The Microenvironment of Amazon.com - Research Paper Example

 Abstract This paper presents an analysis of the Amazon.com’s business situations in which the company operates, using the customer value funnel (CVF) approach. This approach is based on the value delivery through the micro/macro-environment, Amazon’s strategic analysis, the company’s value proposition and its customer value insights. In analyzing these factors, the company relates well to most of its value drivers that can affect their business and Amazon makes customer value its priority realizing the importance these factors can have on the performance of the business. The company achieves its goal through both the internal and external environment dealing with those issues using their best customer value strategies in order to remain highly competitive in this volatile market. Although the company experienced its ups and downs along the way, it has not greatly affected the company in its operations. Micro-environmental analysis This section analyses the micro environment of Amazon.com using the Customer Value Funnel (CVF) Approach. This approach is based on analyzing value delivery through collaboration, competition, suppliers and regulators (Weinstein, 2012). An analysis of these factors provides the company’s implications of these concepts and how they affect its business performance. Collaboration Collaboration is concerned with how firms participate in the market through channel members and/or customers leading to the cocreation of value, strong supply chain relationships, partnerships and use of social media (Weinstein, 2012). Amazon.com is always seeking collaborative relationships to help grow its business, leading to the creation of customer value and market performance. According to Cimpanu (2009), Amazon collaborated with Target from 2001 where the latter’s e-commerce platform was managed by Amazon.com as it had the capability and experience to do so. This collaboration was however ended in 2011 after several lawsuits against Amazon. The company has also collaborated with some partners in the fashion industry. For instance, according to Vogue (2012), Amazon launched an exclusive collaboration with Meadham Kirchoff designers for a collection of sweatshirts. Still in the same industry, Amazon is collaborating with another designer for Derek Lam’s 10 Crosby contemporary line (Callahan, 2013). Amazon has also opened up collaboration with other entrepreneurs through its cloud system whereby other entrepreneurs can use it at a cost of 10 cents an hour and harness its computing capability (Tapscott and Williams, 2007). McConnell (2005) reports that Amazon launched ProductWiki which opened the door for citizen marketing as it allowed customer editable information. These collaborations has enabled Amazon to deliver value to customers by providing a variety of products at affordable costs and at their convenience. Customers can therefore find a wide variety of products from books to electronics to clothes, courtesy of the various collaborations that Amazon engages in with a number of partners. Competition Amazon.com faces competition from a number of quarters especially those who want to protect their retail business interests. The company faces competition from physical “brick and mortar” bookstores that are now going online. For instance, BarnesandNoble.com, Borders.com, Booksense.com and Booklite.com were originally purely physical bookstores but have now gone online and therefore competing directly with Amazon.com in retailing of books online. The physical bookstores also offer competitive challenge as they are also substitute products. Given that shoppers usually prefer the physical bookstores, it offers a competitive challenge to Amazon.com. The combination of competition from the physical bookstores as well as the new entrants in the online bookstores business has heightened competition in the industry in which Amazon.com operates. In other industries such as the online music industry and the online auction industry, it faced stiff competition from CDNow.com and eBay.com respectively. But Amazon.com purchased the rights to CDNow in 2001 (CrunchBase, 2010). The remaining major competitor of Amazon.com is therefore eBay.com which has a market capitalization of $71,313 million to Amazon.com’s $122,396 million (MorningStar, 2013). Another competitor of Amazon.com is Apple Inc. especially in the retailing of online music industry (Yahoo!Finance, 2013). Competition has made Amazon be on its toes to deliver value to customers in order to be the market leader in terms of e-retailing. Competitive pressures led to adoption of One-Click technology where customers can buy items online through just a click. This technology has even been patented by the company and thus can be said to have been a competitive advantage to the company. Such came through due to the competition in the market. Suppliers Amazon.com has the most problems when it comes to suppliers. The company is getting into the supply business itself as it is having problems keeping them. In electronics, Amazon.com cannot buy from the main distributors as the suppliers complained that it was selling at below market prices. It therefore buys