BUSINESS LEVEL AND CORPORATE LEVEL STRATEGIES
BUSINESS LEVEL AND CORPORATE LEVEL STRATEGIES
Introduction
Amazon.com is the world leading e-commerce websites that took advantage of the internet boom in the 90’s. Through the cautious development of the company’s global strategy, it has turned into a force to reckon regarding leveraging assortment of services and products and creating customer value through affordable products. Both the corporate and business strategies employed by Amazon from its inception match the internal and external environments without which its global footprint would be thwarted. Currently, Amazon is the largest online retailer with net sales amounting to $107B and gross profits of $37.5B (Jones, 2010). This research paper discusses Amazon’s business level and corporate level strategies by assessing and evaluating their suitability.
Business level strategies refer to coordinated and shared arrangement of actions and commitment that an organization employs to acquire competitive advantage by making use of its core competencies in a market segment. Based on Porter’s theory of competitive advantage, there are three generic strategies that a company may use to drive its business level strategies. These strategies include differentiation, costing leadership, and focus. If an organization has a broad target to its competitors it may use differentiation and cost leadership; however, if the competitive scope is narrow, a company needs to employ differentiated focus or cost focus. In this regard, Amazon uses a hybrid business level strategy that enables it to combine two of the three strategies based on the sector it operates in. Conventionally, it is difficult to combine the three strategies, particularly, differentiation and cost leadership. However, cost leadership demands that an organization foregoes part of its differentiation strategies and adopt standardization of products and cutting promotional overheads. For this reason, Amazon places a strong emphasis on using innovative technologies coupled with maintaining its prices low to stay ahead of competitors. A combination of technological innovation and low cost-leadership has significantly helped Amazon increase its efficiency in the supply chain management. In particular, Kindle eBooks gives Amazon a competitive advantage because of the low-cost strategy enabling it to survive in even difficult financial times (Hill & Jones, 2012).
The second business level strategy used by Amazon is a differentiation made possible by its innovative products and at the same time maintaining prices low. For instance, Kindle eBooks, which are low-priced than the traditional market retail prices, helps Amazon stamp its authority in the market and stand tall among its competitors. Besides, providing low-cost products, Amazon prides its ability to comprehend its customers through its integrated customer review platform. The customer feedback systems keep Amazon accountable to its customers and at the same time helps it make their services and products better to the satisfaction of their customers. In essence, what helps Amazon maintain its prices lower is the fact that most of its warehouses are in rural areas, where land prices are relatively lower in relation to the industrial or urban centers where land prices often fluctuate (Jones, 2010).
I believe the low-cost leadership is the best strategy for Amazon because it gives the company edge to stay ahead of competitors and at the same command a large market share especially for Kindle eBooks.
Amazon corporate level strategies
Amazon uses the Ansoff Matrix to develop its corporate level strategies. The corporate level strategy is composed of four main tenets that include product development, diversification, market development and consolidation and market penetration. The four strategies are critical corporate level strategies for Amazon important for its long-term success.
Firstly, Amazon’s product development informs one of the pillars of its business, which led to the launch of the eBook reader Kindle accompanied by the kindle fire and tablet designed to rival its competitors such as iPad. The Kindle reader was launched in an existing market; however, its customer-centric feature and ease of functionality gave it an edge in the competitive market. Secondly, the company uses related diversification model, where strategy development is meant to transcend generations of its products and market but the company’s value network. Notably, Amazon began as an online bookstore; however, two decades later it is a retailer of all products through a novel business model. It can be argued that Amazon’s diversification has enabled it to establish a longstanding relationship with its strategic partners such as Excite, PayPal, Google, and Netscape among others. The second reason for its success in diversification can be associated with its competent application of economies of scope in the utilization of resources (Betz, 2011).
Thirdly, Amazon uses market development to venture in new market fronts especially in emerging markets. Ideally, market development has to do with selling existing products in new markets. Amazon has been achieving this by expanding its e-commerce in countries where online purchasing is thriving. For instance, in 2010, the company improved the website for buyers to pay using local currencies- a strategy that has since been emulated by its competitors Gap and Walmart. The basic reason for Amazon’s expansion into global markets was the 2008 recession, which called for the company to develop shocks to cushion itself against those uncertainties (Betz, 2012).
Finally, for the company to continue stamping authority in e-commerce, it has penetrated into the Indian market as a strategy towards maintaining its online retail shopping leadership. The launch of Junglee.com in 2012 enables consumers to the Indian market to compare online and traditional market prices before making a purchase. The market penetration in India is a good corporate strategy especially in a country that believes in building relationships as a paramount step towards successful business engagement.
