Strengths
4
Supporting business with technology
4
Shipping costs
4
Customer’s knowledge
4
Website infrastructure
5
Inventory turnover
5
Wider Product range
5
Geographical Presence in Key markets
6
Weaknesses
6
Delivery delays
6
Excessive Product Launch
6
Free Shipping
6
Resource Based View
7
Financial Analysis
8
Value Chain
8
External Environment analysis
8
Substitute threat
9
New entry threat
9
Competitive Rivalry
9
Following approach
9
Business models
9
Porters Five Forces
11
Competitive analysis
17
References
19
Q-
Critically discuss the strengths and weaknesses of Amazon.com’s strategy.
Strengths
Being the number one retailer of books in the market, Amazon.com has successfully developed its business strategy that has undoubtedly brought a lot of success. With time, the company keeps on bringing changes in its strategies and offers. The main strengths of Amazon.com’s strategy are as follow:
Supporting business with technology
With the arrival of technology, Amazon.com has always been aware of technology requirements. The company had investing millions of dollars in integrating the technology. One-click buying, tabs, websites customization and personalization has always greeted the customers. Such applications have brought a lot of customers as well as increasing the sales of the company as customers are becoming more technology oriented and require customization and ease of use. This work is supported in the research of DePamphilis (2012).
Shipping costs
The only factor that could have affected the company’s sales was the shipping cost. Sophisticated logistics systems have helped Amazon.com to reduce its shipping costs and that’s what gave a boost to its sales. The free shipping has also given a competitive advantage to Amazon.com however; this can also become a challenge for the company in the future.
Customer’s knowledge
Amazon.com has always welcomed customer feedback. The company is always aware of its geographical locations and the type of customers. With the use of Customer Relationship Management, the company keeps a record of selling habits and trends of the customers. For example, according to research, the sale increases in the period of holidays. This information is supported by the work of Mennen (2006).
Website infrastructure
Amazon.com has always emphasized on easy use of the website. Customer never felt any type of hesitation while using the website. It is easy to customize the web page by personalizing. Customers can make purchase with the help of one click only. The company has also created separate websites with different web addresses for different countries. This information is supported by the work of Mennen (2006).
Inventory turnover
The company’s inventory turnover has been above average. Even in the bad economic conditions, Amazon has been able to keep a 34 day inventory. This is equal to 10 times a year. This phenomenal inventory turnover has helped the company to make adjustments in the different product trends and seasonal products as well without storing a huge amount of excess inventory.
Wider Product range
In the earlier years, the company was offering only books for sale. On later stages, the company recognized the needs of offer a wider range of products as its competitors were offering almost everything for sale. With the passage of time, Amazon.com offered other products like electronic items and home renovation products. Currently, the company is offering almost 41 products to its customer. This work is based upon the research done by Mennen (2006).
Geographical Presence in Key markets
Amazon.com is operating in different international markets with different websites. Amazon.co.uk, amazon.cn, amazon.co.jp, amazon.fr and amazon.de are the websites which are designed for specific countries to focus specific customers in single geographic location.
Weaknesses
Delivery delays
Customers sometimes face delays in delivery of the products while ordering online. There are certain reasons for that. Bulk of orders and delay from the shipping or transporting company are the big reasons for such delays. Amazon.com on its own behalf can’t control the problem.
Excessive Product Launch
Adding more and more product categories might be damaging for the company. Customer may get confuse if the company offer excessive products. For example Toy-R-Us is a top retailer of games and toys and Amazon.com is number one book retailer, if Toy-R-Us starts selling books as well. This can become very confusing for the customer and threatening for Amazon.com. Views presented here are taken from the work of Mennen (2006).
Free Shipping
Company has to use a lot of resources and pay the cost of offering free shipping to the customers. Free shipping is eroding the profits of the company to a larger extent. The company needs to revise its free shipping policy.
Q-2
Provide an analysis of Amazon.com external environment and an internal analysis of the company’s resources and capabilities.
