Amazon Business Strategy - Case Study Example

AMAZON BUSINESS STRATEGY By Data An Analysis of Amazon’s strategy during the period 2007-early 2009, andthe Strategic Business Units that have been developed Amazon.com is an American ecommerce company, based in Seattle, Washington. Jeff Bezos founded the company in 1994, and it remains the leader among the many online retailers today. Amazon.com operates in different countries in the world including the USA, UK, Spain, China, Japan, France, and Canada, among many others. This company initially began with the sale of books, before it diversified to include DVDs, toys, electronics, video games, and software, among other things (Amazon 2013). Amazon.com targets three main audiences for its services. First, the company targets those consumers that value low prices, convenience, and a wide selection. The second target of Amazon.com is those sellers, who wish to make their sales through the Amazon.com platform, using the company’s infrastructure. Additionally, Amazon.com targets the enterprises, which wish to outsource technical capabilities to Amazon.com. In this case, therefore, the business it can be deduced that Amazon.com has three major business models for each category of its target customers (Johnson, Whittington & Scholes 2011). Amazon.com has a distinct business strategy, which has helped it to maintain the top position among the online retailers today. However, over the years, the company has adjusted its business model in order to increase its level of competitiveness in the market. Since the year 2007 to 2009, Amazon.com has adopted new aspects in its strategy, which have contributed to its sustained success in the market. Therefore, the company introduced new business units, which it deemed relevant to its customers, and which it considered were capable of increasing company productivity and customer satisfaction. When Amazon.com was founded, the aspect of growth was core to its business strategy. Nonetheless, the company seems to have upheld the concept of growth, as seen in the further advancement and development of its business strategy. Today, there are different new business units that were adopted by Amazon.com and integrated in its business strategy between 2007 and early 2009 and these are still important to the company, as they have considerably led to a boost in the company’s productivity. First, in the year 2008, Amazon.com increased the number of its fulfillment centers. A major addition to the existent fulfillment centers was developed in Hazleton, PA, while another one was established in Arizona (Johnson, Whittington & Scholes 2011). This move by Amazon.com to add more fulfillment centers would benefit the company in various ways. Most importantly is that Amazon.com would be able to serve more customers, since the increased number of fulfillment centers increased the capacity of commodities, which the company could store for shipment to customers. Additionally, Amazon.com in 2008 launched the “Frustration-Free Packaging” (Johnson, Whittington & Scholes 2011). This kind of packaging reduces the overall amount of packaging materials used. This is advantageous to both the company and its consumers. To the company, this initiative saves costs, as less material is used for packaging. On the other hand, this makes the customers of Amazon.com to experience a great shopping experience. The frustration-free packaging is designed to be opened easily without a knife or struggles, while protecting the products inside, thus reducing customers’ wrap rage. Additionally, this packaging is recyclable. This initiative has been widely welcomed by most Amazon.com customers. This therefore, boosts customer loyalty to the company, which is paramount for increased company success. Technology is another core strategy, which Amazon.co has continually embraced. Between 2007 and 2009, Amazon.com has enhanced its technology levels by introducing new technological business aspects. First, in 2007, Amazon.com developed Kindle; an e-book reader device, which interfaces seamlessly with Amazon’s online store (Johnson, Whittington & Scholes 2011). Since Amazon.com has a large customer base, Kindle acquired a large following, and this beat other e-readers in the market. This is therefore advantageous to both the company and its customers. While this enhances customer experience for customers, it boosts the returns of the company. Amazon Web Services (AWS) is another business unit, which Amazon.com adopted between 2007 and 2009. This includes technological innovations such as Amazon CloudFront and cloud computing, among others, which can be used by individuals and companies (Johnson, Whittington & Scholes 2011). Closely related to this is the introduction of digital contents by Amazon.com. These include a digital music download store and an MP3 music store, among others, which allow Amazon.com customers to watch and listen to music online (Johnson, Whittington & Scholes 2011). This therefore, has led to an increased customer value and returns for the company. Amazon.co also developed new business units between 2007 and 2009, which would enhance accessibility. These include the Amazon Currency Converter, Bill Me Later, TextBuyIt, and Amazon Flexible Payments (Amazon FPS). Each of these offerings enhanced the accessibility of customers to Amazon.com services. These therefore, increased the level of customer satisfaction and loyalty, which is beneficial to the company. 