Procter & Gamble (P & G) makes and sells all
sorts of essential goods that we don’t necessarily talk about so much: diapers,
paper towels, toilet paper, laundry detergent, cleaning liquids. Some of these goods
are heavy and bulky, and there are probably some parents who wish they had not
needed to carry all the diapers back home from the store. Well, now Amazon is
there to help: they can deliver these goods, in fact as subscriptions that arrive regularly. Now this
seems a bit odd because these products are cheap to buy and expensive to ship,
at least compared to books and other Amazon goods, but Amazon do mean to profit
from it.
Part of the ambition comes from how they do it. Now
there are little Amazon centers in some P & G warehouses, and these pack
and ship goods directly from the warehouse instead of having it sent to the
Amazon warehouse. The cost savings are obvious. And, this is not just P &
G; Amazon is said to be pursuing similar arrangement with other manufacturers
too.
What will these alliances do to the market? The complementarity
between Amazon and P & G in this arrangement will make them stronger than
other firms trying to sell similar goods online; that is the easy part. It is
likely that other firms will be either inspired or threatened enough to try the
same strategic move. Interestingly enough, I found in research published in Strategic Management Journal that even strong competitive moves are not
necessarily imitated fast. That research was about technologies that gave major advantages, but the results are likely to be similar for new alliance types. There are enough doubts about their value and too little
information about how they are done, making other firms reluctant to move.
But to the extent that other firms will try to get
the same benefits, the competition is likely to make things harder for the
small firm and the late firm. P & G are happy to have Amazon in their
warehouse, but how many additional alliance partners do they need? Amazon is
happy to have P & G goods for sale, but how many brands of diapers and toilet
paper do they need? The low need for replicating this arrangement with others
will reduce competition, especially because people are more likely to use the
web services that they already use for other goods. This will mean that many
firms on both the producer and the web sales side will be left out in a game
where the big firms win. And that’s probably fine with the big firms P & G
and Amazon.
Ng, Serena. 2013. Soap Opera: Amazon Moves in With
P&G. Wall Street Journal, October 14, 2013.
