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Sell new e-bike

Direct-To-Customer
or through Amazon

Weighing the trade-offs for an e-bike manufacturer

Prepared by:
Abheek Jindal, PGP35001, Section A

Delivered on:
October 29, 2019
1. Introduction
1.1. Background

PedalSpark is a maker of high-end electric bicycles. Presently, they sell their signature luxury
models through the company’s website and have also been named in ‘best e-bike’ lists. The
company is introducing its new product, a cheaper model of e-bikes targeted at price-
sensitive customers. In this case, Mark Ellinas, the CMO of PedalSpark, is faced with a
dilemma regarding the distribution model for their new product- following the same strategy
as their signature model of selling directly to the customer through their website or adopting a
new retail channel of selling via Amazon listing.
With the new model almost ready for its launch, the CEO wants Mark to come up with a
decision on the online channel strategy that the company should adopt for its flagship variant.
Initially, the company operated only in the luxury segment for e-bikes that were sold at
$4,000. However, to cater to the masses, they have come up with an affordable model for
people who are willing to trade higher battery life and motor power for a lower price tag.
To decide the online strategy, the CMO, Mark Ellinas, is working with two direct reports:
Gideon Bear, the sales manager, and Tamar Nourse, the product manager. With the
presentation scheduled in 2 days, Ellinas has to evaluate the pros and cons of each option
available to come up with one strategy that will help the new flagship product gain success.

About Amazon:
Amazon started in 1995 as an online marketplace for customers looking to buy books.
However, in the past 24 years, Amazon has evolved. “It looks more and more like an online
convenience store with traditional retail mark-ups.” The majority of online consumers now
start their product searches from Amazon than Google). Not only for searching, but Amazon
has also become a place where customers are buying their products. Around two-thirds of US
citizens now have Amazon Prime, which allows them to get their purchases within two days
of ordering. For a seller who is not listed on Amazon, they are missing out on more than half
of the customers for their product.
So, for many product sellers, not being on Amazon doesn’t feel like an option. However,
Amazon itself is the largest competitor of these sellers through its private labels like
AmazonBasics. Amazon has 130 private labels so far that range from electronics to clothing
to furniture. These private labels are projected to hit $25 billion in sales by 2022.
Amazon uses its hold on a large amount of customer data to identify popular items and
demote third-party sellers of these items by sourcing them under their private labels. Sellers
at Amazon also need to be wary about other forms of discrimination. Sellers at Amazon have
been banned because of late fulfilment, re-direction of a customer off Amazon, ignoring
Amazon email messages, and selling at a low price without any proper investigation. Josef
Rosenfeld, president of Health Flavors, notes that "selling on Amazon has more pitfalls than
opportunities. Amazon's policies are to its advantage, not the seller's."

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2. Problem Statement Analysis
One of the primary targets of any company is to expand its customer base to be as large as
possible because it guarantees an increase in its revenues. But it should be careful that this
increase in revenues comes at the expense of customers not being loyal to the company. This
is because acquiring new customers always involves customer acquisition costs. So, in the
long run, a loyal customer base is helpful.
In this case, PedalSpark faces a dilemma in choosing a sale strategy for its cheaper, entry-
level model of electric bicycle. One method of selling these e-bikes is through Amazon,
while the alternate is to continue selling via the company website. Both options have
positives and negatives to offer. The point of analysis for the CMO is to decide on what
constitutes success for the brand: short term high volumes sold that lead to high visibility or
building long term brand equity to promote customer loyalty as they have experienced for the
luxury segment.
By selling on Amazon, PedalSpark projects a demand for 10,000 units of e-bikes. But the
company thinks Amazon might take advantage of its customer sales data and release a
competing product under their private label. Additionally, on Amazon, there will be multiple
other sellers, and there is less clarity if PedalSpark’s product will be able to stand out to
create its demand. Also, due to the platform model, Amazon doesn’t control the product
quality of merchants, and many fake and cheaper listings eat up the customer share. The
company may have to engage in price wars, which will ultimately make the brand look
cheaper and hurt its brand image. This will also impact the sales of their luxury segment
products as well. Another concern is with PedalSpark’s capability to be able to execute orders
with high volume and shorter fulfillment window if the company receives huge demand from
Amazon. Currently, they take two weeks to deliver the products on their website. With the 2-
day delivery option offered by Amazon, will the company be able to deliver the things it will
be promising? These concerns make Ellinas skeptical of the idea of selling the product on
Amazon.
Another way to sell the e-bikes is through the PedalSpark website. This will ensure customer
information remains with PedalSpark. But this will go against the purpose of the creation of
the cheaper model as it will reduce the customer reach of the e-bike. The low reach and
visibility will be a deterrent in high achieving the market potential in the short term. If the
company does not open its distribution channels, there’s a possibility of stagnation of
demand. The product will not reach the eyes of the target audience, i.e., the masses, for
whom the product has been designed because people can’t buy the bike unless they are aware
of it. Given the growing trend of online retail shopping, more and more customers have
started considering e-commerce websites like Amazon as their marketplace for product
research and identifying product availability.

