The Core Competencies of Amazon - Essay Example

Amazon phase one Done by; Abdulaziz Al-mejali MuniraAlhouti Mayra Walters Luis Blanco Ghazal Badawi Ali Radwani The core competencies of Amazon The online customer buying experience Online businesses offer convenience and ease of buying the products online. Amazon is an online company which offers visible cues (e.g. shopping cart) and simplicity of navigation. Amazon values customer experience and it has been described by some as the most customer-centric organization globally. Amazon was the first organization to offer customer relations. Moreover, it is also one of the first few companies that created an online community where users/customers could view the products on the website. The company has innovations to improve user experiences like ratings and suggested items (Mellahi and Johnson). Selection: extensive product offerings Amazon strives to offer the widest selection of both new and used products. They not only sell books in a wide category but also electronics, apparel, gift cards, shoes, accessories, watches, photography, software, tools and hardware, cameras, movies, toys, house items, computers, games, music, jewelry, magazine subscriptions, gourmet food, kitchenware, cellular phones, sports items, among others. This diversification of products has transformed Amazon into an all-in-one online retail store (Amazon.com). Brand name and Reputation Amazon has focused on building a reputation to gain new customers and retain existing ones. The company calls itself the biggest bookstore in the world and has used diverse strategies to gain a positive online reputation. The company uses its extensive resources, communication strategies, positioning (name and motto), targeted advertising, and web design to create reputation as a leading book retailer and the leader in the online retail industry (Mellahi and Johnson).  Price: Extremely low prices Amazon is the broadest discounter globally in whichever product type one chooses to buy. The company also offers loyalty packages, which come with massive benefits like getting movies without any additional cost. Amazon provides free shipping offers and customers can also avoid state sales tax. The company sells Kindle at a deficit ($59 instead of $79) and has a Price Check App. In relation to physical book retailers, Amazon prices are lower because of reduced transaction costs and streamlined distribution processes (Amazon.com). First-Mover Advantage Amazon was the first company to start book retailing business model in the online platform and has made numerous innovations and significant research and developments (e.g. “one-click” shopping) to improve customer experience, hence, gaining support from the online community. Amazon is the first company to develop most of the currently known technologies in online retailing. The Amazon brand was recognized early as the leading online book seller and has many registered users/members. The company is also the most visited retailer online and the premier online place for members to contribute their work (Mellahi and Johnson).   Not easy to imitate Although Amazon’s business strategies have been imitated by other online retailers to some extent, there have been some barriers and challenges, which diminished the ability of the competitors to imitate Amazon’s competencies especially in the participatory network (Spainhower). Marketing strategy Apart from traditional advertising strategies like television, radio, banner ads, and magazines, the Associates Program of Amazon (coupled with sponsored search, email marketing, and portal marketing) has generated massive traffic for the website using the participatory network, which also promoted the Amazon brand (Spainhower). The Market that Amazon Serves Third Party Sellers/External Merchants - Amazon has over 1.3 active sellers in the online market. Enterprises - Small to medium third party businesses can sell their products in the Amazon Seller Marketplace interface at affordable rates (Spector). Consumers - Amazon has over 76 million customer accounts with loyalty programs like Prime Membership which offer discounts or free shipping (Amazon.com). Developers and Content Creators - Amazon identifies developers who use the Amazon Web Service that offers access to technology infrastructure like hosting. Developers can use this service to develop their own apps and web services (Chaffey). Authors, musicians and filmmakers also use Amazon to publish their work and sell content using Amazon programs. Affiliated Websites - Amazon gets retail sales from affiliated websites which allow retailers to sell products on Amazon or on their own branded websites (Chaffey). SWOT Analysis: Amazon Strengths: 1. Cost Leadership Strategy – Amazon offers products and services with a lower cost than the competitors do. As a result, the company became the largest online retailer in the world. 2. Customer Service – Amazon is reliable and convenient since it offers the fastest shipping at the lowest price. The customer also has a variety of products to choose. 3. Strategic Acquisitions – Amazon has been investing to acquire new firms to deliver new products, better services, and innovative tactics for customer services. Weaknesses: 1. Only Online Presence - Amazon does not have a physical store like Walmart and Target where customers can pick their products or buy in the store. 