Strategic Objective of Amazon.com - Essay Example

Strategic Objective of Amazon.com Company Vision Our vision is to be Earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online. Strategic Objective We seek to be Earth's most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavor to offer customers the lowest possible prices. Strategic Competencies The revenues from internet reached whopping levels as the world moved towards a proliferation of globalization and cross cultural trade. The dot com era was the best opportunity for Amazon to become an online retailer and penetrate this untapped market. This led Amazon to make increase its online revenues from $15.7 million in 1996 to $2.6 billion in 2000. Hence, the core competence that leads to this success was the operational efficiency that enabled the company to keep minimum physical inventory and offer 30-40% discounted prices on books. Its model of one click shopping was also possible because of the easy website interface, online customer service through email notifications, chat rooms for prospective buyers to discuss their picks before checking out and the product reviews that facilitate the customers. Innovation is the key strategic capability that enables Amazon to achieve competitive advantage over its rivals. The company was a first mover to change its business model to brick and click business by investing in online commerce. Successful strategic alliances with carefully selected companies enabled the company to generate finances for its expansion. Also, Amazon.com strategically placed its ten warehouses in areas with the lowest sales taxes and highest distribution facilities. Another successful strategy was the outsourcing of inventory management and distribution. Competitors and market The competitive scope for Amazon.com is large because of its online business model. This is because the company inventories a large range of products and similar online retailers are also penetrating the market with an increase in product mix in order to achieve similar economies of scale. In books, Barnes and Noble.com is the major competitor however it does not surpass Amazon because of its limited portfolio mix. The top competitor in online retailing sector is eBay with 22 product categories and location in 29 geographic areas whereas Amazon has a total of 11 product categories. Other competitors include Tesco, Wal-Mart’s ASDA, Argos.com and HMV’s online shopping. The strongest competitor however remains eBay and Amazon needs to extend its product mix further. Wal-Mart and Tesco are also major competitors because of the wider customer base that these stores serve owing to the physical as well as online retail outlets. Amazon.com is affected by various micro and macro environmental factors as its services are extended to customers in over 150 countries. PEST Analysis Political and Legal In the years 1994-1995, USA saw an increase in the government’s support towards e-commerce. expansion of the telecomm industry Increase in government investment in developing the internet infrastructure to facilitate trade. The company was thus able to expand rapidly in many countries because of the legislation that supported e-commerce especially in Europe Although the online business model greatly facilitates as e-commerce uses uniform standard of e-commerce and technical expertise yet on the other hand, Amazon has to consider the different laws in the countries it operates in. it is for example greatly influenced by the EU Electronic Commerce Directive for its operations in Europe. Likewise, conformance to data protection laws and trade commission legislatives will also need to be ensured. Economic The world recession in the USA and Europe has resulted in a fall in purchasing power. Interest rates have also risen which poses a constraint on the consumer spending especially in Europe. Inflationary pressures in south Asian countries also have resulted in an overall decrease in average spending by the consumers. However, rapidly developing nations like India and China are potential markets for Amazon expansion because of their low interest rates and positive macro economic conditions. increase in online spending has been experienced in the USA by up to 85% since the year 2000 and the predicted increase in online sales has been a 100% by 2011 Further, the case study states that the increase in annual disposable income will reach to US$5,000 and 617 million households will have access to the internet retailing option, out of which 143 million will be from Asia Pacific. This elicits the high potential for Amazon.com in the Asian countries. Social The predicted increase in internet users is 244.7% from 2002 to 2007 A rapid increase in the trend towards e-tailing and online shopping gives Amazon a great opportunity to maximise its sales by increasing its product offerings. There has been a change in consumer lifestyles which entails that consumers now prefer convenience because of the busy lifestyles and the hassle of going to different retail outlets for different things, they prefer buying from one retail outlet. Moreover, the social networking sites provide additional advantage to the Amazon whereby this vast segment of market can be reached with considerably cost effective methods. Technological The expansion of broadcast media means more consumers can be reached out and the expansion of internet takes this further. The cost effective model of Amazon allows it to use management information systems and comprehensive software and hardware technologies to obtain sustainable competitive advantage. Wireless networks and interactive internet media initially gained a lot of new customers but the new trend of hand held devices. M-commerce means that Amazon apps are now available on wireless networks with greater ubiquity. Environmental The online model of Amazon.com is strategically aligned with the current environmental agenda of the world. Shopping online means there is less car fumes, less carbon emissions and less impacts of global warming and pollution hence it is widely in acceptance to the global standards of environmental protections. However, there