Strategic Management in Amazon - Essay Example

Consumerism and the purchasing patters s around the world have evolved in the last 30 years. It started with the globalization movement ofthe 1980’s when more foreign nation entered into free trade agreements which created greater synergy and interconnectivity of the global marketplace. Soon after when the 1990’s the internet started a new technological era and ecommerce was born. There a lot of technological companies that open up electronic stores to gain access to the newest virtual marketplace that had the ability to reach the entire global online population. In 1995 a company was born called Amazon.com which started out as online bookstore. Amazon.com became very popular in its niche of online books sales due to its large inventory book selection and prices that were below market value. Towards the end of the decade the .com bubble occurred and many e-stores when out of business, only the strongest players survived. Amazon was one of the e-retailers that survived the bubble due to its customer centric approach, great levels of service, low prices and good variety of items. As the 21st came upon us Amazon.com changed its strategic focus and decided to diversify to expand its product selection to other areas outside the typical products at a book store. This report provides an internal and external analysis of Amazon.com during the middle par of the 21st century. It then provides a strategic outlook based on the reality of Amazon in 2008. SWOT Analysis Amazon (2004-2006) A SWOT analysis is marketing strategic tools that analysis internal and external factors affecting the operation of a corporation. The strength and weakness variables are used to perform an internal analysis of the company, while the opportunities and threats variables involved and external analysis of the environment (Kotler). One of the biggest strengths Amazon.com has developed over the years is a strong brand identity among consumers worldwide. In its core business division its online bookstore Amazon has a strong reputation for providing value and excellent customer service. The company has able to develop its human capital and organizational knowledge of ecommerce since it entered the market 13 years ago. The company experience has been achieved through a learning curve in which they learned from their mistakes. The firm’s diversification strategy allowed Amazon.com to have the distinction of having the world largest collection of goods and services. Establishing such a wide range of product and service offering increases a company’s changes of attracting different types of customers which builds up a larger customer base. Amazon’s penetration into 200 worldwide markets has allowed the company to achieve income streams from every corner of the global economy. The firm’s e-platform has a lower cost structure than typical retailers that have huge overheads related to labor and rental space. The company has also been able to effectively utilized technology to improve its operations and create a new business model based on the expansion into new business segments. Identifying the weaknesses of a company is critical step that can allow a management team to create new strategies to fix the underlying problem in a company. The company deep investments in technology and web promotions had significantly lowered the profits margins of the company in 2005. The additional sales growth they achieved was generated at the expense of profitability. This financial reality hurt the company’s ability to raise capital in the stock market. The company’s stock went down in price which meant that if new issue of stocks was placed in the open market the firm would raise a much lower lump sum from the sale. As the company started on a diversification strategy and created many divisions within the Amazon label the company’s customer service which is one its strategic focus has gone down. Other e-retailers that specialized in single category of goods or services have been to surpass Amazon in customer service. The marketing strategy the company utilized was not too keen at sending out a message that Amazon had been transformed from a virtual bookstore into a complete all out retailer. Personally I consider myself an e-shopper and between 2004 and 2006 I never thought of Amazon as nothing more than a place to purchase books or CD’s. The company never had a massive effective campaign to let the general pubic know about the transformation the company had endured. Amazon.com can take advantage of different market opportunities and internal strength to improve its financial results. The company already embarked in the sale of electric books to complement its sales of traditional books. Electronic books are a tremendous growth opportunity for the company. They offered great advantages such as eliminated inventory costs and physical space associated with storing these items. The e-book marketplace is still in birth stage of its product life cycle, but Amazon can take a lead in this new niche and prepare itself for the future. It is expected that by 2010 e-books will account for 1% of all book sales worldwide (Timesonline). Amazon could aggressively target the major customer for these products which are online universities such as the University of Phoenix, Devry and Walden University. Negotiating contracts with these types of vendors represents a long-term opportunity that will continue to grow as online education continues to proliferate worldwide. Amazon has the opportunity to further expand its corporate empire