2. Amazon’s strategic capabilities & resources, and areas they are distinctly good According to Hitt, Ireland & Hoskisson (2010), for a company to be successful, its business model and strategy should be well matched with its resources and capabilities. When the resources and capabilities of a company are inadequate, it is impossible for a company to ensure customer value, thus leading to the failure of the company. For Amazon.com, this factor has been put into perspective, as seen from the operations and success of the company. Tovstiga (2005) argues that the resources of a company are wide in scope, and comprise the individual, social, and organizational phenomena. However, resources alone do not give a company a competitive advantage. Instead, if the company has many unique resources, it might have a competitive advantage in the market. Amazon.com remains a leading online retailer. This company has maintained this position, beating other companies in the market. One major reason is the kind of business strategy that Amazon.com has adopted. Additionally, Amazon.com’s resources have given it a competitive advantage. This company boasts of combined service and distribution resources, which help it have a competitive advantage in the market. Amazon.com is distinctly good at its online presence. This is an aspect, which similar companies have failed to achieve. Amazon.com uses a combination of different resources to ensure a sustained online presence. Initially, the company was an online bookseller, and it engaged in direct shipping of orders to its customers. However, as years went, the company developed a distribution network through which it is able to ship millions of different orders to millions of its different customers. The failure and inability of the competitors of Amazon.com to establish their own effective online presence forced them to enter into partnerships with Amazon.com. This is therefore, advantageous to Amazon.com, as it gains additional returns from the partnerships. In addition, the capabilities of a company are based on the capacity of the company to utilize its resources, which are integrated, to achieve its goals. Therefore, the interaction between different types of resources of a company determines its capabilities. Capabilities of a company are intangible, and mainly involve the human capital of the company (Teecee 2009). In the case of Amazon.com, the company employs staff that is well suited for its different operations and functions. For instance, the company employs individuals with talent and knowledge in computer software, as this makes the basis of the operations of the company since it is an online firm. In addition, the company employs its top employees with knowledge and expertise in merchandising and logistics systems, commercial decision and data mining systems, supply chain systems, and international retailing and merchandising systems, among others. This is knowledge that is highly relevant to the company. Therefore, the employees are able to apply their knowledge together with the tangible and intangible resources of the company, in order to contribute to the achievement of company goals and objectives. 3. An evaluation of Amazon’s diversification strategy Diversification and growth were a major part of the strategic planning of Amazon.com. This mainly aimed at providing its customers with a “one stop shop.” For this reason, Amazon.com identified three major areas, which it considered to be of importance to its customers. These include price, convenience, and selection. The expansion of the company through the development of new business units is an epitome of the growth and diversification strategy. For instance, as seen, the introduction of Kindle in the market led to a lower cost for customers to access books on Amazon.com, as compared to the traditional products that were used previously. A major advantage of the diversification strategy of Amazon therefore, is that it resulted in customer satisfaction and efficiency in the operations of the company. The diversification of Amazon.com also resulted in the increase of the company’s market share. For instance, when Amazon.com launches additional business units, more items are added on the virtual shelves of the stores. In addition, the diversification strategy of Amazon increases the power of the brand. Since this has become a one-stop shop, customers can identify and shop for different items, thus making them identify more with the brand. Nonetheless, this also results in increased customer loyalty. Furthermore, under the diversification strategy, Amazon.com creates new revenue streams. For instance, since the company sells books, this becomes a major marketing strategy for glasses, especially for those customers with eye problems. Therefore, through diversification, new revenue is gotten from existent customers. On the other hand, the diversification strategy of Amazon.com could be considered in terms of its disadvantages to the company. Although the company has exhibited considerable aggressiveness in embracing diversification, there are important factors and challenges, which affected the company in its pursuit of this strategy. First, it was quite challenging for Amazon.com to overcome the already established brands. For instance, in early 2007, when Amazon.com diversified