is still pressure to become greener. Porter’s Five Forces Model Competitive Rivalry An increase in online companies like eBay and search engines like Google and Yahoo, the competition in the industry is intense. Moreover, there are companies which have physical retail outlets and because of the small amount of capital needed to start up the business. These companies find it easy to launch online retail service as well which puts them in a better position as the reach increases. Threat of New Entrants No physical inventory or facility is needed to operate this type of a business model. However, on the other hand, Amazon.com has the first mover and pioneering advantage in developing this model. The brand image as the pioneering firm deters competitors to reach the brand positioning that Amazon has. Amazon has also been able to sustain its competitive advantage through the use of innovative technology and gain economies of scale. brand loyal customers Development of Substitutes Easy substitutes in the form of psychical retail outlets which provide more options for customers where they have the option to touch and see the product for real. Another substitute to buying online movies, books, DVDs etc is to simply download them from cheap or free websites. Moreover, rental services especially for movies and DVDs are another substitute to buying these products online. Bargaining Power of Suppliers The bargaining power of suppliers is high because suppliers are concentrated because the brands sold at Amazon are also sold at other search engines or e-commerce websites. Also, there are exclusive products that are sold only at Amazon.com which again makes the bargaining power of the supplier high. Bargaining Power of Customers Customers are concentrated and in large number hence the bargaining power of customers is higher. Availability of a lot of online buying options especially the eBay. Resource Capabilities for achieving and sustaining competitive advantage Amazon’s transformational leadership of Bezos CEO has enables the firm to adapt to the changing global trends Management of Company, guided by their vision and corporate goals Focuses on the performance of employees and a strong executive team. It hires people from technical backgrounds and competitors’ firms like Wal-Mart. Editorial Ability Technological development (State of the art recommendation centre, 22 subject browsing areas and Gift Centre). Strategic alliances and acquisitions like UK’s Tele book, AOL, and Prodigy shopping network. Focuses on the significance of customers to retain their purchases and loyalty The ability to diversify and identify key stakeholders Financial resources are utilised and used wisely, expenses are limited Diagnosing Strategic Capability; Value Chain Amazon.com adds value to its chain and offers operational efficiency through cost reduction and economies of scale. Primary Activities Inbound Logistics and Outbound Logistics Amazon.com uses intensive information systems that assist in keeping the inbound logistic costs minimum. The use of forecasting software enables it to make accurate demand forecasts which mean the inventory levels are not exceeded and the stock that needs to be returned is minimal. Inventory control systems also facilitate lower inbound logistic costs. Located in areas where there is an existence of sufficient infrastructure and distribution facilities For example, it chose its warehouse to be located in Seattle where the spread of distribution system was vast and in UK the warehouse was located in Bedfordshire which was close to the motorway. Outsourcing distribution also enables it to aggregate the costs by aggregating the orders for one location. Operations The one click shopping model enables Amazon.com to offer efficient payment systems to its customers and provide quick feedback. The website is operative 24 hours in order to meet the time changes across the continents installation of information systems and Server software to improve operational efficiency. Sales and Marketing Customer relationship management facilitates the company to use direct marketing activities. Customer database is maintained so that customers are provided with greater interactivity in the form of recommending similar products to customers, offering reviews by other users and online sales staff. Information about discounts and price reductions is made available along with other promotional offers like free delivery if transaction exceeds a certain limit. Customers can also calculate their shipping costs and delivery timings and options. Interactive software is developed to promote sales. Service Customer service is the value preposition for Amazon.com and Its core competence which enables it to develop a clientele of loyal customers. Customers can return the products within 30 days of purchase, Price comparisons are also offered for used products that enable the website to gain credibility. Support Activities Firm Infrastructure A model of centralised planning and decision making in Seattle headquarter means that more value creation is enables. A customer database is maintained in all business units to facilitate marketing and promotion efforts. It is an e-commerce website, with minimum infrastructure can be universally used to place orders reducing the costs in the value chain Technology Development A standard hardware is used provided by HP which reduces the costs of maintaining and compatibility. Its various innovative services and high investment in technology increases the value of customer experience and final offering. The computing services are also outsourced which lowers the operational costs for Amazon.com Information system infrastructure facilitates efficiency and effectiveness (Johnson and Whittington 2006). Human Resource Development Motivating employees through benefits, time off grants, and relocation allowances Attracted highly skilled workers at Amazon.com. The cost of labour is also reduced by offering good pay scales and hiring applicants who have previously worked at competitor companies like Wal-Mart Procurement Only done when an order is placed so that digital books