Amazon’s competitive environment
Amazon is considered the largest and fastest growing multinational e-commerce platform in the United States. However, the environment for its products is robustly competitive. The greatest competitors for Amazon include physical retailers across the world, publishers, catalog retailers, distributors, producers of their products and vendors. Some of these competitors include Walmart, Barnes and Noble and eBay- companies that sell homogenous products to those sold on Amazon, have the same geographic market coverage and enjoy the similar scope of business (Hill & Jones, 2012).
In particular, Walmart is touted as the world’s leading retail store and akin to Amazon it uses cost leadership business-level strategy driven by the low-cost management of its value chain to promote its products at the lowest cost possible via physical stores and e-commerce.
On the other hand, eBay operates as the largest online auction platform mainly focusing on the provision of services. It utilizes cost leadership just like Amazon and Walmart by singularly operating its e-commerce platform as an intermediary without storing/holding any form of physical infrastructures or inventory. Besides, eBay uses product differentiation by offering the market a variety of products, e-commerce services, and high-quality security services (Betz, 2011).
Finally, Barnes and Noble are known to be the America’s leading books retailer operating both physical and online retail businesses. It closely competes with Amazon to control the book industry. In essence, Barnes and Noble currently are pursuing an integrated focused cost leadership strategy mixed with differentiation as a way of targeting price-responsive consumers. It provides customers with unavailable books at a less-costly price in comparison to its competitors (Jones, 2010).
The competitive environment analysis
Going forward to the future all the three main Amazon competitors are primarily focusing on competing to acquire formidable strategic position and eventually become leaders in physical retail trade and e-commerce. Secondly, regarding the current strategy, the competitors aim at increasing profitability, acquiring significant market share and providing a wide variety of products in the market to compete against Amazon by using competitive prices, heterogeneity of products and cost leadership. The assumption with these strategies is that the competitors have a strong believe that online buying will continue to expand as users pursue efficient and convenient shopping experiences. Despite, the competitor’s presence, Amazon has a great capability because it has an international presence with a stable financial performance, which gives it the capacity to establish global strategic alliances to leverage its customer base (Hill & Jones, 2012).
The effect of slow-cycle markets on Amazon’s competitors
During slow cycle markets, it is expected that Amazon’s competitive advantage is protected from perceived imitation of strategies, and in the case of imitation of its product, the process is extremely costly for the competitors. In this regard, Walmart would still maintain to be Amazon’s strongest competitors with little or no potential for overtaking or acquiring its market share in the short run. In essence, competitive advantages can be sustained by businesses for longer periods. Amazon has built unique online e-commerce platform, which makes it have proprietary capability over its competitors. This nature of competitive advantage makes it difficult and costly in the short run for competitors such as Walmart to imitate. Further, Amazon has patents and copyrights, which gives it capabilities and proprietary advantages. In the short run, it is expected that Amazon would inadvertently protect its patents and copyrights against infringement to enable it to continue enjoying greater profit margins for its unique business model (Betz, 2011).
The effect of fast-cycle markets on Amazon
Fast cycle markets refer to the long run situation where a company’s strategic capabilities and competitive advantages are not protected against potential imitation and are less costly to imitate. Therefore, in the fast cycle markets, Amazon may be outdone by other competitors such as Barnes and Noble, eBay and Walmart because its competitive advantages may not be sustainable in the long run. In this regard, as Amazon competes in the fast cycle markets, it must recognize the importance of speed and that the cost of delay is steep in its market position. Operating in such a high-speed market environment places considerable pressure on Amazon’s top management to make effective strategic decisions. Notably, the speed of technological diffusion and reverse engineering hastens imitation in the fast-cycle markets; it is for this reason that Amazon must act with speed in innovation and decision making. A competitor such as Walmart may use reverse engineering to quickly acquire the knowledge needed to improve or imitate Amazon’s products and services. Besides, technology in fast cycle markets diffuses faster and becomes available to competitors within a very short period. Further, the technology is non-proprietary and lacks patent protection since competing firms may have acquired it during the slow-cycle markets (Betz, 2012).
Conclusion
Amazon.com remains to have an unparalleled distribution capacity and is the market leading corporation in cloud computing services. It offers its users a unique e-commerce shopping experience. This is driven by its comprehensive business and corporate level strategy that drives its business.
References
Betz, F. (2011). Executive Strategy: Strategic management and information technology. New York: J. Wiley.
Betz, F. (2012). Strategic business models. Engineering Management Journal, 14(1), 21-28.
Hill, C. W. L., & Jones, G. R. (2012). Strategic Management. Cengage Learning. Cengage Learning.
Jones, G. R. (2010). Organizational theory, design, and change. Upper Saddle River: Pearson.
