Targeting 25-34 Year-Olds

A strategic marketing proposal for Amazon.com Kindle e-

books business







Yuko Ueki
March 16, 2011
Marketing 5115


1

Targeting 25-34 Year-Olds:
A Strategic Marketing Proposal

Summary.....2
Market Environment.2
Needs and characteristics of current e-book customer base
Amazon Kindle customer value creation

Target Customer Segment: 25-34 Demographic.....3
Targeted Value Proposition.4
Marketing Resource Investments5
Customer Equity Growth Potential.6
Table 1: Key estimated values for customer equity
Table 2: Current versus projected customer lifetime value (CLV)
Table 3: Current versus projected customer equity (CE)

Additional Figures7
Figure 1: SWOT Diagram
Figure 2: E-Book Market Share
Figure 3: E-Book Adoption Process
Figure 4: 5 Cs of Amazon Kindle
Figure 5: 4Ps (Product, Price, Place, Promotion) Diagram
Figure 6: Projected Customer Equity Growth

Appendix.10
Exhibit 1: 25-34 Age Group Population
Exhibit 2: Internet Use Among Age Groups
Exhibit 3: Top Sites for Acquiring E-books
Exhibit 4: Device Ownership Among U.S. Adults
Exhibit 5: Amazon.com 4Q 2010 Financial Statement
Exhibit 6: Kindle Advertisement on Amazon.com
Exhibit 7: Free Kindle Reading Apps Advertisement on Amazon.com
Exhibit 8: Google Adwords Ad
Exhibit 9: Advertising on Yahoo!
Exhibit 10: Amazon N. American Book Sales by Distribution Channel, 2008E-2015E
Exhibit 11: How much Amazon spent on advertising in 2009

Glossary of Terms.16
2

Summary
Based on what we know about the e-book market environment, the current competencies of
Amazon.com and the targeted customer segment, a value proposition that would attract the 25-34 year-
old demographic is best positioned through a mix of online advertising initiatives and increasing e-book
offerings. The value in implementing this promotion- and product-focused marketing strategy is to attain
a projected customer equity growth of $83,720,369 for Amazons e-books market segment by the year
2015.
E-Book Market Environment
Early adopters currently reign in the infantile e-book market (see
figure 3). However, e-books are gaining momentum, particularly in the last
two years. Based on industry research findings by Mintel, between 2008 and
2009, e-book sales jumped 366%.
1
Rapid growth rates in e-book sales are
largely attributed to widespread emergence and consumer adoption of e-
reader devices. Moreover, new application developments, such as the Kindle
app, enable e-book reading and sync-ability across a wide range of platforms
such as mobile phones, PCs, and tablets (see exhibit 7).
Amazon.coms share of the e-book market hovers between 60-70%.
While consumer awareness over e-books continues to grow, Amazon faces
increasing competition from new entrants to the market. Key competitors
include Apple iBooks and Barnes & Noble Nook. Apple claims to have a 22%
market share, while Barnes & Nobles share of the market lies in the 20-25% range. In the face of
competition, Amazon focuses on two major points of difference to sway consumers: 1) evoking an e-
commerce powerhouse brand imagery association and 2) reinforcing strength in deliverability.
Expanding on the notion to differentiate, Amazon uses the e-commerce category as a point of parity to
establish a we are the frame of reference
2
message to its customers when they think of buying books
(or anything) online.
The business model Amazons e-book content market is based on is the agency model in
which third party publishers determine the price of the e-books that are sold through Amazons Kindle
store.
3
In this sense, Amazon has little control over the actual price of the content it sells through the
Kindle store. To encourage e-book adoption on the readership side, Amazon created the Kindle platform
which offers a free application for users to retrieve their libraries anywhere. The Kindle app also enables
customers to sync and read their e-books across multiple devices. Amazon also seeks to attract new
readers by increasing the size of its inventory; the company currently has more than 850,000 titles
available in its Kindle store.
Needs and characteristics current e-book customer base:
A new generation of readers who prefer digital over paper books.
52% of e-book buyers in first period of 2009 between ages 18 and 34.

1
Mintel International Group, Book Retailing US March 2010, p. 22.
2
Kevin Keller, et al., Three Questions You Need to Ask About Your Brand, (Harvard Business Review: September
2002), p. 85.
3
Geoffrey Manne An update on the evolving e-book market: Kindle edition, (March 2011)
http://techliberation.com/2011/03/01/an-update-on-the-evolving-e-book-market-kindle-edition-pun-intended/

Books and magazines one
of the fastest growing e-
commerce sectors in the U.S.
posted 17% annual growth
from 2008 to 2010.
3

Men accounted for 55% of e-book purchases in 1Q 2009
4

Owners of smart phones, PDAs and e-readers who want to read on the move.
Professional and business people who want to keep texts and reading materials on their PCs.
Students, academics and researchers who want the capability to search hundreds of pages of a
book in seconds.
People who cannot wait a few days for physical delivery.
Amazon Kindle customer value creation:
Amazon Kindle Feature

Customer Value Proposition
Device and platform compatibility Ability to download once and read everywhere.
One-click shopping Fast, hassle-free way to purchase an e-book.