Amazon uses three tools for its internal analysis which include:
Resource Based View
Value Chain
Financial Analysis
Resource Based View
The resources based view helps Amazon.com to allocate the investments in resources in order to maintain a competitive advantage. There are rare and valuable resources which are in right places and the firm might have a long-term advantage. Amazon.com has identified the capabilities and resources and allocated them in the following ways:
Effective Customer Relationship System
Organized retailing technologies
Personalization of website for the customers
New products
State of art warehousing
These concepts have been taken from the website Strategic Keys (2012).
Financial Analysis
Amazon makes the reviews at the macro level:
Retained profits and Revenue
Overtime sales cost to Revenue
The research done by Strategic Keys (2009) has shown that the net sales of Amazon are always growing; increase in incomes and the costs of goods continue to decrease. The company keeps on investing in initiatives which can give a competitive advantage on long term bases.
Value Chain
Amazon has developed a Value chain for its internal operations to maintain a competitive advantage. The Value Chain model of “Competitive Advantage” of Michael Porter is been used.
According to the word presented in Strategic Keys (2012), from the perspective of value chain, Amazon has the following competitive advantages:
Fast and easy system for payments
On demand print
Round the clock operations
30 days free return
Effective forecasting system for products
Technological infrastructure and investments
External Environment analysis
A change in external environment for any organization will also affects the organizational operations.
Substitute threat
Amazon has always faced a competition from its rivals like Banes and Nobles and Wall Mart etc. in this regard, Amazon realized that the price factor could make a difference. Amazon.com is offering good quality products with quick delivery at reasonable rates.
New entry threat
The new entry threat depends upon the heights of barriers set by the existing companies. There are fewer chances of incumbents if the barriers are higher. Amazon has strong links with its distribution channels. Amazon has the distribution channel based upon E-commerce which has served the purpose.
Competitive Rivalry
Wall Mart and Ebay are the best rivals of Amazon. This has also lead to offer high quality products to the customers. In this regard, Amazon has allocated the prices according to the regions with the increase in volumes.
Following approach
In the comparison of Followers Vs Innovators, Amazon has chosen to be follower. It started selling books in 1995. In 1999, the company starts serving for the Silicon Valley, California. The computer literacy and the technology of the Silicon Valley were followed by Amazon.
Business models
In the value network, Amazon has always built relationships with others on the basis of the information processing capabilities. The company has developed different business models like Electronic process and business view extension.
Q-3
With reference to the material presented in this course, which theories and concepts do you believes that the strategies of Amazon.com were based upon?
Most multinational companies adopt the strategies which are implemented and been successful in the past. There are a number of theories and concepts that help the companies to analyze their strategic position and make a strategy for their company. The strategies of Amazon.com can be described under the Mintzberg model that was presented in 1990.
Mintzberg Model
Beginning from the internal and external analysis, the company always wanted to avoid the strategic drift which occurs when the company’s strategies can not address the strategic position. The strategic change of Amazon.com was complimentary with the environmental changes which also resulted in transformational change as well.
Amazon.com developed its strategy after getting an awareness of upcoming business opportunities and threats. Similarly, the success factors of the company like Technology and free shipping were truly helpful in designing the future path and strategy of the company. Similarly, the company was well aware of its competitors like Barnes and Nobles. Product category expansion was a great opportunity availed by the company to beat its rival who were offering a wide category products. The free shipping, on-time delivery, fast payment systems and round the clock operation were some success factors of the company that re-established the business strategy. Most of the strategies implemented by the company have been successful as the company has successfully chosen and developed the strategies after analyzing the external and internal environment as well as the opportunities and threats.
Porters Five Forces
Research done by (Lewis 2007) has shown that the Five Forces model by Porter in the E-commerce industry is also applicable to analyze the attractiveness of Amazon.com. The model can also illustrate the sources of competition for the company. The model consists of five factors. The power of suppliers, power of buyers, threats of new arrivals and threats of substitutes give result to competitive rivalry.