2. Selling with No Profit - Amazon offers most of the products at zero margin. At the short-term, it is a great strategy because it takes out of the market the competition. However, in the long-term, it only makes it harder since they do not make too much profit and put their form at risk. Opportunities: 1. Expand globally - Amazon can open online stores in other countries. This will increase sales and their demand. 2. Physical presence - Amazon can have some physical establishments where it can serve as distribution centers or pickup purchases, thus, increasing the brand presence. Threats: 1. Online Security - For online stores, security is always a major threat because the more customers Amazon has the more attractive as a target it becomes. 2. Lawsuits - They have attracted negative attention due to tax avoidance in UK and US. Ten-year operating history Financial Performance Amazon is an electronic commerce company and is one of the largest internet-based shops in the country. The company started as a bookstore and has been selling its books online since 1994. Over the years, it started diversifying to selling CDs, video, DVDs, MP3, VHSs, video games, electronics, food, jewelry, toys, and furniture. The aim of diversification was to increase the profits of the company and its branches. Over the last ten years, the company has been experiencing a slower sales growth and evaporation experienced in profit margins. The company has always depended on revenue gains to drive the prices of stock higher. Over the ten years, the company has experienced a shrink in their gain, that is, from $274M to a loss of $241M (Amazon). This is because the expenses of the company are increasing over the years, that is, from $74.5B to $89B (Amazon). For example, last year the company reported revenue of $20 billion and its operating income fell by 19 percent (Amazon). This shows that the profits of the company are reducing each year, and the company officials need to do something as the company can fail in the market. Organizational Structure Amazon Company has a divisional structure because it deals with many services and products. Different products have their different departments, and the department heads have the responsibility of ensuring that their departments are operating profitably, and they have enough resources. The organizational structure of the company is composed of the founder and CEO Jeffery Bezos at the top and board of directors composed of eight members. The CEO is in charge of the chief technology officer, the chief financial officer, and all departments. Core Competencies The first key core competency of the company is customer obsession where a company focuses on customers then works backwards. The leaders of the company believe that if they fail to listen to the customers, they will fail. Second important element is technology. Amazon uses technology to provide high value to its customers, for example, online selling of books provides easy accessibility to customers and reduces unnecessary costs thus providing high value for customers. Third, the company ensures that their products are produced in bulk in order to reduce the cost of operations. By practicing economies of scale, the total costs will be distributed to each product thus reducing the cost of production. Finally, the management of the company is committed to ensuring that the company is operating at a profit (Rangan and Ander 44). Product/Market Performance Amazon has the largest market share, which has been achieved by focusing attention on effective marketing communication strategies in order to improve customer experience. In addition, the company creates awareness of its products to customers by use of technology such as online selling and advertising. The strategies of the company such as use of technology, economies of scale and customer focus help the company to be more competitive than their competitors in the market. In conclusion, Amazon over the last ten years has experienced an increase in its revenues but the operating costs of the company keep on increasing thus making the company to operate at a loss. The hierarchical structure of the company is the best for such a big company because every manager is made responsible for their department. The core competencies such as customer obsession use of technology and economies of scale make the company more competitive in the market. In order to improve organizational effectiveness the organization should use the social media to advertising their products and reduce their advertisement costs. It should also abandon free shipping options to reduce their operation costs. In 1994, Jeff Bezos founded Amazon. Its headquarters at the start were based out of Seattle, WA. Since then, Amazon has undergone a huge success grown to become a Fortune 100 company. The company originally started as an online bookstore and it was operated by 30 employees (Bladino). All of its employees were carefully selected: smart, frugal, risk takers, and information analyzers. The process of hiring was very rigorous and selective. In fact, according to Bezos: “If you want to create the right organizational culture, it is essential that you get your early hires right” (Bladino). Bezos’ statement clearly shows the importance of the employees within the culture of an organization. In the beginning, the company learned to diversify by adding other items such as VHS tapes, DVDs, Music CDs, clothing, toys and much more items. In 1997, Amazon went public and started trading on the NASDAQ stock exchange at $18.00 per share. By 1999, Bezos was named the person of the year by Time Magazine (Schneider). The company was successful at