Instant download Receive e-book in less than 60 seconds. No shipping
charges.

Free content Hundreds of classics for free; enables customers to
experience e-book reading for free
Samples Instantly view a free 1-40 page sample of the e-book.

Large selection, most priced $9.99 or
less; Average subscription is $1 -2.00

Online shoppers seek large selection, bargains and
lowest prices.
Storage system Books are stored in the cloud, retrievable at any time,

Target Customer Segment: 25-34 year-olds who use 6+ hours of internet
on daily basis
The population of 25-34 year-olds is expected to accelerate rapidly over the next ten years. We
believe that targeting this segment today will help Amazon reap benefits in the near future. The 25-34
age group is dominated by Generation Y, also known as the Millennials, with a sliver of early Generation
X individuals. A recent study carried out by the Pew Research Center portrayed the Millennial
generation as confident, connected, and open to change.
5
The population of 25-34 year-olds in the
U.S. is forecast to increase from 38.7 million in 2010 to over 41 million in 2015.
6


4
Jim Milliot, Among the findings: Amazon now the largest outlet for books; men are driving e-book sales, (July
2009) http://www.publishersweekly.com/pw/print/20090720/2492-new-report-examines-book-market-buyers-
.html
5
Millennials: A Portrait of Generation Next (February 2010)
http://pewsocialtrends.org/files/2010/10/millennials-confident-connected-open-to-change.pdf
6
Tapping the 25-34-Year-Old Consumerhttp://www.icsc.org/srch/rsrch/researchquarterly/winter0304/25-34.pdf
4

The majority of 25 to 34 year-olds are internet users. They are technology-savvy singles and
childless couples who play a significant role in e-commerce. Not only are 25-34 year-olds the most likely
to shop online, they also make online purchases more frequently than other age brackets. Moreover,
25-34 year-olds are more likely to use mobile commerce applications, such as using their smartphones
to browse and make purchases through the Amazon Kindle mobile store app. 25-34 year-olds also like to
use price comparison websites, particularly males in this age group.
Amazon.com is in itself a shopping comparison website, which translates as a useful brand
recognition tool for attracting 25-34 year old males to the website. Amazon.com is a well perceived
brand in e-commerce and has a relatively strong penetration rate in the online retail sphere
among the Millennial generation. In a March 2010 Mintel survey of over 1,400 individuals,
approximately 52% of 25-34 year-olds reported making a purchase from Amazon.com in the
previous month.
52% of e-book buyers in the first period of 2009 were between the ages of 18 and 34.
7

According to a comScore survey, 25-34 year-olds are also the most likely to pay for digital
magazines and newspapers specially formatted for e-readers.
8

Key characteristics of 25-34 year-old consumers:
Tend to have more consumer confidence
Average consumer confidence level is 4.99 with 2.05 average purchase propensity level
Have more disposable income and hence, shop more
Convenience & price are most important drivers of online purchases
Other factors: fast and easy-to-navigate checkout procedures, price comparisons, and free
shipping offers
25-34s commonly purchase books online at site like Amazon because they carry rare titles
that are difficult to find at an actual store
Targeted Value Proposition: Advertise to Attract 25-34 Year-Olds
The marketing strategy proposed for Amazon.coms e-book market segment is increase
promotion and product strategies to attract and retain customers in the target demographic: 25-34 year-
olds in the U.S. who spend 6 or more hours on the internet daily. The timeframe to implement the
proposed strategy is 5 years.
Based on this strategy to attract and retain 25-34 year-old customers, major indicators to look
for include positive movement across two dimensions:
1) Increase in penetration rate of 25-34 year-olds who use 6+ hours of internet daily;
2) Increase in retention rate of 25-34 year-olds who purchase e-books and e-subscriptions through
the Amazon Kindle store.