Porter’s Five Forces Model for Amazon.com
There is always an intense competitive rivalry among Amazon and its competitors. Companies like Barnes and Noble and Ebay are some direct rivals of Amazon. There is a low threat of new entrants in order to give a competition to Amazon.com as the company is touching huge market shares and financial state. New arrivals cannot operate with the suppliers with the terms and conditions on which Amazon.com is operating. The company is operating with some powerful suppliers that are fulfilling the orders at right time. As far as the power of buyers is concerned, the company has shifted its customer orientation when the economic conditions in one country are not stable. These ideas were presented by Mennon in 2006. Amazon focused on China and India where the market was down in UK and USA. The increasing use of Internet in developing countries like India has also given a boost to its sales. The company also made separate websites for huge markets like Canada, UK and China.
Q-4
Explain the origins of the strategic position of Amazon.com, and explore the role played by the leadership in developing and re-establishing a clear strategy.
Amazon has changed its marketing strategy time to time to remain the market leader. The company leadership is always thinking ahead to bring changes and to give an ease to the customers. As per statement of company’s founder Jeffrey Bezos, the main objective of Amazon it to provide the best quality products to the customers at lowest possible rates.
Research done by (Palepu 2007) has shown that Barnes & Noble was the largest retailer when Amazon went online. The traditional retailing was redefined by Amazon as there were many drawbacks in traditional book retailing. More than one million titles were offered by Amazon in the start however; only 2000 were kept in the warehouse. Amazon was taking the books from whole sellers as it could not stock huge shipments and the delivery timing could have been weeks.
It was further explained by (Barnes and Hunt 2001) that Amazon adopted the strategy of negative operating cycle where the credit card payments from the customers were taken in few days. On the other hand, vendors had to wait for 44 days to receive payments. Amazon was also relying on the suppliers for the inventory.
The work of (Cummings & Worley 2009) has explained that, to become the market leader, Amazon had gone beyond the term of being “one among many”. Jeffrey Bezos made many right decisions at right time to take the company at its current market position. In 1998, Jeff realized to add more product categories and introduced music audios and videos. In 1999, Jeffery worked on his company to create an auction capability. In the month of November, the company went into partnership with Sotheby in a web based auction of arts and antiques. The company estimated that there will be more than 450 million online auctions in US for the year 2002 which will generate around 12 billion dollar in merchandise sales and around 900 million of revenues for the hosting companies however, the gross merchandise sales for 200 were around 16 billion dollars which went to 23 billion dollars for the year 2003. The company started offering electronic items, video games, toys, software, and home improvement supplies.
Amazon’s leadership was always aware of the fact that the company is based upon e-commerce and the products are being sold only online. The best investment that company can make is on technology. Amazon invested on information technology in millions giving more ease to the customer like one-click buying, customization and personalization. Latterly, the company also focused on shipping process and offered free shipping of the products to its customers.
Amazon also entered in to deals with Borders Group and Toy-R-us. Under the strategic partnership terms between Borders and Amazon, Amazon will be taking care of inventory fulfillment of the Borders.com. As far as the Toy-R-us is concerned, the company launched an e-commerce based business service model which has proven to be very beneficial for both Amazon and its customers.
Q-5
Discuss and analyze how Amazon.com has continued to preserve its competitive position.
The business of Amazon.com was truly based upon e-commerce. Amazon followed the principles of success in e-commerce defined by Bruhn.
Amazon took market orientation as a main part of modern management. The upcoming threats and arising chances were truly assessed by the company on the basis of which the company designed its activities targeting the relevant market.
With the help of technology, Amazon.com was very successful in offering a substantial surplus value to the purchasers. The market orientation helped Amazon.com to maximize the perceived utility of the customer. This gave an immense competitive advantage to the company.
Amazon.com was successful in adopting a methodical way of planning, proceeding, monitoring and controlling the all e-commerce based activities. The Systematic Management Processes were adopted by the company to avail the business opportunities.
Amazon.com used Innovative Solution Concepts to deal with the every customer expectations as well as the market conditions. The launching of different applications and making the use of technology so easy has brought a lot of success to the company in order to distinguish it from the rivals.
The company integrated the activities on technological and operational level in a true manner.
Economic values were taken as the principles of technological activities. As technology keeps on changing, the company adopted all the new modes of technology making the online shopping most easy and fast.
