Amazon Goals and Strategy - Research Paper Example

? Company Analysis: Amazon.com and number submitted Company Analysis: Amazon.com Amazon.com is an online retail company that came into being in 1994. The company is one of the largest in its field in terms of revenue which for the year 2012 was about 61.1 billion dollars. There are competitors of Amazon.com however a field of business for Amazon.com and its major competitors is hard to determine because of the variety and flexibility of e-businesses. The most relevant competitor for Amazon.com is eBay which shares a large part of Amazon.com’s market with it and is also similar in size and scope. However while eBay is a consumer-to-consumer trade platform, Amazon.com relies mainly on the producer-to-consumer trade model and also offers many own products and services. The other two main competitors for Amazon.com from the books/publications field and the multimedia provision field are Barnes & Noble and Netflix respectively. The company is headquartered in Seattle, Washington and employs more than a hundred thousand people. The company was founded by Jeff Bezos who remains its chairman, president and chief executive officer. Vision and Mission The self-stated mission of the company is to “be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavour to offer its customers the lowest possible prices.” And while there is no articulate vision, given by the shareholders or founder of the company, to be followed by the staff, there are several references in the official publically available documents of the company to the drive towards technological innovation. There is no doubt that of all the businesses aiming or claiming to provide customers a wide variety of choice of products or services, Amazon.com, the world’s largest online retailer, is the truest to its mission statement. While it started off as an online bookstore, Amazon.com soon started offering multimedia products such as videos, films and music and later on got into the markets of various consumer products such as software, video games, electrical appliances, garments, cutlery, decoration items, sports goods and eatables etc. In the present day, Amazon.com offers many products and services of its own such as the market leading e-book reader (Kindle) and cloud networking services. The focus on customary offerings of Amazon.com can also be realized by the fact that the company operates specialized websites in Japan, Canada, United States, India, United Kingdom, Germany, Italy, Mexico, France, Australia, Brazil, China and Spain and has plans for such websites in Sweden, Holland and Poland as well. E-commerce is a an extension of physical trade over the internet and e-commerce companies such as Amazon.com do not reflect the kind of technological innovation that is generally appreciated of a web-based enterprise such as an internet social network. That is because the focus is still on trading of tangible goods and hence the trading represents the area of business rather than technology or the internet which is just a conduit for the trade. Neither Amazon.com’s strategies nor its staff are known to be technologically advanced or innovative in the contemporary sense. Similarly while the focus on low pricing is highlighted by the mission statement of Amazon.com, just as it is in the written objectives of innumerable businesses, there is no special initiative that offers a cost advantage to customers or targets the lower classes of consumers other than the need-based policy of competitive pricing. There is however a recently launched program that incorporates the ideas of both innovation and financial advantage for the customers called the “Subscribe & Save” program. The subscription offered by the program is open to consumers in most of Amazon.com’s operating regions and includes all household and other bulk-purchasable goods. Through this program consumers are offered up to a fifteen percent discount and free shipment in return for a subscription to periodic deliveries of the goods. Goals and Strategy The company’s overall orientation is towards the management of consumer experience with the stated objectives of focusing on offering low pricing, convenience and choice. In this regard the CEO of the company has re-iterated many a times in press releases and in the 2012 annual report as well that his organization is customer-driven rather than competitor driven. The stated business strategy of Amazon.com is very accurate in following the company’s vision and mission statements. There is no quantification of data in this regard but the closeness of the company’s mission and strategy must have played a vital role of the unimaginable success that Amazon.com has achieved. The focus on convenience and low pricing was evident in the business opportunity identified before the formation of the company by Jeff Bezos who started it off as an online bookstore. Bezos proposed that the market capitalization of the book retailing market by Barnes & Noble made it inevitable that the profit margins on books sold by the company were influenced by the lack of competition in the market and conceived the use of online cataloguing to offer convenience to customers. It is obvious that cost-effectiveness may come at the price of reduced quality of service which is why since the launch of Amazon.com as a book store it has progressively leant away from the original policy of focus on pricing which was actually a strategy to grab some of the market share of the book retailing business. However the key personnel of the organization have not changed and the company does display characteristics of its written policy in its dealing from time to time in various aspects which becomes a cause for major financial losses for the company. For instance, the company employs lenient quality assurance rules in order to allow for greater availability and low cost of consumer products. In this regard, the first quality standards certification the company acquired was the ISO 27001 in the year 2010 for its Amazon Web Services (AWS) division. The AWS announced 159 new features and services in 2012 while AWS prices were reduced for the twenty seventh consecutive time since 2005, the year when the service was launched. Similarly the company has a policy of allowing return of products by customers within thirty days which applies to most products. The policy resulted in accumulated losses of approximately 162 