and started the e-grocery business, it faced considerable competition and resistance from other brands that were already established in the e-grocery business, including Peapod and FreshDirect (CNNMoney 2000). Furthermore, diversification is quite costly, as a company has to introduce new business verticals (Kenny 2009). For this reason, Amazon.com spent a considerably high amount of financial resources in order to introduce new units in the market and integrate them in its business model. Apart from the costs incurred in introducing new business models, this also leads to considerable complication and complexity of the distribution and business model of a company. In the case of Amazon.com, currently, the company has three different business models, as well as a wide distribution network due to the factor of diversification. This therefore, also means that more human capital is needed. Overall, although the diversification strategy of Amazon.com is advantageous, it is also costly to sustain. 4. Recommendations for a future strategy for Amazon; Amazon’s developments since early 2009, and evaluation of such developments against the chosen strategy Amazon.com should adopt a globalization strategy, as opposed to the diversification strategy. This is for the reason that globalization is easier to achieve, apart from it being more lucrative (Mennen 2010). Amazon.com has not fully embraced globalization in the dispensation of its services, despite the fact that it is a top online retailer today. For instance, this company only offers its web services to seven countries only. As a market leader, this shows a lack of global ambition (Mirow 2005). This also leaves room for its competitors to globalize the ideas of Amazon.com around the globe. Furthermore, this brings an imbalance between the customers, sellers, and developers on Amazon.com. This is because some of these customers will have the privilege of enjoying some services, which others in different locations do not get to enjoy. Therefore, Amazon.com should in future incorporate globalization in its strategy in order to ensure equality for its customers. The dominance of Amazon.com in the electronic book market is a major threat to the company, as there are new e-book stores and e-readers that are introduced in the market. Some of the competitors of Amazon.com include Barnes and Noble. Therefore, Amazon.com should invest more in the electronic book business in order to beat competition. The e-book market continues to grow, and therefore, holds many opportunities for Amazon.com. Therefore, Amazon.com should adopt more innovations in its e-book products in order to retain its customers, and sustain its competitive edge in the industry. Nonetheless, since early 2009, Amazon.com has undertaken various developments to enhance its business. For instance, according to the 2009 annual report of Amazon.com, the company added more than 20 new products in 2009 alone. These include the automotive in Japan, shoes and apparel in China, and Baby in France. Additionally, Amazon.com acquired Zappos, a key online footwear and apparel seller, as an addition to other of its acquisitions. Furthermore, Amazon Web Services launched new services and features, including Virtual Private Cloud, Amazon Relational Data Services, and Elastic Map Reduce, among others (Amazon.com 2009). Therefore, as compared to the proposed strategy, these new developments of Amazon.com show that the company has persisted in its strategy of diversification and growth. Therefore, the proposed strategy is not in agreement with the new developments of Amazon.com. The developments add to the complexity of the distribution segment of the company. This is therefore, a major reason why currently, Amazon.com can no longer sustain all of its present product segments. For instance, the automotive in Japan has not shown a high online demand, as people prefer to have a hands-on experience before making a purchase of cars. This therefore, shows that Amazon.com lacks a competitive advantage to market some product segments. Therefore, limiting its product base to products that have core competency is a major recommendation for Amazon.com. Works Cited Amazon 2013, Viewed 15 August 2013 < http://www.amazon.com/> Amazon.com 2009, Annual Report. Viewed 15 August 2013 < http://www.annualreports.com/Company/1755> CNNMoney 2000, “Robertson Stephens questions Amazons diversification strategy,” Viewed 15 August 2013 < http://cnnfn.cnn.com/2000/10/04/technology/amazon/> Hitt, M., Ireland, D. & Hoskisson, R 2010, “Strategic Management: Competitiveness and Globalization,” Cengage Learning, London. Johnson, G., Whittington, R. & Scholes, K 2011, “Exploring Strategy,” Financial Times Prentice Hall. Kenny, G 2009, “Diversification Strategy: How to Grow a Business by Diversifying Successfully,” Kogan Page, New York. Mennen, M 2010, Global Corporate Strategy - A Critical Analysis and Evaluation of Amazon.com,” GRIN Verlag, New York. Mirow, M 2005, “Strategies to Achieve Market Leadership: The Example of Amazon,” Viewed 15 August 2013 < http://preibusch.de/documents/PreibuschS_FleckensteinM_Amazon.pdf> Teecee, D 2009, “Dynamic Capabilities and Strategic Management: Organizing for Innovation and Growth,” OUP Oxford, Oxford. Tovstiga, D., W 2005, “Capabilities for Strategic Advantage: Leading Through Technical Innovation,” Palgrave Macmillan, London. Read More