Competitive analysis
Ebay, Netflix Inc, Urban Outfitters Inc, Barnes & Nobles are the big competitors of Amazon.com since its arrival. Amazon.com has always been in competition especially with Barnes & Nobles and Ebay. At the time, when Amazon went online, Barnes & Nobles was the biggest book retailer. Amazon.com developed a better strategy by putting the burden on inventory on the suppliers and minimizing the overall cycle. In addition, Amazon.com was well aware of the fact that selling books online alone would not bring success. The company offered free shipping to the customers. Books are the product which the customer doesn’t need to check before purchasing however, Amazon was thinking out of the box. According to the research done by Smart Money in 2007, the company expanded its product category to be in competition with the companies like Ebay etc. offering the products like toys, games, home appliances, electronic products and cards. The company became the top online retailing company. At the meantime, the company is standing all above with the share price of $ 283 and the market value of $107,818 million.
Best use of technology, assessing the opportunities and threats and designing the operational strategy has distinguished Amazon.com from other companies.
Conclusion
With time, Amazon.com has kept on adopting new strategies. Amazon’s leadership has taken the opportunities and utilized them. The company has focused on long-term expansion strategy. The company successfully took competitive advantage over its rivals by offering more benefits to its customers. Using its main strengths, the company has able to lead the e-commerce market and still standing at the top position. The company still needs to increase its share in international market.
References
Barnes, S. and Hunt, B. (2001). E-Commerce and V-Business. [E-book] Oxford: British Library Cataloguing. Available at: http://books.google.com.pk/books?id=XrWFdgteOtQC&pg=PT97&dq=Barnes+and+Nobles+Vs+Amazon.com&hl=en&sa=X&ei=STavUM2EF4TtsgassoCYBg&ved=0CEIQ6AEwBQ [Accessed: 22th, Nov 2012].
Cummings, T. and Worley, C. (2009). Organization Development & Change. [E-book] Mason: Cengage Learning. p.332. Available at: http://books.google.com.pk/books?id=rdjtPTfkWG8C&pg=PA332&dq=2002+In+1999,+Jeffery
Amazon.com
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Depamphilis, D. (2012). Mergers, Acquisitions, and Other Restructuring Activities. [E-book] London: British Library Cataloguing. p.146. Available at: http://books.google.com.pk/books?id=Z6PlXek9Tj8C&pg=PA146&dq=strengths+and+weaknesses+of+amazon.com&hl=en&sa=X&ei=YiuvUIiIA9HGswazm4DABQ&ved=0CEkQ6AEwCQ#v=onepage&q=strengths%20and%20weaknesses%20of%20amazon.com&f=false [Accessed: 22th, Nov 2012].
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Mennen, M. (2006). Global Corporate Strategy - A Critical Analysis and Evaluation of Amazon.com. [E-book] Grin Publish & Find Knowledge. P.28. Available at: http://books.google.com.pk/books?id=Vk2RLg8AxRQC&pg=PA8&dq=strengths+of+amazon.om&hl=en&sa=X&ei=KzCvULLUHsSK4gS8m4HYDg&sqi=2&ved=0CDEQ6AEwAA#v=onepage&q=strengths%20of%20amazon.om&f=false [Accessed: 22th, Nov 2012].
Palepu, K. et al. (2007). Business Analysis and Valuation: Firs Edition - Text and Cases. [E-book] London: Thomas Learning Inc. p.369. Available at: http://books.google.com.pk/books?id=DPK43Sku2PsC&pg=PA565&dq=Barnes+and+Nobles+Vs+Amazon.com&hl=en&sa=X&ei=STavUM2EF4TtsgassoCYBg&ved=0CDMQ6AEwAA#v=onepage&q=Barnes%20and%20Nobles%20Vs%20Amazon.com&f=false [Accessed: 22th, Nov 2012].
Smart Money, (2012). Competitive Analysis. [Online] Available at: http://www.smartmoney.com/quote/amzn/?story=competition [Accessed: 22th, Nov 2012].
Strategy-keys.com (2012). Example of a Strategic Plan Model - Amazon Internal Analysis Strategy. [Online] Available at: http://www.strategy-keys.com/example-of-a-strategic-plan-model-amazon-internal-analysis.html [Accessed: 23 Nov 2012].
