Strategies Used by Amazon to Build and Sustain Competitive Advantage - Case Study Example

Individual assignment Table of Contents Overview 3 Analysis 3 Strategies used by Amazon to build and sustain competitive advantage 3 Porter’s five forces analysis 3 Competitive advantage in Amazon’s flagship business: online book selling 5 Strategic issues 6 Value chain analysis 6 Strategic options 8 Ansoff matrix 8 References 10 Overview Amazon.com, Inc is recognised the largest online book retailer in the world. Mr. Jeffrey Bezos founded Amazon.com in the year 1995 with the vision to offer a wide range of books to the global customers so as to satisfy their reading needs at lower price compared to traditional bricks and Mortar book stores. In order to fulfil such a vision, he took the optimum use of internet to offer a huge range of books in an online platform, amazon.com to enhance the inner knowledge and talents of the customers in the entire world. Such a vision of Bezos proved extremely effective for Amazon that amplified the growth and market share of the organization as compared to its competitors such as Barnes & Noble and Borders. The rationale of this assignment is to analyse the strategic issues and options faced by Amazon.com in this recent age and the strategies implemented by the organization in order to amplify its competitiveness advantage and dominance within the minds of the customers among others. Analysis Strategies used by Amazon to build and sustain competitive advantage Porter’s five forces analysis Porter’s five forces model will be most relevant and effective tool to identify the strategies used by Amazon to develop and sustain competitive advantage in highly competitive market of ecommerce business especially online book retailers. This model will identify and analyze the effectiveness of the Amazon’s current strategies that have been developed and implemented considering the positive and negative impact of these key market forces. Threat of new entrance: The threat of new entrant is extremely low in this industry. This is mainly for the high cost of entry such as high set up cost, branding and promotion. Another reason is strong presence of popular and reputed players such as Barnes & Noble, Borders and many others in most of the developed and developing market like USA, UK, China and India. Moreover, the new entrants fear to enter the niche segment of retail book market which has been declining slowly due to rising demand e-book. Therefore, in order to sustain the growth of the business in a declining book market, Amazon has used product diversification strategy and has widen its portfolio of product offering that consists of 35 diverse categories of products excluding books. This strategy helped the company to retail its market share in most of global market although it needs to enter into price war with the new entrants. Bargaining power of the customers: The bargaining power of the customers is extremely high in retail industry especially in ecommerce retail market. There are many ecommerce websites retail durable products. Barnes & Nobles and Apple I-tunes are two major substitute of Amazon in the segment of books, audio and video CD’s, games etc. But, in order to attract and retain the customers for long run, Amazon.com use discounted pricing strategy like seasonal discounting for cloths and apparels and many other festive discounts. This strategy is quite effective to sustain the sales trend and retain existing customer to a considerable extent in-spite of the having a high bargaining power in the industry. Bargaining power of the suppliers: The bargaining power of the suppliers is also very high because there are limited global brands presents in all major categories of ecommerce. In case books there are few reputed multinational publishers are there in global book publishing market. Therefore, number of reputed brands is quite less compared to increasing ecommerce websites and this oligopolistic buyer supplier market creates the opportunity for the supplier to have a high bargaining power. In control this force, Amazon use two of its major strengths such as high brand value and its huge customer base to minimise the bargaining power of the suppliers to increase the price margin. Therefore, the book publishers and suppliers of other categories of fast moving consumer durable products maintain a long term relationship with the company. Moreover, Amazon.com efficiently maintains the “days payable outstanding” of 35 days with its suppliers. These two strategies are quite effective to maintain a good relationship with the suppliers with less bargaining power. Competitive rivalry: The level of competitive rivalry is extremely high for Amazon as several retail organizations also have strong presence in ecommerce market. Barnes & Noble, Borders, Blackwell and Book Club associates are the major competitors of Amazon in the major segment its online book business. But, in order to enhance its market share and revenue growth the organization tries to offer the books and other retail durables at competitive price with faster delivery. The cost leadership strategy and efficient supply chain helps the company to maintain a competitive advantage in this industry. Threat of substitutes: The threat of substitutes is always high in ecommerce business because of the strong presence of bricks and mortar stores. Therefore, in order to retain the customers through competitive pricing strategy. Competitive pricing strategy reduced the switch-over costs of the customers towards physical stores and Amazon.com is successful to enhance its competitive advantage by this way. Competitive advantage in Amazon’s flagship business: online book selling In current competitive business environment each and every sector of business is highly competitive in nature. Apart from popular ecommerce categories like cloths, apparels, accessories, electronic devices, home and kitchen appliances etc. the retail online book market is also highly competitive because several online book sellers like Barnes & Nobles, Blackwell and Book Club associates, WH Smith, Waterstone’s etc have strong presence in the market. As per the book-selling report of keynote.co.uk (2010), the competitors are grouped into three categories like flag retailers, independent book retailers and low cost internet business model. The Flag retailers are the extremely popular and large sized retailers, comprising of high position and leadership