in groceries have likelihood of huge edible waste to be generated for its partners leading to increase in its operational cost.
Cancellation of grocery order at doorstep is also one of the challenges Kirananow faces.
Strategies to overcome challenges faced by Kirananow:
Quality control and standardization of quality of products delivered to customers is of utmost importance. Kirananow should use its financial strength and collaborate directly with manufacturers of grocery products to overcome issue of standardization and quality control of products delivered to customers. It will also reduce cost of operation thus availing products at low price as compared to its rivals and traditional local stores which in turn will create value proposition for the customers and help to attain cost leadership in the market.
It should run training programs for its local retail partners to assist them in learning and adopting technology to strengthen its supply chain system and inventory management.
Kirananow should run feedback program for its local retail partners with regard to difficulties they face in technology adoption and help them to resolve their issues. It will enable Kirananow to deliver products on time but also reduce wastage of perishable products.
Kirananow should offer variable incentives to its delivery staffs and provide adequate training to understand. Learn and adopt technological knowhow to perform their duties effectively and efficiently. Company should take feedback from its employees with regard to issues faced by them and assist them in clarifying the same. It will certainly reduce attrition rate thus reducing cost of hiring and training for Kirananow.
Kirananow should conduct research on understanding needs and expectations of customers and offering value based services to them thus gaining loyalty from customers and long term relationship with them.
It should work on reducing its operating cost and availing products at lower price than traditional Kirana stores to attract them to shop groceries from Kirananow. If possible, Kirananow should avail credit facility to customers with certain terms and conditions to be agreed upon by customers to keep them intact with company and eliminate advantage customers get while shopping from local retail Kirana stores.
With growing use of internet and smart phones and psychological change of customers switching from traditional mode to online shopping, it is easy to convince customers to buy groceries from Kirananow. Kirananow should work on offering multiple benefits to its customers in terms of free and fast delivery, discounts and offers on bulk purchase, various benefits to returning customers and customers who recommend others to purchase groceries from Kirananow. It will help to build brand image and loyalty of the company towards its customers.
It should invest in its technologies to make it simple to use by customers in terms of searching products, adding to cart and placing the order. It should also educate customers to use kirananow to fulfill their grocery needs thus increasing its customer base and thus revenue for it. Regular feedback should be taken from customers to improve overall efficiency of Kirananow platform to match with expectation of customers.
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