Amazon.coms Business Model - Research Paper Example

? Amazon.com’s Business Model Amazon.com is regarded as one of the leading online book sellers in theentire globe. Since its inception in 1944, the company has continued to diversify its market space by launching a new website in Germany, France and Italy that provide varied services to the consumers. As a result of stiff competition in business, the company has devised a new mechanism that aims at cushioning itself from the current inflation and economic recession by engaging in other business such as selling electronic devices, toys, food and music. The company also offers shipping transport to other airlines thus maximizing its profits from all the sectors. The success and economic growth of Amazon Company are grounded on the following principles that are customer oriented: convenience, pricing and selection. From the Swot analysis approach, it has been established that combining these three factors improves the company’s image by developing loyalty, trust and commitment to customers. This is one of the strategies that have been used by Amazon Company to lay off most of its competitors as it enhances high productivity and efficiency in the Company. Part 1.A: Pros of Amazon.com The prosperity and economic growth of Amazon organization is grounded on the following advantages: Leverage of economies of scale: The company has greatly utilised the availability of fixed assets that are related to distribution and storage of goods by offering shipping services. Through the interaction of many customers the company markets its products thus expanding its market share to other regions of the world. Expansion of the market share: For any company to prosper in the business arena, it should develop strategy plans that aim at distributing its goods and services at the lowest cost. With the advancement of science and technology coupled with the easy access to internet, the company has in the recent time launched a new website. In this website the company has managed to display more goods and services that its offers to consumers thus increasing its sales volume. Localization of goods and services: From the past experiences, the company has realized that most consumers lacked some of the related goods that the company availed in their shelves, hence compelling customers to shop them elsewhere. In order to counteract such effect, Amazon Company has increased the brands of goods by ensuring that there is one-stop shopping centre. Customers are now in a position to buy all their goods from one main location. Provision of availing other related goods: This idea aims at taking into account the needs and preferences of all the customers on the purchased goods. For instance, if a consumer has bought a book and he has eyesight problems, the company should be in a position to sell reading glasses to that customer rather than sending him to other shops. This idea has also improved the company’s image globally in the sense that it consumers are allowed to make orders based on their personal interests and preference. Implementation of effective marketing strategy: Marketing is a crucial facet in an organizational operation because it allows the company to realize the efforts made from the production system. It connects the organizational goals and objectives with the needs of the customers as stipulated in the market domain. Amazon Company adopted the strategy of market segmentation which allows flexibility in product distribution. Based on the demand and population density, the company produces goods that are specifically meant for a certain portion of the population hence satisfying the needs of consumers. Part 1.B: Cons faced by Amazon Company The journey to the Company’s success has not been smooth without the challenges and drawback as highlighted below. Stiff competition from other companies: The world of business can be compared to a battle field where the mighty survive while the weaklings perish. Consequently, well established organizations have a high chance of prospering in the business in the sense that they have effective mechanism to cushion themselves from threats and challenges. Recently Amazon Company has faced stiff competition from some companies when they tried to venture in e-grocery. Lack of sufficient capital: Capital in terms of finance and human resource are required to establish new businesses that would distribute goods to other regions of the world. This implies that the company has been overstretching its daily operation thus leading to inefficiency and low productivity. Diluting the quality of brands produced: Other companies have ventured into the business and started to produce goods and services that are similar to Amazon Company. This has reduced the quality of goods and services thus lowering the market. Challenges in storage and distribution model: Due to diversification of stock, the company has been unable to develop an effective system that can store and distribute goods without damaging them. This has been a challenge to the company’s management hence calling for intervention measures. Part 1.C: The impacts of Amazon Company splitting to family brands This strategy would impact negatively on the company’s performance in the following ways: The loss of localised economies of scale: If the company operates with varied family brands, it will lack the economies of scale attached to localization of business entities. It has to develop website for each brand thus increasing operational cost. Secondly, it will lead to diluting of brands since many brands would be produced thus leading to lack of reliability that