Strategic Analysis of Amazon - Case Study Example

TOPIC: STRATEGIC ANALYSIS OF AMAZON (STUDENTS NAME) (INSTITUTIONS NAME) (COURSE) 30th APRIL 2008. Amazon faces several problems which have greatly resulted in to lay offs of about 1200 employees and closure of the warehouse in McDonough, service center in Seattle as well as the Georgia warehouse. This has been as a result of the weak and unimpressive market conditions as the stock prices continue to fall to a record low of $5.97 from a record high of $106.69 on December 1999. In the bubble burst of 2000, Amazon.com was greeted with uncertainties with investors surprised with the amount of losses that was eating into the company and remained to wonder whether there was any real business that was taking place in Amazon.com. Again this period saw the companies share price begin to fall and by March of the same year over 75% of the shareholders value had been wiped out as the stock price fell from $64.56 to $15.56. These losses combined with the aftershocks from the April tech wreck have continued to wipe the investor’s portfolio values and to respond to this the company has continued to cut costs. Another great problem is the increasing competitive environment within which the company operates from. Although the company has beaten all odds to emerge top among the leading competitors such as Barnes and Noble it has a great challenge of maintaining its status in the market. The great challenge remains in balancing quality with cost in order to accelerate the growth of the company. In the midst of this problems that the company faces it is important to establish the critical success factors which will ensure the continued success of the company. The company has to focus on a few areas where things must go right by analyzing the goals and objectives of the company and working towards achieving them. The information system supporting the critical success factor has to be monitored which may include environmental factors such as economic, political, legal and social aspect, competitive strategy and industry position as well as the factors that account for the changes in the business environment. Favorable success critical factors will mean the success of the company as a whole. Developing relationships with other suppliers of the products as well as people and customers are environmental analysis strategies for ensuring the success of the company. The company framework for industrial analysis has to put in mind the threat of the existence of close substitute products which increases the likelihood of the consumers to switch to substitute products in response to increases in prices. The company needs to maintain the low price for its products in order to maintain its customers and gain new ones. Threats posed by entry of new competitors have also to be looked into and loopholes sealed to ensure the company maintains its path of success. This can easily be achieved through taking absolute cost advantages through reducing operation costs to minimum level. The dimension of competitiveness is crucial in the industry as rivals may compete in non-price dimensions such as marketing and innovation. In this regard the company has to establish the number of competitors in the industry, the rate at which the industry is growing, diversity of competitors and the industry capacity so as to locate itself in a strategic position in the market. The ability of the customers to pressurize the company need not be overlooked. These include the buyer volume, information available to the buyers, price sensitivity by the buyer and the bargaining leverage of the buyer. Continued comparison with other companies should be carried out to establish whether the buyer volume in the company is higher relative to that of other companies. Any price increase should be done in a way that it does not surprise the buyers who would opt to move to other companies where the price is low. The fifth force that needs to be analyzed is the bargaining power of the suppliers of raw materials to the company, the supply of expertise to the firm and supply of components to the firm. In this perspective the degree of differentiation, presence of substitute inputs, supplier switching costs relative to firm switching costs and the price of the inputs relative to the selling costs should be put into consideration. In order to position itself for the future Amazon.com need to know which route to take in order to maintain its competitive advantage which will enable it create and sustain high performance in the competitive market. According to Porter 1989, four generic strategies need to be observed. Cost leadership strategy is the route that the company should seek to follow. This means that the company records high sales volumes while taking sales from its competitors. To achieve this company need to reduce costs of its products in order to increase its profits while charging the required prices for the industry. To advance into the market and gain market power it has to charge low prices while ensuring a reasonable profit is made on every sale made. Access to the needed capital, efficient logistics, and low labor costs are good ways of ensuring that the company maintains its leadership cost while still making a profit. Differentiation strategy is an important factor in propelling the company to higher levels in future. The company needs to carry out good research, innovation and development of its products to make the products unique and different from the others. Sales and marketing effectiveness need to be strengthened in order to realize and understand the benefits offered by differentiated products. The focus strategy ensures that the company adds some extra bit as a result of serving a particular market. The extra thing added should be focused into reducing costs or increasing differentiation to the products. In choosing the strategy to be followed the company needs to know that any choice made underpins the subsequent decisions made. In order to arrive at the most appropriate strategy a Swot analysis should be done in order to establish the company’s weaknesses, strengths, opportunities and threats the company would face if the chosen strategy is adopted. In applying the Ansoff matrix the company will need to apply tools that will enable it make choices that will lead it to achieving the desired objectives. The first tool is the market penetration strategy where the company will need to market its existing products to the customers, who already exist and thus increase revenue by repositioning the brand and promoting the product. Market development is the second tool that the company will need to adopt in developing new products to replace the ones in the market. The products should have differentiation from the competitors in order to maintain competitiveness in the market. Diversification is also another important tool the company will need to have in order to remain in the market. This means that the company should strive to remain in the market it is familiar with and also diversify into other markets it is not familiar with. In selecting the best strategy to dopt Rumelts criteria should be applied and these include consistency which ensures that the external strategies are consistent with the internal strategies. This goes along way into avoiding any kind of conflict between the company’s objectives and goals with the activities being undertaken. The two strategies external and internal should therefore be harmonized in order to have a common working ground. Consonance ensures that strategies chosen are in agreement with the external trends in the environment. This again will help the company to choose the best strategies that are modern and useful in carrying the company to greater heights. Feasibility of the chosen strategy should also be looked into to ensure that it is reasonable in terms of the resources of the organization. This should be in terms of capital and money, technical resources, professional and management as well as time span. In this perspective the strategy to be undertaken should be taken through high degree of scrutiny to establish the amount of resources that need to be invested in carrying out the strategy. Amount of return anticipated should also be compared to the amount injected to establish the viability of the strategy. This is because high cost strategies will mean that the company will set its prices higher in order to break even a step that could be dangerous to the company profitability and competitiveness. The strategy chosen should have the following competitive advantages; skills, resources and position. Conclusion Amazon.com has the competitive advantage of being a well known service company worldwide. To maintain its status as the most competitive company in the market good strategies aimed at propelling the company forward should be adopted. Competition should be checked through product differentiation in order to give the company’s products a more unique look as compared to those of the competitors. The company should seek the best route to follow in cost leadership so as to set the pace for other companies in the same in industry. In this perspective the company will be able to set minimum prices for its products while still making profit. REFERENCE Stockport, G. and Street D. (2000), Amazon.com from startup to the new millennium, European case clearing house, pp 38, No. 300-014-1 Read More