and become the world largest online retailer. The company can utilize new technological advances to attract new business ventures into its network. Amazon’s S3 simple storage service enables developers to leverage Amazon’ own benefits of massive scale without the need of large investments (Johnson, Scholes, Whittington, p.636). Businesses are subject to threats that impose danger and a business risk for a company. As a virtual company Amazon is subject the security threat of hackers attacking the company and taking down the entire network. A survey of the world’s 70 largest internet companies found growing concern over a wide range of new threats from malicious hackers whose attacks are increasingly targeting e-commerce sites (Leonard). As Amazon changed its strategic focus and moved away from being a bookstore the firm faces threats from new competitors including the world largest retailer Wal-Mart. Amazon has become an online retailer of consumer goods which makes the firm a direct competitor of Wal-Mart. Wal-Mart is the most power retailer in the world because it has the best logistics and lowest cost structure in the marketplace. Its brand name and expanded network of stores worldwide make them a great candidate to capitalize in the ecommerce business. Wal-Mart already has an online store available for its customers. The chain has advantages over Amazon such as the ability to get free marketing for its online store through its traditional chain store network and they can provide lower prices than amazing in the majority of categories of consumer goods. If they desired to do Wal-Mart can sustain a long price war of its ecommerce business to target any particular competitor including Amazon. Internal Analysis – Amazon (2004 – 2006) Amazon.com core competencies that made the company a famous e-store is its knowledge of the publishing industry. The company became a very popular online bookstore due to its wide range of titles, low prices, and convenience. The website interface made it easy a customer to complete a purchase. The store had special services such as sales of used books which attracted a lot of young customers. In the online selling business a company’s success is determine by the amount of web traffic the site receives. Amazon had millions of daily visitors to its website. In the publishing industry profits for retailers are not that high, which was one the factors that hurt the company’s profitability year after year. Amazon knew how to sell a product and the website popularity and brand value could be used to promote other things. In order to increase its profitability and expand its growth potential Amazon decided to diversify its product offering into other segments of the retailing industry. The decision of expanding Amazon’s business beyond a bookstore is a move that has inherent business risk. The executives at Amazon are not experienced other types of goods. Their marketing efforts have historical targeted a certain type of customer profile, thus they may be competent at advertising campaigns to sell a wide array of items. Any business that diversifies its product offering into many types of goods and services is not able to gain an expertise in particular industries since they HR have to focus on many market segments. A diversification strategy makes the company business risk higher in regards to its correlation to the general state of the economy. Increased diversification will make the company’s administration more complex and bureaucratic. More managers and personnel are needed to administer the new business divisions needed for the different types of goods the company moves. A good that can be used to analyze Amazon’s internal operations is the value chain analysis. Value chain analysis was developed by Michael Porter in 1985. It evaluates a company by dividing the business into five primary activities and four secondary activities that support the primary ones. The primary activities are inbound logistics, operations, outbound logistics, marketing & sales, and service, while the four supporting activities are human resources, procurement, technology development and firm infrastructure (Quickmba). The companies needed to improve its outbound logistics in order to improve its speed of delivery. To accomplish the task Amazon changed its logistics by creating a new distribution center in North Carolina in 2005. Technological developments were used to update the capabilities of the company’s global staff. Amazon opened up new software development centers in India, South Africa, Romania, and Scotland. The company’s diversification strategy increased in spread at the end of 2005 when executive committed to purchase more aggressively beyond the Amazon flagship categories of books, music, and video (Johnson, et al. 631). The company marketing expertise in the online marketing specialty has provided an edge that helped the firm expands its operation into other segments of the retail business. The market research division called Amazon Mechanical Turk attracted new types of customers such as researchers, investigators and member of the academia community which were attracted by the company’s services which facilitate primary research initiatives. Amazon 2008 and beyond The mission statement of Amazon is to be earth’s most customer centric company; to build a place where people can come to find and discover anything they may want to buy online (Amazon). Amazon’s common stocks are listed in the open market in the NASDAQ over the counter system. The latest financial results of the company