are available on demand and time of deliver is also reduced. The cost of keeping digital copies as opposed to physical copies of books is almost zero. SWOT Analysis of Amazon.com External Opportunities Change in the concept of reading books (digital books) Prohibition of internet taxes in 1998 Growth of internet users Rapid expansion of e-commerce 13% of Latinos started using internet in 2003 An extensive buyer community Products with high online sales External Threats Competitors including Barnes and Noble, eBay, Wal-Mart Imposition of VAT to reduce sales in international markets Lack of internet access in most parts of the world Economic downturn in Europe More offline companies are going online Internal Strengths Strong brand recognition Variety of products Discounts and offers Management and executive team Organizational culture Customer service ranked amongst highest in 2002 Distribution centres are effective Technological infrastructure Caters to both B2B and B2C marketing opportunities Internal Weaknesses Website is not tailored to individual markets High debts Risky products being introduced Free shipping can be a threat to financial strength BCG Matrix Strategic Decisions Market Development The strategic options for Amazon.com are market development, and product development. If it pursues market development strategie there is potential in expanding to untapped markets in India and china. The Pest analysis also indicates that the market for e-commerce is rising expanding in India Annual income per capita is also increasing which has given rise to consumer spending. Amazon.com can benefit from being the pioneer, first mover in India to gain a considerable market share. Social networking sites like Face book and Twitter offer great potential for market development for Amazon. This is because in 2009, 150,000 new users were signing up daily thus Amazon can create a Face book application that allows customers to create their wish lists and buy the product they wish to. However, expansion and acquisition of strategic alliance in India may result in cross cultural conflicts in operational management. Product/Service Development Because Amazon.com faces environmental pressures to become “greener” it can further develop its service by having the option of green packaging and delivery whereby Customers can have their products packaged and delivered in compostable packages. The boxes can be recyclable hence returning the boxes can be encouraged through a point collection scheme. In this scheme customers can have the option of gaining points by returning the compostable boxes and later spend the points to buy something from amazon.com Furthermore, it can also increase its product category and product mix. As per the case study, eBay has 22 product categories while Amazon has only eleven. Thus new products can be added to the mix to increase market share. Market Penetration Amazon.com can further penetrate its market in china and south Asia because the scope of e-retailing is increasing in these countries. Extensive marketing should be done utilising all contact points. This will increase the brand awareness and build a brand image for the Chinese market. China’s internet usage is amongst the highest in the region, internet should be used to penetrate the market further including social networking sites and search engines. Amazon.com can even use Olympic Games to penetrate the markets of UK and China and parts of Europe by sponsoring the big event. The Strategy Clock Cost Leadership Amazon.com uses a combination of these strategies to sustain its competitive advantage in the rapidly developing online retail sector because of the price sensitivity of online buyers. As Amazon.com is an online business model, its main goal is to minimize its costs. Amazon does this by offering lower prices which is its selling premise. The internet has provided customers with a platform to make easy and quick price comparisons while reducing the search costs at the same time. Thus online retailers like Amazon.com are under increasing pressures to offer valuable discount offers and low prices. Amazon has outsourced its distribution Has minimum physical inventory to be able to offer lowest prices to its customers Differentiation Strategy Low switching costs for online customers timely and accurate information, Amazon.com provides a good example of this through its “one-click” shopping experience which entails that online shopping is the easiest at Amazon. Moreover, the next day delivery follow up services Gift Centre state of the art recommendation sector wish list Purchase circles are all examples of how Amazon has differentiated its service from its competitors. Focus Strategy Amazon.com does not cater to a niche market segment however; it does tailor its marketing and promotion strategies to individual customer interests through its customer database management. Click stream tracking software is used to track the movement of customers through the series of clicks they make, monitoring the items they selected, time spent on the homepage for navigation and the products actually checked out. This gives it an opportunity to carry out successive direct marketing strategy. . LIST OF REFERENCES Chopra, Sunil. Supply Chain Management 4th Edition. India: Dorling Kindersley, 2010. DataMonitor. “DATAMONITOR: Amazon.com, Inc.” Company Report, 2011: p1-11. 11p. Gary, Stockport J. “Exploring Corporate Strategy: Classic Case Studies.” Amazon.com-from startup to 2004. Johnson, Scholes G., and R. Whittington. Exploring Corporate Strategy. Harlow: Prentice Hall, 2006. Kenneth, Laudon C. Management Information Systems: Managing the Digital Firm. USA: Pearson Education Inc. , 2007. Kotler, Philip. Principles of Marketing. New York: Pearson Prentice Hall, 2006. Larson, Kent D. “Role of Service Level Agreements in IT Service Delivery.” Information Managment and Computer Security Vol.6, 1998: 128. Sadler, Philip. Strategic Management 2nd Edition. London: Library of Congress Cataloguing-in-Publication Data, 2003. Scholes, Johnson G., and R. K. Whittington. Fundamentals of Strategy. Harlow: Prentice Hall, 2010. Read More