How Amazon, Com Use Digital Channels to Achieve Their Success - Case Study Example

HOW AMAZON.COM USE DIGITAL CHANNELS TO ACHIEVE THEIR SUCCESS Executive Summary Amazon has grown to become one of the biggest online retailer. What started as just an online book store in 1994 has made it to the Fortune 500 companies in the world. The strategy of management and advertising used by Amazon perhaps has been the major foundation and pillar of its phenomenal growth in both the sales and profitability. There are a number of strategies that the company has adopted to ensure effective management and growth of the volumes of sales. Among the methods adopted by the company includes its ability to merge and acquire other online retailers, web analytics, sound management and organization upholding corporate governance principles, online advertising and investment in the latest technology. However it has not been all smooth for Amazon which is widely regarded as the biggest online bookstore. For the better stage of its infancy the company recorded recurring losses which has no comparison to its current profitability scale. The intense competition it faces from other online sites plus a number of risks that the company needs to address in the technological age have seen a great setback in the organization growth. That notwithstanding it remain a key role model of online retailing and a detailed analysis of its digital channels is very imperative to ensure we understand the real background of such an online company. INTRODUCTION Amazon.com was founded by Jeff Bezos in 1994, who up to date continue to be the president, chief executive officer and the chairman of the corporation. It’s anchored on electronic commerce, provision of cloud computing services and production of the consumer electronics. The headquarters of the company are located in Seattle, Washington. The company operates a two corridor operation, sales to the North America and internationally (Spector 2000). The company objective is to serve the consumers and focus effectively on the convenience, price and selection. The company tries to offer its products to the third parties through lowest prices by making sure that there is a price cut of the pricing and shipping. Amazon has strived to ensure a customer based approach by making the customer service is fast, functional and reliable. Due to recurring competition the company has always taken innovation as the heart of its operation. The competition is drawn majorly from the physical publishers, manufacturers and producers, other electronic commerce sites, indirect competitors who have comparison shipping and shopping services, web services infrastructure companies and digital media devices services. Overtime Amazon has weathered the storm of competition by providing products quality, establishing winning suppliers’ partnership and ensuring that the services are reliable. The competitors are ever increasing and investing more resources into the market thus the need of Amazon to analyse and enhance its digital marketing channels (Leeds 2007). 1. Mergers and Acquisition Strategy. The company has always strengthened its business alliances and combinations to stay aboard a very competitive environment. Competition is weathered by investing more resources in marketing strategies, providing competitive and aggressive pricing, investing in information technology and infrastructure and making stronger tiers and partnership with the suppliers. To ensure the company profitability which was pegged at$631 million in 2011, Amazon has had a long history of mergers and acquisition to increase its customer market base. The major acquisition include the 1998 acquisition of PlanetAll a reminder service based company, the 2003 online retailer of music CD Now, the Chinese Joyo.com in 2004, Shopbop a women designer clothing retailer in 2006, Zappos a retailer of shoes online in 2009 (Stone 2009) and Kivasystems in 2012 . The acquisition and mergers are facilitated by the company ability through a long history, brand recognition and the resource backing. As at the year 2011 the company revenue stood at $48.07 billion which illustrates its financial ability. The company has grown to be a leading online bookstore and a major online supplier of electronic, toys, shoes, food, jewelry, furniture, software and video games. To ensure increase of sales and profitability the company has also heavily invested in Engine Yard and LivingSocial to boost their sales (Spector 2000). 