Business Report on Amazon
Introduction
Amazon is one of the most renowned and distinguished online retailer. It is an American run e-commerce firm. They have their headquarter in Seattle, Washington. It is known as the leading company which is operating electronically through the internet. Since more than ten years, they have managed to sustain their position. They have been comparatively unaffected by the changes in the external environment.
Initially Amazon was an online website which was involved in selling books online. Later, when they started being successful, they diversified their operations to sell videos, mp3 songs, video games, apparel, jewelry, packaged food, toys and software. They are also producing some of the consumer electronics. Their products include the famous Amazon e-book readers, tablets, phones and TV. They also provide computing services to their customers.
Literature Review
According to Michael Porter (2001, pg 1), the internet is no more than a tool which can support or damage a firm’s strategic position. For effective usage of the internet, a firm must inter-relate it with its strategies and operations. Amazon has been doing this successfully since many years. They have effectively used new technological advancements and kept a consistent behavior of competitive edge over others. Its new product ‘Kindle’ is said to be its most strategic innovation. Amazon can deliver books electronically to its customers directly from the authors who have written them. They can eliminate the extra costs of publishers if they by-pass them from the distribution channel. Adebanjo (2008, pg45) emphasizes on the need and importance of having control over supply chain to dominate the market. Amazon is clearly following this and is heading towards the motive of having total control over their distributors and suppliers.
In order to boost the speed and trustworthiness of timely delivery, Amazon decided to establish their own warehouses. They are seeking ways by which they can add value to their activities and sales (Amit & Zott, 2001). Recently, Amazon has adopted a more lenient method that is also acting as an opportunity for other sellers that offer other goods and services for sale besides their own. This enables them to offer much cheaper prices than their suppliers on goods which they sell. After in-depth research and analysis of these markets, it has been concluded that to serve customers in a large volume, there may either be disintermediation or reinter mediation.
As Krishnamurthy (2006,pg52) suggest that Amazon should take help of other most up-to-date technologies like social networking sites and mobile computing. Amazon is now quite active from this perspective as well. They have created applications on Facebook. These applications allow users to maintain a wish list which can be shares by friends and family members. In this way, they are using the best resources of internet for capitalizing on Web 2.0.
A marketing strategy of Amazon has been taken over by a large range of products to its customers. This strategy may also lead to a huge challenge for deigning the overall website. The company which is offering its products and services should be able to sell a wide variety of products from different categories. But at the same time, Amazon also has to face a huge disadvantage. In physically existing brick-and-mortar retail stores, a customer is visually guided by knowing where the item is located. For this purpose, Amazon uses simple text to direct its customers about different departments. To find a desired product, the person has to hunt for it by determining which department it belongs to. Unfortunately, if the customer ends up in the wrong department by mistake, he shall have to start finding it once again. No such issue exists when customer is buying something online. The Amazon website is quite user-friendly and it has a search bar displayed on the top right corner. Although, a customer may not always come across the right product instantly, but still it will consumer very less time and reduce costs of searching. Its search function finds books by the same author, title or ISBN (Landau, 2012)
It has been mentioned above that in e-commerce the empowering customers are very important. Customers can chose between a numbers of website options. Customers should be given accurate and timely updates so the customer retention is high. Those websites which provide its customers of the option of comparing products are the most desired ones. Amazon has also stepped into this aspect by utilizing its reseller platform. They are offering space for resellers on their main website. This is a marvelous advantage to many small scaled businesses that they can get the chance to sell through a proper source of communication. Amazon gets two way advantages by this. They can make a profit when its reseller sells something or by holding prospective customers by attracting them towards their website (Landau, 2012)
There are three essential pillars which may affect the customer experience with any business firm. Amazon also has a customer service philosophy involving three core elements such as low prices, fast delivery and immense variety to select from. According to the management, these needs are not going to change rapidly. They believe that a good reputation for selling anything at the lowest market price and prompt timely delivery is to repeatedly order through the online website. This is why they intend to attain a profit margin with personal items that shall permit them to make profits.
Amazon has a clearly set strategy regarding its customer services. They want to sell their products at low prices while relying solely on large sales volume generation. If a company expects to have huge sales volumes, then they will need to have a vast variety of options for selections. Brynojolfesson et al (2006, pg 68) enlighten upon the fact that customers have a huge variance in their preferences regarding their needs and wants being fulfilled by a physically present store. Other competitors like Wal-mart, Tesco and Toys’r’us have the extra ability of attracting customers by offering them safe parking, convenient shop timings and easy to access locations. On the contrary, Amazon has to magnetize their potential customers to their website by offering timely delivery, secure payment methods and accurate order taking. It is also necessary that they should be using a good delivery system as it helps in the formation of Amazon’s strategic position, selection, price and convenience.
Analysis/Discussions
Amazon has verified its total revenue to be of $16billion during the first two quarters of 2014. It is said to be 22% higher than the total revenue earned by the company in 2013. Amazon was able to achieve this boom in its revenues due to an intentional penetration in the existing customer markets and by attaining a huge market share from their competitors. This has helped them to achieve a higher profit margin of 24.7%. An increase in sales and efficient operational services has helped them to maintain their profitability. Their operational margin has been consistent over the months at almost 4.7%. This means that they have managed to maintain the quality of work in their operations.
Based on their previous operational performance, their total revenue for the last quarter on 2104 has been estimated to be of $9 billion. This means that their total revenue for the year 2014 will be of $25 billion.