lowers sales volume. Thirdly, it has been affirmed that increasing family brands affects the organizational efficiency in the sense that it is hard to coordinate, organise and plan all of the operation in various brands. It will also affect the price of goods thus minimizing the profits (Henderson, 2009). Additionally, it would be very difficult for the company to gain popularity with many brands thus calling for the company to maintain one family brand. The provision of services would be greatly affected because it will not take into account quality of goods produced. On the other hand, establishment of family brands improves the company’s security because it increases the numbers of consumers who purchase the new products. In case one of the brands faces problems, the company can still gain profits from other branches hence making it to survive. Part 2: Expansion of market by Nobles and Binders Today many of the business transactions are done on a global scale due to internet rise. Other companies that sell online books, such as Barnes&Noble and Borders, are also a set of organizations that utilise e-commerce website in selling their products. Just like the Amazon Company, there is tremendous change in the sales volume of these companies as depicted in the previous years. According to a recent report, Amazon Company increased its sales by 64% whereas Borders and Barnes had a profit increase of 32.6%. This report indicates that other companies such as Barnes&Noble and Borders have a chance of developing further just like Amazon Company. The most important factor to take into account is to ensure there is effective management system, innovation spirit and creativity among employees. Since these organizations are well established in matters related to the selling of books, they should use the trust and loyalty bestowed on them by the consumers to expand their market shares through diversification of goods sold. They can stock stationary related goods as well as offer after sales services to their consumers, for instance, delivery of goods. Decision making process and tactics should be well constructed to ensure the company meets its goals and objectives despite the macro and micro threats of the business. Part 3: Strategies in expanding market share of Amazon.com The following factors should be addressed by Amazon.com if it wants to expand its market space: Location of the storage facilities: The establishment of storage facilities should be carried out carefully because it directly affects the consumers thus influencing the sales volume. It should be located in a convenient place where consumers can access and transport their goods cheaply. Stock: Amazon.com should ensure that physical goods are available in plenty in the stores thus saving the consumers the problem of coming now and then to check whether goods have come. It enhances trust and loyalty among the two parties. Pricing: This plays an important role in the business operation. Prices of goods should be reasonable and affordable by consumers, rather than exploiting consumers financially. Employees: Amazon.com should employ workers who will sell goods to the consumers in a proper way. They should offer advisory services to consumers who need them. Hours: Time schedules should be placed in order to care for consumers who come to purchase goods any time of day and night. Conclusion Amazon is regarded as one of the well established company that deals with selling books and other related goods. It is an international company but its success is woven in the management, marketing strategy, efficiency, brand recognition and adoption of state-of-the-art technology. However, challenges include, among others: stiff competition, diluting of brand etc. Imitating of Amazon.com can help other organizations such as Barnes&Noble and Borders to thrive. Appendix Table 1 AMAZON BARNES AND NOBLE BORDERS Functionality Reduced shipping terms and trends to prime members More consumers due to long history in operation, brand recognition and charged membership Membership is free Design High competence level in organization and selection of brands Moderately organized, simply and easy in nature Ineffective in operation due to poor organization Content Offer large quantities of goods at lower prices Prices are relatively higher and small stock of goods Selective stocking in music and books but less gifts. Professionalism Maintenance reliability in their brand name Diversification of book stocks Provision of high quality services to consumers Originality Flexibility in online shopping for larger quantities of goods Brand recognition that impedes more sales of books Long history in lovers books Effectiveness Sales in 2009: $24.56 billion 28% increase in 2008 Employees: 614 Net income: $902 million Net income: $35,788 million Sales volume in 2009: $5.89 Employees: 40,000 Employees:8,400 Income net: $2.64 billion 15% decrease in 2009 Net loss: $109.5 million References Amazon.com Annual Report 2009. Retrieved on 31st October, 2011 from http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsannual Borders Group Annual Report 2010. Retrieved on 31st October from http://phx.corporate-ir.net/phoenix.zhtml?c=65380&p=irol-reportsannual Barnes & Noble Annual Report 2010. Retrieved on 31st October from http://www.barnesandnobleinc.com/documents/bn_annual_report_2010.pdf Henderson, H. (2009). Encyclopedia of computer science and technology. (Revised Edition). Internet retailer portal do e-commerce intelligent E-commerce drives Q3 growth for Barnes & Noble. Access: http://www.internetretailer.com/2011/02/24/e-commerce-drives-q3-growth-barnes-noble Read More