in this competitive market. Among them, WH Smith, Waterstone’s, Barnes & Nobles, Blackwell and Book Club associates are some of the well-known examples that used to offer varied types of discounts so as to attract and retain the customers. So, the reliability and dependability of Amazon.com declined to a significant extent as compared to these retailers. The second group of retailers is the independent book retailers and superstores that offer books at a quite competitive price along with numerous complementary products. Therefore, the total sale and profitability of Amazon.com decreased significantly. Therefore, Amazon has focused on offering products at lowest price. Moreover, Amazon also offers the facility of ordering or selecting the products by residing in their residences or office premises. These strategies helped the organization to amplify its brand image and dominance within the minds of the customers as compared to others. Amazon also offers the opportunity of free shipping that proved extremely effective for the repeat customers, therefore, the switchover costs of the consumers of the existing loyal customers of Amazon is quite high. This is one of the most important customer retention strategies of Amazon. In order to increase its portfolio and customer base, Amazon.com also offered the facility of purchasing cheaper and used books with the help of third party sellers. These strategies of Amazon have successfully positioned the company as a loyal brand to its customers. Strategic issues Value chain analysis In order to amplify its brand value and market share, Amazon always keep high attention on the changing buying behaviour and preferences trend of the customers. The customers may find or identify any thing they desire to purchase through online sites. Therefore, Amazon desires to optimize the online platform in such a way so that the customers might discover and purchase books and other retail durable products residing at any place in the entire globe. In addition, as Amazon is a customer centric organization so it offers high attention over sales and marketing, technology management as well as customer service part as compared to others. Amazon tries to make a distinctive image as compared to other retailers and presented an online store rather than brick and mortar store. Online store also offered the facility of attaining any book immediately that amplified the loyalty of the customers. Moreover, in order to satisfy the changed preferences of the customers, the organization desired to maintain new partnerships with other companies. This helped to increase the total sales of the organization and the remaining sales is generated through media, seller sites, miscellaneous marketing etc. Numerous customers are attracted towards the website of Amazon.com with the help of Associates program, portal advertising and sponsored search etc. Amazon offers more attention over technology management as internet platform is used to expand the customer base and market share. The company tries to enhance their ecommerce expertises as compared to the other online retailers. Hence, effective use of technology enhanced the operational efficiency of Amazon and this acted as a success for the organization. But the company offers very low attention over inbound facilities as compared to outbound logistics and human resource management. In order to offer best services to the customers, the organization recruited highly experienced individual with highest expertise in online sales. This is done in order to offer full assistance to the customers at the time of purchasing or to present advises to the customers for any book or CD etc. These individual experts also offer effective support in delivering the ordered products to the residences of the customers in stipulated time span. Hence, it might be clearly analyzed that in order to retain the online presence, Amazon offers highest concentration over technology, operations and customer service. Strategic options Ansoff matrix In order to identify the best strategic option, one of the important strategic decision models, Ansoff matrix would be used. This model comprised of four elements such as build or market penetration, market development, product development and diversification. Amazon has made use of the first three strategies in its business. Market penetration: Amazon has decided to select the strategy of market penetration as it might prove effective for the organization to amplify its customer base and brand awareness. With the help of advertising campaigns, marketing programs, loyalty programs, Amazon has created a strong foot within a region, named China. As, China is considered to be the most profitable nation for the company in terms of profitability and market share, the organization has decided to penetrate into the Chinese ecommerce market. Product development: In order to build a strong competitive advantage compared to other rival players, Amazon has strengthen it offering portfolio with popular categories of retail durables for the target customers such as apparels, shoes, accessories, baby care products, beauty products etc. This strategy proved effective for Amazon.com that amplified the customer base and profit margin of the organization as presented below: (Preibusch & Fleckenstein, 2005) Market development: With an aim to increase the attention of target customer in new and existing markets on the product offerings, Amazon has focussed on improving its packaging, distribution, logistics and pricing options. After analyzing current strategies, strategic issues and strategic options of Amazon, it can be summarized that among all these options, the most feasible strategies used by Amazon are market penetration and product development. Both of these strategies proved extremely effective for the organization that increased the sustainability and dominance in this competitive age among many other existing rival players. Amazon became successful in sustaining its competitive advantage in global ecommerce market. References Keynote.co.uk. 2010. Bookselling market report, 2010. [Online] Available at: http://www.keynote.co.uk/market-intelligence/view/product/10370/bookselling [Accessed on 7th August, 2014]. Preibusch, S. & Fleckenstein, M. 2005. Strategies to Achieve Market Leadership: The Example of Amazon. [Online] Available at: http://preibusch.de/documents/PreibuschS_FleckensteinM_Amazon.pdf [Accessed on 7th August, 2014]. Read More