popularizing online shopping. By 2008, Amazon had become a global brand and had up to 76 million customer accounts. Also, they had fulfillment to more than 200 countries (Chaffey). At this point, Amazon was employing approximately 17,000 employees. The success of this company has been based of its mission: “to be the Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices,” and all their operations function around this mission. In this report, we will also talk about the significance of the hierarchy within these operations. At present, Amazon has about 51,300 employees around the world. They are dispersed around functions in the corporate offices, customer service centers, software development, and fulfillment centers. Amazon’s organization consists of seven segments. Conclusion In conclusion, we have mentioned how Amazon has made its reputation and how it became an icon for the evolution of online store shopping. The company calls itself the biggest bookstore of the world. It has done this by using its diverse strategies to gain their online reputation. One of the main benefits for Amazon’s customers is that they do not have to pay state taxes. Amazon is known to be the most visited website due to their strategy to pull customers to their website by having a known brand, and also mentioning the one-click shopping, making it easy for the customers to shop by only one click. We have also mentioned how it is not easy for the companies to duplicate what amazon is doing. Amazon marketing strategy is different from others because they do not use the old fashion way, but they have developed their own way called the associates program of amazon. Amazon family is formed by the five parties. First, we have the third party sellers who are considered the 1.3 million active sellers. Second, we got the enterprises that are small and medium bushiness that can sell their products to customers. Third, we have got the customers that are 76 million counted and are still growing on a daily basis. Then, we have the developers who use the Amazon to develop their own apps and programs. We have got artists in different fields that can use Amazon to promote and sell their products. And we cannot forget other branded websites that use Amazon website to sell their own products. So, what we have mentioned can be considered as the strength of the company, but the main downfall for the company is that it does not have online stores in other countries. As some products cannot be shipped to other countries, so this is a major fault. Their two major threats are online security and the lawsuits do to the unpaid taxes. When it comes to the financial performance their past ten years were not that perfect facing a lot of loss in their grows, going from $247million to $241 million and the main reason for that is their expenses. The big responsibility that the heads of different department in the company have to make sure their department is generating revenue. What they need to is to listen to the customers more in order to be successful, then focusing on their technology. So in conclusion we can see that the company is working to gain profit but their operation cost is taking that revenue to a loss. Recommendations for Amazon Given the manner that Amazon is and has been operating, there is still very great potential to retain is best bookseller trademark and the online choice for book lovers. This trend, however, is not easy to keep and more focus should be done on the current weaknesses as well as improving the positive trends. In terms of online security, as much as it is an issue that does not only affect Amazon, a separate department cyber watch spread over different user spheres can suffice. Such a department can pose in areas where books are in great demand such as universities and get to know firsthand, the main weaknesses as perceived by users, and thus act to correct them. Tax evasion and non-compliance is a trend that can have very negative publicity to a company. Despite the online presence of the company and the widespread nature of its services, the company should seek ways of formalizing the tax procedures and ensuring that they are always within the legal confines. This will tend to increase of their clients and avoid negative publicity which might steer some customers away. Establishing a physical base in countries in which the company cannot afford free shipping is also a good idea. Such a base can even be regional such that shipping to neighboring locations becomes more cost effective. This will tend to appease the clients who might have wanted to order from Amazon but shied away owing to shipping costs. In undertaking these suggestions, I believe that Amazon can positively improve its image and thereby increase the annual level of profits. Work Cited "About Amazon." Amazon.com, n.d. Web. 9 Mar. 2015. . "Amazon: Annual Net Income 2014 | Statistic." Statista, n.d. Web. 10 Mar. 2015. . Amazon.com. (2015). http://www.amazon.com/ Chaffey, Dave. “Amazon.com case study.” Smart Insights, n.d. Web. 04 Mar. 2015. . Mellahi, Kamel, and Michael Johnson. “Does it pay to be a first mover in e.commerce? The case of Amazon.com.” Management Decision 38.7 (2000): 445-452. Rangan, Subramanian, and Ron Ander. “Profits and the Internet: Seven misconceptions.” MIT Sloan Management Review, 15 Jul. 2001. Web. 04 Mar. 2015. . Spainhower, Michael. “Turning participants into profits: The case of Amazon.com.” Mar. 2004. Web. 04 Mar. 2015. . Spector, Robert. Amazon.com: Get big fast. New York: HarperBusiness, 2002. Read More