2. Web analytics These are a proper and careful study and analysis of the internet data for purposes maximizing the usage of the internet. It raises a moral and security issues since the analysis is usually done without the information and the consent of the users. It is a multiple functional tool since it can be both used as a mode of market research and also a tool of measurement of the traffic in the web. It gives candid information of the number of visitors who have visited the website and the views (Zwass 2006). This has been a tool used by Amazon to market its products. By the views and larger traffic direction, the marketing strategy is achieved. Any intent to make a purchase is backed the number of other customers who have bought a similar product in the recent past. The web analytics is very important in marketing the popularity of the company and products. The web analytics can be both offsite and onsite in nature. Amazon blends the two to strategize in more sales. The onsite web analytics is the most important for Amazon since it incorporated the commercial aspect thus crosschecking the data against the background of key performance indicators. There are two methods which are very useful in achieving web analytics, these are IP geolocation and click analytics. Click analytics assist to give an analysis based on the number of ‘clicks’. These can be achieved in real-time or in unreal time basis. A proper utilization of this method is useful in analysing the traffic of the onsite strategy. IP geolocation is useful in tracking the customer and visitor locations. The information gathered is very vital for the online advertising, managing market segmentation and content distribution (Marcus 2004). 3. Management and Organization. Amazon is led by an able management of nine board of directors. The management is a very important tool in the profitability and expansion of the company. Their policies and decision are equally important in achieving the Amazon mission and vision. Amazon vision is to give a greater focus on customer experience by offering low prices, wide selection and convenience. Amazon success in achieving a wide range of merchandise and loyalty to the customers has been pivotal to the company success story (Evans and Wurster 2001). The company continues to face major challenges in its quest to have global operations. The management plays an important role in ensuring that there is an expansion of global services and products. One of the major challenges remains a political and human resource one. Due to the fluid nature of the sales, the personnel management fluctuates with the sales of the company. The company has often too received legal challenges for example the Barnes and Noble lawsuit that the company was misrepresenting itself by its reference to being ‘the world’s largest bookstore”. Though this case was settled out of court Walmart a leading corporation also engaged Amazon in legal battle concerning a breach of trade secrets alleged to have been occasioned by Amazon recruiting the Walmart executives. The management is very important in managing the checks and balances of a company marketing, investment, financial and future strategizing (Kotler 2000). Corporate governance is the pillar that shields better management of any corporation. The corporate governance defines the policies, processes and customs that determine the control and direction of how management interacts with shareholders and stakeholders to mitigate any losses to the company. The management and the board are accountable to the shareholders who have invested their resources in the company. The management ought to demonstrate a greater extent of accountability and better agency of their functions. Lack of clear corporate governance and effective governance has led to collapse of organisation such as Enron Corporation and WorldCom (Kotler 2000). The management needs to assess the risks of Amazon in giving any strategy and decision on behalf of the company. Some of the risks are (Round 2004); a. political in nature, an example is the Peoples Republic of China (PRC) that has restrictions as relates the management and investment of electronic commerce in its territory. b. the intense competition that the company receives in marketing and selling its products. c. significant fluctuations in the operating results and growth rate. d. International Market dynamism- this include the changes in economical licensing and certification of e-products. e. Seasonality of business operations. f. Foreign exchange risks. Amazon holds a majority of cash equivalents in US Dollar but also in Japanese Yen, British Pounds and Euros. If the US Dollar would strengthen against the other currencies this would translate to a decline of the marketable securities balances and cash equivalents (Spector 2000). g. Data risk and security breaches. h. Significant inventory risk. i. System interruption and redundancy levels. j. Tax liabilities. The management theory has a common thread that stipulates that effectiveness of the management should have the following components. The management should concentrate their energies in making greater emphasis on the profitability of the organization. The profitability and production of greater quality services are what makes most stakeholders of the organization to be satisfied with the company. The welfare of the employees should be at the heart of management of the organization; this is essentially enhanced by ensuring a better working environment and better remuneration (Sealy 2002). Better and effective management is ensured when there is proper hierarchical form of management. The flow of authority and decision making serves to make better implementation of the policies. The management ought to promote and encourage brainstorming sessions of both junior and senior executives to