This report will evaluate the business strategy of the organization named Amazon Inc. A strategic analysis will comprise of the various strategic tools and models such as Porter’s Five Forces, SWOT analysis, VRIO analysis, strategic fit model, and strategy clock and warfare perspective. These tools will evaluate Amazon’s business strategy to provide valuable insights into the organization’s strategy and the reason for their success in the market. The report has chosen Amazon as the company as it is the market leader in their segment and they have been able to capture the majority of the share in the global market. This repor will also identify the appropriateness of the business strategy used by Amazon in the global business market. The report will also provide a suitable recommendation based on the analyzed business strategy so that the organization can hold on to their competitive advantage in the market.
Amazon is one of the major companies in the Fortune 500 and has been known for revolutionizing the ecommerce industry. The organization is the first movers into the ecommerce business and sells a large number of products on the online platform. The founder of the organization is Jeff Bezos who established the organization in 1994 (Schneider 2018). The organization started as a bookstore on the online platform, but they were quick to diversify their product portfolio by adding other products such as video games, clothing, music, DVDs and electronic goods. The organization has been successful within a very short period and has been able to popularize online shopping. The organization considers them as customer-centric, and they are always focused on gaining feedbacks from the consumers. According to Jeff Bezos, a company is sure to fail if they do not listen to their consumers. The organization stated that they are eager to capitalize on any market opportunity due to the advent of the technological revolution of unprecedented level. The firm not only believes in providing the consumers with top priority but also ownership from their respective teams. The company perspective states that ownership matters for the employees as they will be empowered. This will enable them to have a long-term perspective and challenge the authorities’ regarding decisions. This will lead to the generation of new ideas. The organization has set a high benchmark for all its employees where it is tough for the candidates to get into the organization and it is even tougher for them to survive with the organization. However, the policies and the strategies used by the organization have been effective in delivering competitive advantage.
The business strategy of Amazon can be considered as extreme cost leadership strategy. The organization has been working with minimum profit margin, and the organization has been able to increase their profit margin due to the effective use of innovation in the business processes, diversification of business and economies of scale. There are four principles which the company focuses on which are operational excellence, invention, long-term perspective and customer obsession (Schneider 2018). The three cornerstones of business strategy in Amazon are the reinforcement of the ecosystem in Amazon, developing new niche segments at regular intervals and emphasizes on the leadership values in Amazon.
The strategic analysis will use tools to examine the current business strategy of Amazon to evaluate the appropriateness of the strategic initiatives taken by the organization. These will consist of evaluating the keys success pillars of the organization to provide recommendations for developing new business strategies.
The Porter’s five forces consist of five factors which are used to evaluate the competition and the position of the organization in the industry. The five factors are bargaining power of the supplier, bargaining power of the buyer, competitive rivalry, threat of substitutes and threat of new entrant (E. Dobbs 2014).
Bargaining power of the supplier
The numbers of suppliers in the industry are lower which causes the organization to experience the stronger force from the suppliers. The changes in the price of the equipment of the suppliers will directly affect the operating cost of the company. Amazon uses moderate integration to minimize the effect of the suppliers, and as the sizes of the companies are moderate, they will have less amount of effect on Amazon (Sec.gov 2018). However, the overall evaluation shows that there is the moderate force of the suppliers on Amazon.
Bargaining power of the buyer
The consumers in the retail industry have access to all the information they need before purchasing the products. Therefore, the consumers can identify the alternatives in the market which affects the business of Amazon. Moreover, the lower switching cost makes it easy for the consumers to move to other substitute products. This shows that due to the availability of the high number of substitutes in the market the organization experiences higher and stronger bargaining power of the buyers.
The organization competes with strong companies in the market, and they exert string force against Amazon. The major competitors of the companies are Wal-Mart, eBay and Flipkart. The availability of the substitutes in the industry is also high which shows that products offered by Amazon are available at lesser known retail stores and brick and mortar outlets. The switching cost for the consumers is also low in the industry which means that they can easily transfer to other retailers without having the significant effect on their wallet size (Sec.gov 2018). This shows that competitive rivalry in the industry is strong.