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3. Analysis
3.1. Protagonists

a) Sales Manager, Gideon Bear, is highly sales-driven and had an aggressive approach
for selling the e-bike. Hence, he suggested the option of selling on Amazon because,
in his opinion, this will provide high visibility and a high number of sales.
Additionally, his experience of witnessing the growth story of Instant Pots is another
driving factor. It makes him believe that they can experience rapid growth if they are
available on a platform like Amazon, which offers them access to a large potential
customer database. Gideon also points out that Amazon’s logistics services and
capabilities can be leveraged to their advantage.
b) Product Manager, Tamar Nourse, is more focused on brand engagement and thinks
that the e-bike will not be differentiated enough to stand out on Amazon. She feels
that as a long-term strategy, selling on Amazon will hurt the company. As a platform,
Amazon hides the customer information, product purchase patterns, and the market
potential from its merchants, depriving them of the chance to analyze the data. With
the backing of multiple angel investors and the increased revenue from AWS,
Amazon is now more capable than ever to enter new businesses with market potential
and eat up incumbents. With the thriving e-bike market, all this becomes a significant
concern for PedalSpark. She cites the case of her friend’s tablet company, which went
out of business due to high competition from AmazonBasics and cheap imitations.
Additionally, her focus on building a loyal customer base is what drives her
suggestion of PedalSpark continuing with its direct-to-customer sales via the
company website.
c) CMO of PedalSpark, Mark Ellinas, has marketing expertise from his previous work
experience and has successfully expanded company’s first product. However, this
time, he is working in new markets and with new target groups. Being the CMO, he
has to place his focus on both- the sales of the product and also building brand equity
for the product.

3.2. Theoretical Models

D2C model:
In a direct-to-customer model, the company produces its product and then distributes it using
its own channels. The main aim of this model is to cut out the middle man and maximize
company’s profits. The company has control over its margins, as it does not have to share
them with the network of distributors. This also helps the company gather valuable customer
data and gain insights into its business. The company can offer personalized products to its
customers based on the data it has acquired.
However, in this model, the company has to take care of all the logistics of distribution. It has
to spend more on marketing as it does not have distributors to push its products.

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4. Criteria for Assessment of Recommendations
Since PedalSpark is launching its new e-bike for price-sensitive customers, it does require a
distribution strategy that reaches out to a larger set of potential customers. As per Gideon’s
estimates, the company could sell close to 10000 units if they list it on Amazon as against the
2000 units of luxury e-bikes they sold on their company website last year.
a) Brand visibility and Sales growth:
Listing on Amazon makes will not only help increase the company’s sales volume but
also it’s brand recognition as more and more customers will start owning PedalSpark e-
bikes. However, the concern of Amazon hiding the customer information, and entering
the market space in which PedalSpark operates, poses a threat to the company.
b) Brand Equity:
Since one of the agenda is to create brand equity and have loyal customers, being just
another brand of e-bikes on Amazon will not help solve the purpose. Additionally, there
is also a possibility of the brand image being hurt because of the potential price wars on
Amazon as there are multiple sellers targeting the same set of customers.
Selling on the company website will retain its brand image as a premium e-bike
manufacturer. This image offers a certain degree of exclusivity, which is essential if the
company wants to create some differentiation about the product in the eyes of the
customers.
c) Operational Capability:
The company needs to build its capability of producing and delivering high volumes in
shorter time frames for selling on Amazon. This will be one of the points of parity which
the company will have to meet with the competitors listed on Amazon.
d) Competitors:
The company can leverage the positive feedback that they have received so far from
selling luxury bikes as one of the points of differentiation. They could leverage the
recognition to ensure that they create an edge over the competitors before launching their
new low-priced e-bike.
e) Financials:
Amazon takes a significant cut of the sale as it a pay-to-play market. There are seller fees,
listing fees, and boosting fees for putting up the products on their sites. PedalSpark
should only proceed with selling on Amazon if the thinner margins are made up by the
volumes and exposure.
To ensure a balance between high visibility, data protection, and brand image, the company
needs to come up with an approach that will incorporate parts of each option. This can
provide them with a safer strategy to reach out to the masses and gain brand recognition for
their new product as well.

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5. Proposed Recommendations

5.1. Sell new e-bikes on Amazon website only

This is a good option for PedalSpark for short-term sales strategy. As per Gideon’s
estimations, the company will sell 10,000 units on Amazon. Hence, the company’s primary
motive for targeting the masses and high sales volume will be fulfilled. Additionally, they
can leverage Amazon’s distribution system to save on costs. PedalSpark should keep its price
higher than average to maintain its brand equity as a high-end brand. It should quit anytime it
feels its brand equity is being hurt.
However, the long-term viability of this option is not good as it may face danger from
Amazon coming up with similar products under its private label. But according to Mark, e-
bikes are complex enough, and it should take Amazon some time to reproduce their design.

5.2. Sell new e-bikes on PedalSpark website only

PedalSpark should launch the new product on their own website and continue operating
there. They have built a brand name that they can leverage to obtain brand loyalty from their
customers in the long term. This will be beneficial for the company as they will be able to
retain their position as a premium product manufacturer. The company will not be able to
achieve high sales volume, but they’ll be able to earn high profitability by charging a
premium for their product.
The key point for not selling on Amazon is - “Customers are loyal to Amazon, NOT the
brands they're buying on it.”. Amazon can be a quick fix for driving fast sales growth and
cash flow. But this will not lead to long term profits nor sustained growth.

5.3. Sell the luxury e-bikes on Amazon

PedalSpark should start selling on Amazon by positioning its luxury e-bikes first. This way
they’ll start with an experiment and grow it from there. This way, there are learnings in place,
and it is introduced as a palatable option to the PedalSpark. They can offer bonuses for
shoppers willing to purchase directly from the PedalSpark website. This way, the customer
bases from Amazon will shift to PedalSparks' own, more profitable online site. Here they can
sell online for a higher margin while building a customer following. This following will be
more loyal to PedalSpark, rather than the online marketplace. Also, the company shouldn’t
rely on only one marketplace. Even though Amazon is the dominant player. Instead, they
need to nurture at least one or two others to provide PedalSpark with options. Additionally,
they need to use advanced distributed order management technology to manage order flows,
payments, order record keeping, orchestration, and routing orders for fulfilment.

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