7
http://www.publishersweekly.com/pw/print/20090720/2492-new-report-examines-book-market-buyers-.html
8
http://www.comscore.com/Press_Events/Press_Releases/2010/3/comScore_Releases_Results_of_Study_on_App
le_iPad/%28language%29/eng-US
53%
53% of 25-34 year-olds read
books as a leisure activity.
5

Marketing Resource Investments
Amazon should implement the proposed strategy by focusing on promotion and product. Online
advertising is becoming increasingly important as 25-34s are spending more hours on the internet.
Increasing e-book and e-subscription inventory levels as well as increasing the number of hard-to-find
titles in the Kindle store are two points of parity Amazon can apply to gain an edge over its direct
competitors.
Promotion: Focus on keyword search advertising and display ads on price
comparison websites
According to a Mintel study, 25-34s are the most likely to click on any type of online
advertisement.
9
Online advertising should be the focus of implementing the proposed strategy to attract
customers from the targeted 25-34 demographic. While keyword search ads are limited to a few lines of
text, they are powerful advertising tools for lead generation and branding. Search ads, such as Google
Adwords, can target specific segments and customers with specific needs (see exhibit 8).
It is important for Amazon to integrate interactive features in their advertising. The goal is to
create engaging pull ads that beckon users to click on them. For example, Amazon could feature more
campaigns such as the fall 2010 online contest for users to submit the best Kindle advertisement. This
was a great way to increase public awareness of the Kindle while driving traffic to their website.
A major competitive advantage for Amazon is the option of advertising directly on the
companys website. In June 2010, Amazon.com received approximately 223 million unique visitors. 25-
34 year-old internet users visiting Amazon.com to browse products or compare prices will automatically
be exposed to Kindle display advertisements when visiting the site.

Costs of Promotion:
Marketing costs 2.8% of Amazons net sales. Amazon spent an average of $43 million on
advertising in 2009 (see exhibit 11). In June 2010, Amazon spent approximately $5.85 million on Google
keyword search advertising.
10
According to the American Association of Advertising Agencies, cost
considerations to keep in mind when it comes to digital advertising include:
Additional and ongoing costs due to dynamic nature of online advertising, which is subject to change
frequently.
Can be labor intensive as campaigns must be executed across a wide range of digital media
Operational expenses when hiring new staff with different skills sets
Product: Increase e-book inventory and e-subscription offerings
Increasing inventory levels will not only draw-in customers who are looking for products
competitors lack, it will also lock-in customers who want to avoid the switching costs of using multiple
stores to buy e-books. Similar to Apple iTunes customers, Amazon customers can develop and store
their entire e-book library using the Kindle platform. A large offering of products compounded by the
easy-to-navigate experience and one-click shopping feature of the Kindle store provide irresistible
value for 25-34 year old customers.

9
Mintel International Group, Attitudes to Internet and New Media Marketing US October 2010, p. 28.
10
Heres How Much Big Companies Spend Advertising on Google Search, (Sept. 2010)
http://www.businessinsider.com/big-companies-spend-on-google-search-2010-9
6

Customer Equity Growth Potential
Assuming a 5.9% growth in the total number of 25-34 year-olds who use 6+ hours of internet
daily; if penetration rate increases by 28% and retention rate increases by 6%, Amazon should expect to
see a growth in customer equity of approximately $83.7 million in 2015. See the tables below.
Key Estimated Values
Now (2010) Future (2015)
N
(Number of 25-34 year olds in the U.S. who use internet
for 6+ hours daily)
U.S. 25-34 year-old
population in 2010 =
38.9 million; in 2015 =
41.2 million
11

% of U.S. 25-34 year-olds
using 6+ hours of internet
daily = 53%
12


20,617,000 21,836,000
PR (Penetration Rate)
52% (see appendix chart ___
for more details)
80%
AMPC
(Annual Margin Per Customer - based on avg. #
of books purchased at $9.99 annually)
Assuming 5 books
purchased each year

5(9.99) x 5.1%
13
= $2.55
Assuming 5 books
purchased each year

5(9.99) x 5.1% = $2.55
RR (Retention Rate) 80% 86%
i (Discount Rate)
(assume industry standard)
12% 12%

Customer Lifetime Value (CLV)

2010 CLV $7.98
2015 CLV $9.69
2010-15 CLV Growth $1.71

Customer Equity (CE)

2010 Baseline Customer Equity $85,552,303
2015 Projected Customer Equity $169,272,672
2010-15 Customer Equity Growth $83,720,369

11
According to U.S. Census numbers, summary at
http://www.icsc.org/srch/rsrch/researchquarterly/winter0304/25-34.pdf
12
According to poll of 539 random users at http://www.makeuseof.com/tag/poll-long-spend-internet-day/
13
Operating margin derived from 2010 Amazon.com income statements http://phx.corporate-
ir.net/External.File?item=UGFyZW50SUQ9NDExMzM4fENoaWxkSUQ9NDIxNzkxfFR5cGU9MQ==&t=1
7