Threat of substitutes
The number of rivals companies in the market is high, and there are smaller companies offering substitute products. This affects the performance of Amazon as the consumers experience low switching cost, so there is less affect on the consumers. The consumers have plenty of options in the market which is a major thereat for the organization. This shows that Amazon faces high and string threat from substitution.
Threat of new entrant
In an ideal situation, a new entrant can easily capitalize on the retail market due to the growth in the market and low switching cost experienced by the consumers. However, the cost of developing brand n the retail industry is very high which reduces the influences of the new entrants in the market. Amazon is the first mover in the industry, and they have been able to develop very strong economies of scale which is very difficult to attain for the new entrant in such a short period as it requires high volumes of investments (Sec.gov 2018). Therefore, the threat of new entrant in the industry is very low for Amazon.
|
Strengths |
Weaknesses |
|
Amazon is the market leader in the ecommerce business The first mover’s advantage provides extensive utilization of experience Effective use of cost leadership as a business strategy Effective use of relationship management |
The profit margin of the company is low due to the use of cost leadership as a strategy. The organization does not focus on the service or the product categories. The business experiences seasonality trends The competitive positioning of the fire phone is weak compared to the rival companies which lead to the failure of the product. The organization has experienced degradation in their brand image due to the tax avoidance scandal in the United Kingdom. |
|
Opportunities |
Threats |
|
The organization has the opportunity of diversifying the business segment. Amazon should also focus on their products and brands The organization has the opportunity of increasing their physical presence The organization should increase the number of local sites in the global market The organization has the opportunity of forming strategic alliance and collaboration with similar companies in the market. The organization also has the opportunity of acquiring companies like Flipkart to reduce their market competition. |
The organization faces threats due to the online security issues as privacy breaches in the online medium have increased significantly in the past few years. The organization has faced lawsuits and patent infringements which are major threats to the organization. The low-profit margin reduces the profitability of the organization. There has been a significant weakening of entry barriers in the e-commerce industry |
(Table 1: Phx.corporate-ir.net 2018)
(Figure 1: Ahmed 2018)
The generic strategy used by Amazon is concentric diversification where the organization aims to leverage the technological capabilities to develop for success in the business environment. This has been achieved by using the cost leadership strategy to provide the consumers with the maximum value at the minimum price possible. Moreover, the business of the organization revolves around the consumers which ahs made Amazon the go-to portal for fulfilling the needs of the consumers (Wicker et al. 2015). The above figure shows that Amazon will fall under the first quadrant which represents cost leadership strategy. Amazon provides steep discounts to all its loyal consumers through Amazon prime which consists of facilities such as express and timely delivery of the products. Moreover, Amazon also removes the shipping charges which reduce the prices of the products even further. Therefore, the organization focuses on providing the consumers with the seamless and smooth shopping experience.
The main cornerstone of the business model is economies of scale where the company has leveraged the efficiencies between the internal resources and external drivers. The organization also uses big data analysis for mapping the behaviour of the consumers. The organization has incorporated this analytical part in such a way that it can provide service to other companies in the market (Tansey, Spillane and Meng 2014). This can be seen by the ability of the company to predict the future behaviour of the consumers. The biggest example of this is the recommended products that can be seen on the ecommerce site for individual consumers. These recommendations vary depending upon the search history and their purchases.
There is little product differentiation in the products offered by Amazon which means that competitive pricing is the basis for the key way of gaining competitive advantage and sales. This means that the products sold on the Amazon website are also available on other websites. Therefore, the product lines are not unique, and products are available on other company websites. However, there are certain private labelled products which are only available on the company website such as Amazon Echo (Phx.corporate-ir.net 2018). The current strategy in Amazon is based on the aspect of convenience where the companies promise their customers to deliver products at express speed. There are countries where the products are delivered within a day, and the company is toying with the concept of drones of delivery the products with astonishing speed. Moreover, the organization has been focusing on non-retail products such as cloud based services which has been addressing the problem of differentiation and too much reliance on cost leadership. Amazon has also been providing AWS services to different companies requiring cloud based services.
