Monday, June 22, 2015

Amazon's Negociation Case Study: The Dilema Of Putting A Fight With A Supplier

Amazon is one of the larger retailer in the world. Most importantly, it is the most dominant force in the book business. Last year, Amazon has put up a fight with a lot of its main suppliers in its negociation process: Disney, Warner, Hachette were among its largest targets. The fought consisted in mostly taking some of the products off its "shelves".

Here is the picth of the fight:
On one side you have Hachette, the fourth largest trade book publisher.  Hachette earns over 1/3 of its US sales from ebooks.  Hachette wants agency terms for its books.  Hachette wants to control the list price of its books and earn 70% list from each sale.  Smashwords announced agency terms with our retail partners in 2010.On the other side is Amazon, a fierce opponent to agency pricing.  Amazon wants the ability to discount books, and to enable greater discounting Amazon wants a larger percentage of the publisher's pie.  A story out Friday by Jeffrey Trachtenburg of the Wall Street Journal confirms Amazon is seeking to reduce the percentage paid to publishers.  Amazon is seeking to weaken or abolish the agency model.

Now that Amazon has such a size, it seems normal if it tries to leverage its power to get the best purchasing conditions possible. It seems also that it is a dominant position. But if you have a close look to the link I posted above, you can clearly see this is not that easy. Indeed, Amazon has earned its market shares thanks to its large choice, especially in books and the new products it proposes. If it decides not to cooperate with companies like the ones listed herein, they will not satisfy customers, lose sales and may help a competitor to get some revenues out of it. 

Moreover, when Amazon has new projects to propose new streaming services, it needs those leading companies to set up the best platforms and to provide great content to develop the new category. As a matter of facts, these events show well how interconnected both suppliers and retailers are, and that despite fights which occurs during specific times, both entities need to work together to get the best business.