are for the 3rd quarter of 2008 a period that the company generated $4.26 billion in revenues, a boost of 31% compare with the 3rd of 2007 (Amazon). The company excellent financial performance during this period are quite impressive considering what the company had to encounter in the US and global economy. We are currently in the early stages of a recession in which the economy is going through a credit crunch financial crisis that is limited the amount of credit available to individuals and small business. The U.S. Census Bureau determined that in October 2008 retailing sales were down 2.8% from the previous month and 4.1% in comparison with October 2007 levels (Winters & Lukasi). The company’s impressive 3rd quarter results were achieved because company capitalize in the market condition and offered its customer the things they desired. Lower prices are the top priority for a consumer during bad economic times. Amazon cut down its prices to increase the demand for its products. Recessionary times posed unique business opportunities for company that the foresight and vision to capitalize on them. One of the greatest open opportunities is the ability to penetrate the market and expand a company’s market share. The 31% overall increase in sales is a step in the right direction towards increasing the firm’s market share. Another wise strategic move was a further expansion of the company’s product selection. In 2006 the company started down this road and now in 2008 that strategic choice made two years ago is starting to pay off dividends for the company. A special promotion that cut down the final price of the company’s further down was the provision of increasing the free shipping offer to from items price at $5 up to items valued at $15. The company has introduced new customer friendly technological advanced products that fair well among younger customer and improved the firms brand image. One of these creations is the Kindle. The Kindle is a purpose-built reading device with wireless access to more than 110,000 books, blogs, magazines, and newspapers (Annual Report: Amazon 2007). The device is so practice its wireless connectivity is not limited to Wi-fi or Wi-max, it can connect to the widely available cellular networks. The kindle is project with a lot of potential for sales growth in the short and mid term outlook. This project is an example of the strategic direction the company must follow to secure its future. A product the company could develop that is aligned with its core competencies is entering the virtual reality marketplace. The company should target application that can incorporate virtual reality into education or training simulations to target both the corporate marketplace and the academic community. Such technology is a product development that could be launched after 2012 to meet the customer demands for more advanced multimedia experiences. Amazon must take advantage of advances in information technology to created new marketing campaigns that can keep up with the speed of change in customer behavior. The hottest new marketing channel is mobile telephony. Mobile advertising is a service that can provide an instant access to thousands of customers with a specific customer profile. It also has the capabilities of taking advantage of the capabilities of the smart such as I-phone, Blackberries, and Tilt models. These devices have multimedia functionality that allows the transmission of videos advertisement directly to a cellular phone user. Amazon could also target other technological advance marketing channels such as the interactive advertising companies such as TiVo which are developing new advertising alternatives that will allow companies to send personalized sales pitches in which the customer can interact and send provide valuable feedback. Conclusion Amazon.com is a company that has surpassed all expectations in its short 13 year history. The company’s core competency was becoming a leading online bookstore. The online store developed a great reputation and brand value based on its low prices, customer service, and great selection of books. By the year 2004 the firm had achieved good sales growth, but its profitability had been declining every year since its inception. In 2005 the company implemented radical change in its business strategy. Amazon utilized its brand recognition in e-commerce to diversity its business model into other segments of the retail industry. The use of strategic appliances, partnerships, acquisition was used to developed new profitable division such as Minipocket, Marks & Spencer, Drugstore.com, and A9.com. Amazon in 2008 has performed very well in marketplace and has been successful with the implementation of a diversification strategy. In the future Amazon needs to continue utilizing innovation and technology to create new business concepts to attract the ever changing customer of the 21st century. Works Cited Page Amazon.com. 2008. 17 November 2008. Annual Report: Amazon. 2007. 17 November 2008. Johnson, G., Scholes, K., Wittington, R. 2008. Exploring Corporate Strategy (8th ed.). Prentice Hall. Kotler, P. 2002. Marketing Management (11th ed.). New Jersey: Prentice Hall. Leonard, T. 11 November 2008. “Market warms to Electronic Books.” Quickmba.com. 2008. “The Value Chain. 20 November 2008. Timesonline.co. 31 August 2008. “Market warms to electronic books.” 18 November 2008.” Winters, T., Lukasik, A. October 2008. “Advance Monthly Sales For Retail Trade and Food Services.” U.S. Census Bureau News. < http://www.census.gov/marts/www/retail.html> Read More