|
Strategy |
FIT |
Justification |
|
|
Opportunities |
Diversification of the business segment |
Yes |
The organization has already accomplished supremacy in their business process and diversifying their business segment will be ideal to boost their increasing threat to substitution in the ecommerce industry |
|
Focusing on their products and brands |
Yes |
The organization has been customer-centric for a long time, but the number of private labelled products that the company has is quite less. Therefore, the organization current needs products differentiation. |
|
|
Increase in physical presence and increase in the number of local sites |
Yes |
The physical presence of the organization is less so this will help in better interaction with the consumers. |
|
|
Mergers and Acquisitions |
Yes |
There are large numbers of smaller ecommerce companies in the market which provides the threat of substitution, so mergers and acquisition are one of the best ways of reducing the competition in the market. |
|
|
Threats |
Security and Privacy Threats |
Yes |
The organization has developed their cloud servers and provides solutions to other companies. Therefore, they have the resources to prevent the breaches in security. |
|
Lawsuits and patent infringements |
Yes |
They can use their promotional resources in an effective way to improve the brand image. Moreover, involving in CSR activities will also be an effective way of improving the brand image. |
|
|
Low-profit margins |
Yes |
The organization will have to use product differentiation to offer products at reasonable prices. |
|
|
Weakening of the entry Barriers |
Yes |
Amazon can form mergers and Acquisitions to increase the barriers to entry and completion among the companies in the market. |
(Table 2: As created by Author)
The VRIO analysis is used to understand the internal resources and capabilities to maintain the sustainability of the organization (Aversa and Haefliger 2016). The resource capabilities of the organization are as follows:
Tangible resources
Intangible resources
The framework will identify whether these resources are enough to provide the organization with sustained competitive advantage.
Value
These internal resources of the organization are quite valuable and effective use of these resources will be sufficient for the organization to gain a competitive advantage in the market. They can easily grab hold of any market opportunity by minimizing the threats n the market.
Rare
The most of the resources used by the firm are quite rare and are not readily available to other companies in the market. The organization uses superior technology and innovative ideas which are not available to most of the market competitors.
Imitable
The products offered by the organization imitable and can be substituted by the other companies in the market. Amazon strategy is based on cost leadership so they do not focus on product differentiation and the products can be easily substituted by other companies in the market.
Exploitable
The firm has been using their resources in an effective way and has been able to grab on most of the market opportunities. They even have been able to diversify their business segment and started providing other companies with cloud services.
Market competitiveness
The analysis of the VRIO framework will identify the implications of competitive advantage for Amazon in the market. This consists of sustainable competitive advantage, temporary competitive advantage, competitive parity and competitive disadvantage.
Amazon has been known for their creativity and innovation in the market. However, the biggest technological failure of the organization is their Fire Smartphone which fell flat. This caused the organization to lose a considerable amount of resources such as time, effort and money (Rothaermel 2015). Therefore, this product launched by the organization failed to meet the criteria of the VRIO framework.
Competitive parity
There are large numbers of products sold by the organization which are valuable but not rare. These products can be substituted by the products sold by the rivals companies, but these products provide the company with significant revenue (Krishnaswamy 2017). The aptest examples are European warehouses, Dry grocery delivery, Video on demand and Brilliance Audio. These products are easily imitable by other companies and losing these capabilities will result in short-term loss.
Temporary Advantage
The organization always avails the advantage of being the first movers, and this provides them with a considerable amount of competitive advantage (Rothaermel 2015). They have to quick to adapt to the all the new concepts to gain a temporary advantage over the rival companies in the market. These early adaptations become a mainstream culture within a certain period which the other companies will have to follow the same path.
Bowman’s Strategic Clock is one of the models for defining the strategic positioning of organizations. These will facilitate in identifying the most suitable strategic positioning for the organization to gain competitive advantage. The strategic clock will try to identify the appropriate option from different varieties consisting of two dimensions; one is perceived value and price.