million dollars in the year 2012. Amazon.com does not need to maintain stocking facilities like the land-based retailers as deals mostly in provision of products that are kept by third party producers and distributors who maintain contracted goods at their own warehouses. Still there is a tendency in the operational management of Amazon.com to accumulate inventory at its strategically located storage facilities in order to provide more covered regions access to the goods and reduce consumer prices via reduction in logistics costs. Amazon.com values its inventory products at the lower of the cost of market value of the product. And for every one percent of inventory it adds to the existing stock on December 31, 2012, it would incur, through uncertainty of inventory valuation, a cost equalling sales of sixty million U.S. dollars. The drive of Amazon.com towards innovation had not been noticeable until 2012 when it picked up steam. This is evident in the reduction of free cash flow in 2012 owing to the increased operational and financing costs due to various initiatives such as the upheaval of AWS with the start of cloud computing and web hosting services, and the new incentive of seventy percent royalty in publishing to producers of some types of original content. Hence the free cash flow was 395 million dollars in 2012 compared to 2.1 (2011) and 2.5 (2010) billion dollars in the preceding years. One of the causes of the reduction in the free cash flow was the high costs of financing activities in 2012 which amounted to 2,259 million dollars compared to 481 and 181 million dollars in 2011 and 2010 respectively. The change from 2010 to 2011 and from 2011 to 2012 henceforth in this metric was 266 % and 470 % respectively. Strengths and Opportunities The cumulative revenue growth of the online retail business determined mainly by the fortunes of Amazon.com and eBay has seen an overall increase of 11% from 2012 to 2013 as the economies of the developed countries recover from a recession. This is much greater than the total produce coming into the global retail business indicated by the GDP growth of the world in 2012 which was 2.3 %. This indicates that the retail business is moving to the online platform and some products that are specific to the land-based retailer market may be making an entry into the e-commerce landscape. Amazon.com became established as one of the pioneers of this type of change when it beta-tested the AmazonFresh service which provides fresh fruits and vegetables to consumers who can buy the grocery online. It is pertinent to mention that companies such as Webvan and HomeGrocer.com had employed this business model much before Amazon.com but failed and the companies resultantly liquidated. Therefore one of the opportunities that are available to very few companies because of the required infrastructure and risk leverage needed for corporate adventurism in internet commerce is the possibility of venturing in the equity-based markets from the platform of the internet. Amazon.com already follows a customer-oriented business model which means that the highest emphasis of any of the strategic objectives is on sustainability through strengthening of the customer base. Hence the natural upcoming major investment from Amazon.com should be on individual personalization, something the company has already been focusing on most in its value creation policy though not greatly in financial terms. Because eBay is based on the communication of one individual to another and Alibaba Group, the only other retail competitor of Amazon.com, is involved more in business-to-business facilitation, these companies do not have the level of functionality that Amazon.com possesses in marketing from a brand new perspective: attracting customers through the pitch of personalized and fulfilling shopping experience. The personalized online product search and browsing facilities along with the author, user and editor reviews for guidance are steps already taken in this direction; however Amazon.com has the ability to make personalization its main business strategy. Two areas that Amazon.com falls behind from eBay in because of its business model are geographical footprint and variety of goods. eBay is able to offer a greater variety of products to its customers because it has a larger producer database with its trading focused on used items. For this reason both Alibaba Group and eBay are able to target more types of customers and have developed strong presence in the upcoming retail markets of south-east Asia and China. This disadvantage is evident from the fact that Amazon.com’s Chinese service has been active since 2004 and was surpassed by eBay’s Chinese store which returned to service in 2012 after a merger with fashion site Xiu.com after five years of dormancy and surpassed Amazon.cn in net income in 2012. In any case the market capitalization potential of the online retail market in China is limited even though it is by far the fasted growing consumer economy of the world. This is because of the monopolization of the web-based retailing business in China by the Alibaba Group which achieved an incredible 3.1 billion U.S. dollars in sales recently on ‘Cyber Monday’, November 11. If Amazon.com is to gain ground in its march towards sustainability it needs to venture out of the North American market which accounted for 2.6 billion dollars of the 3.5 billion dollar net sales of Amazon.com in 2012. To this end one potential marketplace of which the present trend coincides with Amazon.com’s business strategy is the far eastern music industry. Amazon.com is specifically targeting independent producers of multimedia content such as self-supported music artists and the Japanese and Korean music industries are progressing in leaps and bounds in the international English-lyrics market with their success epitomized by recent the South Korean single ‘Gangnam Style’ breaking all previous audio sales and video viewership records for a single; the Japanese music industry is leading the world in digital album sales share with forty three percent of sales happening online in 2012 up from thirty eight percent in the previous year. Porter’s Strategy for Amazon.com According to porter’s models for-profit organizations rely on one of differentiation, service or product specialization, or cost control to drive their businesses forward. For Amazon.com the best route to market success seems to be