from the suppliers of electronics. It has entered into legal battles with a number of suppliers due to contract violation issues and sudden change of contracts. For example, The Wall Street Journal (2011) reported that Amazon.com had been taken to court for sabotaging M-Edge, an e-reader case manufacturer. Amazon.com also has publishers as suppliers but Gobry (2011) reported that the company had a plan to start competing with them by becoming an e-book publisher. Perhaps, this excerpt from Amazon can point to the relationship with suppliers: “[….] no vendor accounted for 10% or more of our inventory purchases. We generally do not have long-term contracts or arrangements with our vendors to guarantee the availability of merchandise, particular payment terms, or the extension of credit limits” (Wikinvest, 2012). Amazon.com now has its independent automated distribution centers in the US for its online book sector hence less dependent on the main distributor (Ducham, 2013). It can therefore be concluded that through suppliers, Amazon maximizes value to its customers by adopting a supply chain that enables the final consumer to get products at lower costs compared to the prices in the market. Therefore, value is maximized across the supply chain. Regulators There are a number of regulators across with many jurisdictions that Amazon must comply with. For instance, it has to comply with the regulations by the US Federal Trade Commission, taxation laws, and cyber-laws in the US and across the world. It has to comply with the laws guiding competition and patents rights too and such violations have seen the company be dragged to court especially by suppliers who feel sabotaged by Amazon (The Wall Street Journal, 2011). According to Whitney (2012), Amazon’s Kindle store ran into a regulatory snag in China when it borrowed a license from one of its partners and used the same to offer books online instead of getting a license on the same as was supposed to be the case. The available regulations so far have been enabling and not detrimental to the growth of the company. The legal environment is always changing and future laws could spell more glory or doom to the company. Regulators have therefore enabled Amazon to deliver value to the customers by operating within the regulatory framework and therefore providing products that are legal in every jurisdiction and that are up to the global standards. Regulators have made it possible for customers to trust Amazon more as it operates within the laws and regulations of countries and good business practices. Conclusion Amazon.com is influenced by a number of market factors in its micro-environment. Using the Customer Value Funnel approach, it can be noted that the company collaborates with a number of partners especially in delivery of information systems to serve e-retailing. The company has competitors in a number of sectors it operates from fashion, online bookstores, online music, and gambling. The most outstanding competitors are Apple Inc. and eBay.com. The company also has a number of suppliers but this is an area that has offered the greatest challenge given its policy of providing products to consumers at lowest costs possible. The company therefore has its own automated distribution centers for books and plans to publish e-books to cut out the distributors. The regulators have so far worked for the company but changes in legislation could spell the future direction of the company. Recommendations This paper recommends that more collaboration is required especially to enhance the capabilities of its information systems platform. It is also recommended that Amazon enters into more significant supplier relationships with major distributors especially in the electronics sector in order to provide more value to customers. It can enter into a contract with , say, Pioneer distributor just like any other supplier instead of buying from other suppliers because in essence Amazon.com does just the same service as them only that theirs is a brick and mortar business model. Lastly, it is recommended that Amazon.com follow its contracts legally as more litigation by suppliers, partners, or authorities may end its growth prospects. It is expected that the company will adhere to laws and regulations that govern its industry across all nations in the world. References Callahan, J. (2013), Amazon Takes Retailer-Designer Collaboration Online, March, Accessed on 22 May 2013 from http://www.firstinsight.com/blog/bid/274614/Amazon-Takes-Retailer-Designer-Collaboration-Online Cimpanu, C. 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Accessed on 22 May 2013 from http://www.artweinstein.com/uploads/value_creation_courses.pdf Whitney, L. (2012), Report: Amazon Kindle store hit by regulatory trouble in China, December, Accessed on 22 May 2013 from http://news.cnet.com/8301-1023_3-57559569-93/report-amazon-kindle-store-hit-by-regulatory-trouble-in-china/ Wikinvest (2012), Amazon.com: Inventory Suppliers, Accessed on 22 May 2013 from http://www.wikinvest.com/stock/Amazon.com_(AMZN)/Inventory_Suppliers Yahoo!Finance (2013), Amazon.co. Inc: Competitors, May, Accessed on 22 May 2013 from http://finance.yahoo.com/q/co?s=amzn+Competitors Read More