The Features of Amazons Strategy - Case Study Example

Case study and strategy analysis: Amazon BY YOU YOUR SCHOOL INFO HERE HERE Case study and strategy analysis: Amazon The features of Amazon’s strategy Amazon is a leader in understanding its target market characteristics and then adjusting the organisational culture, products and services, and marketing strategies to appeal to these known characteristics. Amazon has identified three market segments that the business will service, including consumer customers, seller customers, and developer customers. It is a very customer-centric organisational model that seeks, primarily, growth as an objective. Amazon accomplishes this by establishing a pricing structure under a price leadership strategy, offering a vast assortment of merchandise, and injecting convenience into the business model (Stockport 2010). The business’ vision to be the most consumer-centric business in its industry reflects how Amazon continues to develop strategies, both corporate-level and business-level, to ensure that it fulfils these promises for focus on providing value to its many diverse markets. One method of promoting this value and convenience is the recent program entitled Frustration-Free Packaging, which was designed to ensure consumers could easily remove their products from Amazon’s packaging. Cloud computing, additionally, provides its developer customers with low-cost IT services and the ability to outsource many business functions for further cost-savings. The continual development of new services, such as the MP3 Music Store, IMDb.com allowing for television program viewing, and launch of the Office Supplies Store in 2008, illustrates the constant evolution of the business model that caters to a wide variety of target markets with varying needs. Innovation, as compared to competition, is what makes this business model difficult to replicate by rivals and secures the promises of being consumer-centric that makes up the foundation of corporate strategy. 2. Analysis of Amazon’s internal environment Amazon’s CEO, Jeff Bezos, is a firm believer in corporate frugality. In the company’s headquarters, this thrift is evident with employee desks that have been recycled from doors, at an estimated cost of $130 USD and monitors that rest on telephone books to avoid the high costs of stands (University of Graz 2013). Amazon maintains very powerful competitive advantage as it relates to human capital, having established a firm set of values and a shared vision that allows for decentralised business function for better teamwork and interpersonal relationship development. In order to develop the appropriate service culture necessary for Amazon to achieve its mission of consumer-centrism, the organisation must have leadership that is visionary, one that establishes and iterates mission and vision, and inspire others through positive and ethical leadership traits (Fairholm 2009). Figure 1: Internal Competency Framework Success factors for internal efficiency Figure 1 illustrates the six competencies of the internal organisational culture at Amazon that contribute to fulfilment of the customer-centric mission and vision. The decentralised structure provides employees with opportunities to engage socially and professionally to establish a team culture that is flexible and where knowledge transfer is part of the organisational model with tacit and explicit knowledge holders in multiple divisions of the business model. Coupled with a cultural attitude for reducing overhead (the Amazon frugality culture), the business is able to devote more resources to improving technologies and other service dimensions that satisfy all three identified target markets. 2.1 The Value Chain Source: Heizer and Render. (2004). Operations Management, 7th ed. Prentice Hall. Operations provide value as the internal model sustains significantly-sized fulfilment centres that are able to service key geographic regions effectively, such as the 600,000 square/foot centre in Hazleton, Pennsylvania and the 500,000 square/foot facilities in Arizona. The company has devoted the appropriate capital resources toward facilities management to ensure quality in delivery and ensure convenience for timely deliveries of ordered product. In conjunction, these fulfilment centres provide better excellence in service, improve outbound logistics, and is even a sales and marketing opportunity by illustrating the depths of facility excellence that customers can expect. The elements of the value chain that are often disparate with competitors are very inter-dependent at Amazon, which illustrates the depth of efficiency that the company’s business model has achieved. Clearly, technology is the most primary facilitator of service delivery that impacts all primary activities along the value chain. As illustrated in the case study, where other retailers believe that location is the most critical dimension of business profitability and revenue production, Amazon believes technology is the most vital aspect of staying properly customer-centric. Amazon is able to track customer purchasing habits as part of quantitative market measurement, examine their search habits while browsing the website, and also improving cost efficiency. Pricing is a significant competitive tool for Amazon, therefore any opportunity to lower operating costs provides opportunities to pass back these savings to delight its target consumer markets. Without investment in innovative technologies, Amazon would not be able to expand into new markets. Procurement is directly related to logistical strategies, which in turn is related to service, and so forth. Amazon’s diversity within the operational model is facilitated and improved through technology implementations and developments. For example, the recent promotion offering free overnight delivery would not be possible without fulfilment centre operations, technology facilitation, inbound and outbound logistics, procurement and service philosophy. As such, Amazon should be recognised for having a very well-developed, integrated value chain that is necessary to remain a leader in its diverse sales markets. 