differentiation even though its current established policy in this regard is of winning over customer attention through competitive pricing. As stated before, Amazon.com seems to have essentially moved away from its aforementioned policy already because the market scenario and its own organization at the time of the constitution of the policy were completely different. Aggressive pricing is a ploy used in every type of competitive business environment and by this theory Amazon.com is competing not just with the online retailers but with couriers, suppliers and land-based retail store chains as well. However Amazon.com and other online retailers have a profound competitive advantage over physical storage chains in that some types of e-businesses and Amazon.com in particular do not need sophisticated setup for equity management which entails investing in inventory, real estate and qualified personnel to cater for the customers’ demands. Table 1. Incentive for Virtual Stocking (2005 Figures). Adapted from “Strategies to Achieve Market Leadership: The Example of Amazon” by M. Mirow from a seminar on Board Composition Beyond Independence held by the Institut fur Strategische Unternehmensfuhrung. Therefore what the low equity as a result of a lack of inventory provides for is flexibility in administration and function. Even though Amazon.com was envisioned as an online book retailer to snatch some of the market share from Barnes & Noble through competitive pricing and convenience in shopping, the company and its positioning is in no way the same now by any definition or description nor has it achieved its later growth and expansion through a focus on pricing. This is because the company has to bear shipment costs for most of the purchases through its website and hence cannot compete in pricing to unseat retail giants such as Wal-Mart which do not incur such costs because of self-pickup by the customers, and the game-changer has always been the variety of choice and convenience of shopping that Amazon.com offers. The advantage that Amazon.com enjoys over its main competitor, eBay, is that while eBay offers a larger catalogue of products to its customers via smaller portfolios and larger population of producers, it does not have the ability to tailor its products per the customer’s preference. However Amazon.com, with its own products and services and contracts with medium scale producers can offer this kind of personalization to consumers. Hence as stated earlier, movement towards a market strategy of value creation through personalization by Amazon.com is the safest route towards sustainability as there is the least amount of current and prospective competition for Amazon.com in this model which is based on differentiation. Possible Merger or Acquisition From earlier on one of the main recommendations in this paper was for Amazon.com to target the Japanese and Korean music industries as a short term strategy. Another rationale for moving business assets and orientation over to the digital content sphere is the deteriorating state of print media. It was commonly predicted in the early part of this decade that electronic media would make inroads into the viewership and circulation of print media after which the two types of media would reach and equilibrium, however the fall of the print industry has been incessant with many famous magazines going obsolete. And in the field of multimedia content provision the main competitor for Amazon.com is Netflix which is active as the second largest provider of streamed content in Japan. A smaller competitor to Netflix and the only one of any considerable degree of market presence is the media service Hulu which serves almost the same categories of content as Netflix. Hence a sensible acquisition for Amazon.com keeping in view the findings of this analysis would be that of the company Hulu.com which like Amazon has most of its subscriber base in the U.S., however it has considerable presence in Europe and might be expanding its services in Asia soon. Employee Rewards The net sales of Amazon.com grew by 27 percent, 41 percent and 40 percent in the years 2012, 2011 and 2010 respectively however the company incurred a net loss of 39 million dollars last year even though this variable has not come below the level of net profit of half a billion dollars in six years. There are two main reasons for this incursion of loss: The increase in operational spending because of the growth and sustainability initiatives and the lengthy contracts of employees, especially of the editorial staff. The editorial staff that Amazon.com employs constitutes the largest group of full time employees of the company. However as customer preferences and market trends change the company lets go of some staff due to static expertise along with compensation payments and hires fresh editorial staff that expertises in the contemporary company portfolio and customer interests. Therefore the administration needs to either offer incentives to editors to continue their professional development throughout their tenures or to resort to contingency employment with shorter contracts which will however result in lower employee morale. Amazon.com and Corporate Social Responsibility Unlike most corporate giants there have never been coherent protests over Amazon.com’s indifference to the company social, environmental and economic impact on its surroundings and the society. Some of the major criticisms of the company in this regard include its indifference to the Carbone Disclosure Project of which eighty percent of the top five hundred companies by revenue are signees and the preference of manual labour by the CEO for work in the few private warehouses of Amazon.com instead of electrical machinery in testing conditions where temperatures can go up to ninety degrees Fahrenheit. Amazon.com’s main CSR initiative, the AmazonSmile project is consistent with the company’s policy of providing convenience to the customer. Through a subscription of this service, the customer does not have to pay separately to any charity initiative by Amazon.com; instead 0.5 percent of the price of any goods bought after subscription to the service goes to charity, a cost borne by the company. The service is promoted with the tagline: “Same products, same prices, same service.” References (2013). 2012 Annual Report. Amazon.com Annual Reports and Proxies. 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