integrate all ideas and own up the decisions of the corporation. Effective leadership too has the element of a feedback system from the shareholders, employees and stakeholders. Feedback system is very important in making changes to the management leadership strategies (Kalakota and Whinston 2007). Effective management also incorporate the values of displines of the members, unity of commands, unity of direction, centralization of duties, personnel and responsibilities and stability of staff. In the current corporate atmosphere engagement in corporate social responsibility is a key strategy by the management to have effective leadership. Amazon has shown CSR in different scenarios, in 2004 the company donated approximately $15.7million for victims of earthquake and tsunami (Spector 2000). 4. Investment in technology Research and Development (R&D) remains very important for any organization that wishes to have a successful trend. Due to the intense competition and change of consumer trends and preferences, Amazon ought to be dynamic in accommodating such changes. The greater need for innovation has seen the need by Amazon to embrace innovation in information technology. An example is in 2007 when Amazon introduced the Amazon Kindle which is an e-book reader. The entry to tablet computer market through Kindle Fire is some of the examples that show the company ability to embrace technology to market its products. Over years the ability to merge and acquire other companies while embracing the recent technology has seen the company generate greater sales and profits. In 2009 the company established a subsidiary called A9.com whose main mandate is to focus on researching and development of innovative ideas and technology that gives the company a competitive edge and advantage. Due to use of information technology the company announced that it was selling more kindle books more than paper books (Stone 2009). 5. Online Advertising This is a successful digital channel that the management of Amazon has adopted. Due to successful online marketing strategy the company has had very great web traffic. In 2008 it attracted 615 million visitors. The success story of online advertising is facilitated by the company ability to make use of search engine optimization, social media marketing, email marketing, search analytics, referral marketing, behavioral targeting, contextual advertising, affiliate marketing and revenue sharing. The success of the online marketing is illustrated by the number of followers of Amazon on twitter and facebook (Marcus 2004). The success of online advertising has often faced stiff challenges; an example is the launch of zShops by Amazon to compete with the auction website eBay in 1999. The site has seen little traffic as compared to its competitor. Despite this, the innovative tools used by Amazon to attract customers have been amazing. The use of Amazon Prime as a discounted shipping tool for loyal customers has led to an increase of sales and profitability. Conclusion The management at Amazon has shown a great sense of direction to the company. The company has consolidated its position in electronic commerce. The online retail platform especially the bookstore has seen a growing tread of the number of customers globally. The management use of technology and partnerships has seen the volumes of sales increase in a great way. The company has recently engaged in strategic partnership with Kozmo.com (Home delivery), Wineshopper.com (wines), Living.com (furniture), pets.com (pet supplies), Drugstore.com (pharmacy), and HomeGrocer.com (Groceries) which has increased its customer base (Stone 2009). The digital channel adopted by Amazon has facilitated the achievement of its goals to increase the customer traffic to the websites, promote a greater awareness of the Amazons services and products, achieve compounded purchases, strengthen the brand name and increase the service revenue opportunities. From the effective management and marketing like paid up search marketing and interactive ads the company has experienced exponential growth. REFERENCE LIST Evans, P. and Wurster, T.S. (2001), ``Getting real about virtual commerce’’, Harvard Business Review. Kalakota, R. and Whinston, A.B. (2007), Electronic Commerce: A Manager’s Guide, Addison- Wesley, Reading, MA. Kotler, P. (2000), Marketing Management: Analysis, Planning, Implementation, & Control, Prentice-Hall, Englewood Cliffs, NJ. Leeds, J (2007), Amazon to Sell Warner Music Minus Copy Protection, The New York Times. Marcus, J. (2004) Amazonia. Five years at the epicentre of the dot-com juggernaut, The New Press, New York, NY. Round, M. (2004), Presentation to E-metrics, London, SAGE Sealy, P. (2002), ``How e-commerce will trump brand management’’, Harvard Business Review. Spector, R (2000), amazon.com - Get Big Fast : Inside the Revolutionary Business Model That Changed the World, New York, Harper Collins Publishers. Stone, B (2009). "Amazon Acquires Stanza, an E-Book Application for the iPhone". The New York Times. Zwass, V. (2006),Electronic commerce: structures and issues, International Journal of Electronic Commerce, Vol. 1 No. 1, pp. 69-74. Read More