Figure 1: Amazon e-books SWOT diagram
Established reputation as leading
online retailer
Early entrance to e-book market
Ease of use, 1-click shopping
Instant delivery
Compatibility with other devices
Large selection (over 850,000 titles
available) and cheap prices
Uses AZW e-book format
Not compatible with library e-book
formats
E-book market still in early
adoption phase
Based on agency model (i.e.
publishers define e-book prices)
Attract e-commerce customers in the
25-34 year-old age bracket
Target 25-34 year-olds who spend
6+ hours on internet daily
Target 25-34 travelers and
commuters
Use Kindle platform to create a
lock-in system among buyers
Weaknesses
Opportunities
Growing number of competitors:
Barnes&Noble Nook store
Apple iBooks store
E-Books.com
Google eBookstore
Free pirated e-books
Threats
Strengths

Figure 2: E-Book Market Share

60%
20%
20%
E-Book Market Share
Amazon.com Kindle Apple iBooks Barnes & Noble Nook
8

Figure 3: E-Book Adoption Process
Laggards
Late
Majority
Early
Majority
25-34 year olds, mostly
male internet users
Early Adopters
8% of U.S. population
read e-books
E-book market is
currently in this phase
Innovators
45-55 and 65+ age
range
People with vision and
arthritis problems
"The Chasm"
Cross the chasm by
capturing 25-34
demographic
E-Book Adoption Process



Late 1990s to
early 2000s


By end of 2015
Figure 4: 5 Cs of Amazon Kindle
5Cs
of
Amazon Kindle
Customers
Internet-saavy consumers who
like to compare prices
Desire large selection and low
prices
Want fast and free shipping
Complementors
Publishers, content providers
News sites that publish stories on Amazon
Amazon customers, product reviewers
Search Engines
e-book device makers/providers
Competencies
The Amazon network
Strong brand awareness
High internet traffic with thousands of unique visitors daily
Fulfillment services
Cloud computing allows complementors to use as much or as
little storage capacity as required without paying overheads or
management costs
Large selection
Price comparison shopping
Competitors
Other e-book content providers
(i.e. Barnes&Noble, Apple iBooks,
ebooks.com)
Pirated e-books
Other leisure activities
Changing Context
Increasing number of
competitors
Mobile e-commerce
applications growing
source of revenue stream
More people participating
in e-commerce

9


Figure 5: 4Ps (Product, Price, Place and Promotion) Diagram
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Figure 6: Projected Customer Equity Growth

$85,552,303
$169,272,672
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
$180,000,000
2010 Baseline Customer Equity 2015 Projected Customer Equity
Projected Customer Equity Growth
10

Appendix
Exhibit 1:
Source: http://www.icsc.org/srch/rsrch/researchquarterly/winter0304/25-34.pdf

Exhibit 2: Internet Use

Source: http://pewsocialtrends.org/files/2010/10/millennials-confident-
connected-open-to-change.pdf
11


Exhibit 3: Top sites for acquiring e-books

Source: Consumers show growing satisfaction with e-Books, Publishers Weekly, 257 (15): 5, April 12, 2010.
ISSN: 0000-0019
Exhibit 4: Device ownership among U.S. adults

Source: http://pewinternet.org/Reports/2011/Generations-and-gadgets/Overview.aspx
12

Exhibit 5: Amazon.com 4Q 2010 Financial Statement

Source: Amazon.com Quarterly Statements http://phx.corporate-
ir.net/External.File?item=UGFyZW50SUQ9NDExMzM4fENoaWxkSUQ9NDIxNzkxfFR5cGU9MQ==&t=1
13

Exhibit 6: Kindle Advertisement on Amazon.com

Exhibit 7: Free Kindle Reading Apps Advertisement on Amazon.com

Exhibit 8: Google Adwords Ad

14

Exhibit 9: Keyword Search Advertising on Yahoo!


Exhibit 10: Amazon N. American Book Sales by Distribution Channel, 2008E-
2015E

Source: http://www.businessinsider.com/amazon-is-about-to-lose-its-death-grip-on-e-books-but-its-not-a-big-
deal-2010-2#despite-the-slip-in-share-the-total-sales-continue-growing-giving-amazon-a-75-cagr-8
15

Exhibit 11: How much Amazon spent on advertising in 2009

Source: http://www.businessinsider.com/chart-of-the-day-ad-spending-for-tech-companies-2010-5







16


Glossary
14

Amazon Kindle
A software, hardware and network platform developed by Amazon.com
that uses wireless connectivity to enable users to shop for, download,
browse, and read e-books, newspapers, magazines, blogs, and other
digital media.
Barnes & Noble Nook An electronic-book reader developed by Barnes & Noble.
Electronic Book (e-book)
A text and image-based publication in digital form produced on,
published by, and readable on computers or other digital devices.
Generation X The generation born between 1965 and 1976.
iBooks
E-book application by Apple Inc. Primarily recieves content in the ePub
format.
Millennials
(Also known as Gneration Y or Echo Boomers.) The generation born
between 1977 and 1994.


14
Most definitions retried from Wikipedia.org