Homework 1 Solutions

Problem 1.8 a 1.8 b 1.14 a 1.14 b 1.14 c 1.15 11.10 a 11.10 b Amazon 1 Amazon 2 Amazon 3 Amazon 4 7.9 a 7.9 b 7.11 Matthew 1 Matthew 2 Total

Points 2 2 2 2 2 4 3 2 3 2 2 2 2 2 4 2 2 40

Answer to 1.14(c) is included in (a) and (b)

AMAZON.COM 1. Some of the opportunities and disadvantages of selling books over the Internet are summarized here: Factor Revenue Impact Increase Causes  Convenience  Large variety of books  Customer-specific recommendations  Distributor margins  Downward price pressure  Inability to browse  Aggregation (major benefit is for low-volume books)  No retail outlets, only warehouses  No cashiers required  Each customer order is picked and packed  Higher outbound transportation costs  Instant knowledge of customer preferences and tastes  Track customer history (purchases) and make recommendations to the customer

Decrease

Inventory cost Facility costs

Decrease Decrease Increase

Transportation cost Increase Forecasting Customer Understanding Added Improved

2. The benefits of using the Internet for book sales are significantly larger now that books can be downloaded online. Amazon is able to ship some products over the Internet, saving the final shipping cost but changing the nature of its business. Amazon will be software intensive rather than book and warehouse intensive. 3. Other downloadable products are software and music. In both instances, Amazon increases the benefits of e-commerce if it either creates CDs or DVDs in response to customer orders or allows customers to download these products. For other products, like toys and hand tools, limited possibilities exist for postponement. The advantages of the Internet for Amazon in those product categories will continue to be smaller compared to physical retail outlets.

4. The Internet can bring several advantages to traditional bookstore chains:
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Going online allows a bookstore chain to offer the same convenience and variety as its existing operation and at the same time exploit the advantages of e-commerce. Chains can structure themselves so retail outlets carry many copies of best sellers for customers and few copies of low-volume books to encourage customers to browse and make impulse purchases. Terminals or Internet kiosks can be available so customers can order any low-volume book online. This allows the aggregation of low-volume