2.2 VRIO Framework The VRIO framework seeks to explain unique value, rarity, imitability, and organisation of a firm in relation to its competitive advantages over rivals. Value in this model is measured by whether or not a firm can exploit opportunities or serve to counteract threats (Barney and Hesterly 2006). Amazon illustrates this value in a variety of dimensions. Amazon has been able to raise the switching costs for its many vendors through volume purchasing (with ample capital availability); as just one example. Threats in this industry include rising costs along the supply chain for many different products and with Amazon’s high buying power, the business prevents suppliers from being able to negotiate or leverage along the vendor network. Rarity is reflected by the investment in the Kindle device, unique in its market (though there are some emerging competitors). By being a first mover for this device, the business was able to establish brand loyalty with desired and profitable markets. According to theory, when a business is a pioneer, consumers will often view a late entrant unfavourably and be more attached to the first mover product or brand (Kalyanaram and Gurumurthy 2008). The text-to-speech feature on this innovative device is one illustration of how Amazon maintains rarity as a pioneering company in creating technology products that will be accepted and demanded by loyal customers. The ability to establish a brand that has consumer attachments and build long-term equity for later business and product development is very rare with this type of retailer. Imitability is a concern and risk for Amazon. Any business with enough capital can replicate some of the service offerings that Amazon provides. However, Amazon can differentiate the company as a business-level strategy utilising marketing prowess so as to create barriers to this replication. For example, ongoing discounting and promotions are utilised to provide perceptions of value to its many customer segments, illustrating how pricing can be used as a business positioning tool to establish more loyalty to the Amazon brand. Another example is how Amazon built an alliance with Warner Bros. to provide MP3 selections without digital rights management software to allow customers to experience the richness of product offerings without concerns over intellectual property violations. Such alliances and agreements provide a type of competitive advantage that is not easily duplicated by rival companies in this sector. This shows an internal management competency to seek out joint ventures or other alliances, where appropriate, to create further barriers for competition offering similar products online. Organisation is a bit more ambiguous with Amazon as far as the management control systems in place or the specific organisational structure that drives advantages over rivals. The case study, however, indicated a well-developed research and development team which is necessary to remain an innovative company that is perceived as a pioneer to its consumer markets. Though Amazon does not publicise how its organisation creates specific advantages, the case study acknowledgement that Bezos demands his employees wake up fearful daily illustrates that the organisational structure is well-defined with the appropriate controls and metrics needed. 3. Conclusion To ensure quality, as of 2012, Amazon has developed a set of criteria to become a Featured Merchant on the website. This includes having less than one percent defect rate on supplied products, maintain three to six months of service history, an appropriate shipping speed (Channel Advisor 2012). As was illustrated by the case study, Amazon has maintained a focus on satisfying and effectively serving its customer segments. Since not all vendors have their products shipped from the Amazon fulfilment centres, it is necessary that Amazon establish controls over their many offsite merchants. This is part of contemporary strategy designed to ensure quality and secure the brand reputation of Amazon long-term. Incentivising merchant participation as an extension of the brand is one very recent development that illustrates continued focus on its consumer-centric values. References Barney, J.B. and Hesterly, W.S. (2006). Strategic Management and Competitive Advantage: concepts and cases. Pearson Prentice Hall. Channel Advisor. (2012). Want to win Amazon’s Buy Box? First you have to be a featured merchant. [online] Available at: http://www.amazonstrategies.com/2012/02/index.html (accessed 14 March 2013). Fairholm, M. (2009). Leadership and organisational strategy, The Public Sector Innovation Journal, 14(1), pp.26-27. Heizer, J. and Render, B. (2004). Operations Management Flexible Version Package, 7th ed. Prentice-Hall. Kalyanaram, G. and Gurumurthy, R. (2008). Market entry strategies: pioneers versus late arrivals, Wright University. [online] Available at: http://www.wright.edu/~tdung/entry.pdf (accessed 13 March 2013). Stockport, G.J. (2010). Case Study: Amazon.com 2007 – early 2009. University of Graz. (2013). Organizational Culture, p.499. [online] Available at: http://www.uni-graz.at/iimwww/iimwww/orgculture.pdf (accessed 15 March 2013). Read More