The inventory turnover of Amazon has become better than before. It was previously 11.7% in 2013 but now it is 13.2% in 2014. Similarly, the asset turnover has also shown improvements from 2.81 to 2.94. This shows that the management is paying attention to the improvement of efficiency in inventory and asset management.
Amazon generates financial funds from their operations and cash which are received from their customers, retailers and suppliers. The marketable securities and cash equivalents were about $4.1 billion in 2013 (Palepu & Healy, 2007)
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SWOT Analysis
The SWOT analysis of the Amazon is given below (Pandaya & Arenyeka, 2002)
Strengths
Amazon has the competitive edge of being the largest online retailer in the e-commerce industry. It has a strong brand image in its customers’ minds. It is quite well known and commonly assumed as a trustworthy, reputable online store. It is now a huge international brand because it was one of the first ones to enter into the online retailing business. Now, it has gradually been successful in attaining a huge market share. It has developed a strong customer base of above 32 million people all over the world. They have always been using latest marketing techniques and effective sales promotions. This is the reason why they have a positive cash flow. Amazon has a good reputation of its financial performance so people are willing to invest in its shares as well. Besides this, they have a diversified consumer base in different geographical locations.
Weaknesses
Amazon has a moderate credit rating among its competitors. They have a weak economic condition so there’s a chance that it might lead to reduced sales. Besides this, as it is an online retailing store, it has no physical brick-and-mortar presence. Due to this, it has to face increased costs for promotion and advertisements.
Opportunities
Amazon has an opportunity to expand its operations by extending their product line into diverisified areas. They can even do so by partnering with Google or by acquiring some other online retail business. They can even expand geographically by extending their operations in China, India, Pakistan and other developing markets.
Threats
Amazon may face intimidation from the external environment. There may be an unexpected change in legal regulations and requirements. There can also be some change in the currency exchange rate. This shall affect the profitability and sales of Amazon. Similarly, it will be influenced if there are any international issued going on. This may be in the form of tariffs and trade, exchange rate changes in currency, instability of political governments, increased taxes and long payment schedules.
Porter’s Five Forces Model
According to the Porter’s model, there are five external forces which are to be considered for competitive analysis. These are discussed below briefly in case on Amazon (Wit & Meyer, 2005)
Threat of New Entrants
Amazon has to face the threat of lower cost of setting up a bookstore on the internet. As it initially started off as a book retail seller, it is easy for any competitor to enter the competition if they have the right knowledge and sufficient resources. A new entry in the market can also establish a website which has a similar outlook like of Amazon’s website. So, this means that the threat of new entrants is high (Landau, 2012)
Bargaining Power of Suppliers
Amazon buys few electronic products from major distributors like Sony and Panasonic. Due to this, the bargaining power of suppliers is quite high in e-commerce sector. But in the Amazon’s online store, the bargaining power of suppliers is moderate and relatively medium. This is due to the reason that Amazon is dependent on its publishers for supply.
Bargaining Power of Buyers
The power of buyer is really high for Amazon because the customers purchase the product through internet and they have a large number of other options to chose from. There are no switching costs involved and a buyer competition also exists.
Rivals within Industry
There are a number of book lovers in the world. To serve their needs, there are a number of competitors in the book business. Book stores which are already established with a brick-and-mortar presence have a wide range of customers. They have an edge for entering the online e-commerce industry. This means there is a very high chance of industry rivalry. Amazon is also facing extreme rivalry from its online music store. When Amazon entered into the online music market, it forced CD-Now to plan their operations effectively. Now currently, CD-Now has more lead because they are much more established and have stronger brand recognition as compared to Amazon itself (Landau, 2012)
Threat of Product Substitution
Some customers may hesitate to buy books online. Many book lovers have a guilty pleasure of going through books, enjoying the fresh and crisp pages and doing books shopping for them. A physical book store with a well-recognized brand name will attract more book buyers. A competitor who is offering better services and prices will have the potential to offer a substitution to Amazon customers (Landau, 2012)
PESTEL Analysis
PEST refers to the Political, Economic, Social, Technological, Environmental and Legal aspects. It is an analysis which is done in order to have a better understanding about the market growth or decline. It is a tool of measurement which is commonly used in case of business environments. It is used for the purpose of assessing the potential, direction and position of a business. It is most effective to use this tool in market planning, product developments and strategic planning (Teece, 2010)
Political
Amazon is currently operational in Denmark, France and UK. This was only made possible by the positive response and cooperation of those governments. It would have been difficult to do so if there were any political disturbances or heavy taxations imposed by the governments of these countries.
Economical
Amazon has followed the ideal strategy of offering its products to customers al over the worlds as per their economy. It refers to the currency value or exchange rated in different countries all over the world. It is also catering to customers of developing countries.
Social
It refers to the changes in culture and diversified backgrounds of customers. It also includes the demographics of potential customer base.
Technological
It involves the rapid innovations, nanotechnology, speedy internet browsing, secure software and other applications.
Environmental
It involves issues related to environmental hazards such as pollution and waste dumping.
Legal
It may involve any legal implications or constraints such as regulations regarding mergers and acquisitions or any amendments in health legislations.
Conclusion
Success or failure of any business firm depends upon what strategy do they adopt. Amazon had to face many problems when it started its online presence as a bookstore. Now, it has been successful in gaining momentum. There long term commitment is to diversify its popularity to each and every potential customer in the whole world. With the help of latest information and updated innovative technologies, it is now easier for Amazon to become the market leader in the online retailing industry.
References
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(Wit & Meyer, 2005)