Figure 2:
There are eight positions on the strategic clock which will be explained to identify the strategic positioning of Amazon. The clock shows that position of the product based on the price and perceived value.
Position 1 (low price and value)
This is the least competitive position for the company where the product is not differentiated, and perception of the consumers towards the products is of very less value even though the price is quite low (Eyvrigh 2016). This can be considered as the bargaining basement strategy where the company can remain competitive by offering products at lowest possible price.
Position 2 (Low price)
This is a position where the various companies position their product as the low- cost leaders where they try to reduce the cost of the products by using cost-minimizing techniques such as economies of scale. The companies keep their profit margin low but due to the generation of large volumes of products will provide them with high revenue generation due to the sales volumes (Gao, Scharrenbach and Bernstein 2014). Price wars are quite common among the companies using low price as a positioning strategy.
Position 3 (Hybrid)
This is a hybrid positioning strategy where the organizations try to add value to the products along with the low cost of the products they offer. Therefore, the consumers will perceive the product as having added value offered at a low price (Eyvrigh 2016). This positioning strategy can be effectively used when there is consistency in the added value of the products.
Position 4 (Differentiation)
This strategy will aim to provide the consumers with products of highest perceived value where product quality and branding will play an important role in gaining competitive advantage. Therefore, strong brand awareness, high quality and gaining the loyalty of the consumers is the best way of executing this strategy (Hales and Mclarney 2017).
Position 5 (Focused differentiation)
The products in this category consist of the highest level of prices where the companies use highly targeted segmentation, distribution and promotion. This positioning strategy is used by the luxury brands in the industry to gain high-profit margins. However, the product quality has to be of the highest level to maintain their sustainability in the market.
Position 6 (Risky high margins)
This positioning will consist of selling products at higher prices with offering the consumers with any added value. The consumers may buy these products offering the company with profit margin, but eventually, the consumers will look for other products in the market which are offering more added values for the consumers (Hales and Mclarney 2017). This is a short-term positioning strategy and could prove to be disastrous if used in the long term. This is because of the fact it is extremely tough to sell products at premium prices without justifying to the consumers.
Position 7 (Monopoly pricing)
This is positioning strategy used by the companies availing monopoly in the market by offering unique products. The companies do not have to think about added value and the price as the consumers will have to buy the products irrespective of their choice (Gao, Scharrenbach and Bernstein 2014). The monopolies can set whatever price they want, but it mostly regulated in the majority of the countries.
Position 8 (Market share loss)
The strategy will position the product as having a standard price with low added value. This positioning strategy will be disaster as the consumers will prefer choosing other products in the market over the products offered by the company. This is an uncompetitive strategy, and it can be seen that the positioning 6, 7 and 8 are not the competitive strategy for any organization.
|
Perceived value/price |
Low price |
Medium price |
High price |
|
High added value |
Hybrid |
Differentiation |
Focused Differentiation |
|
Mediocre added value |
Cost leader (Amazon) |
Raise prices |
|
|
Low added value |
Segment-specific |
Increased price and low value |
Increase price and low value |
(Table 3: As created by Author)
This shows that according to the Bowman’s strategic clock, Amazon falls in the Cost leader category. The organization has been known for using innovative strategies to improve their operational cost to increase their profit margin. However, as the organization sells their products at lowest possible margins, they use economies of scale to increase their revenue generation. Moreover, as the organization has many loyal consumers, they make high volumes of sales which are responsible for gaining competitive advantage in the market.
Warfare perspective signifies the different warfare strategies used in business to gain competitive advantage and sustainability in the market. These will consist of applying the principle of warfare in business. The first strategy is the development of plans, calculation and the estimation. These consist of developing five reference points which will consist of leadership qualities, management skills, landscape, moral law and seasonal factors. This enables the organization to be aware of their surrounding and capabilities of the organization (Hill 2016). The next phase focuses on decisive behaviour, economy and correct timing of actions. The organization will have to emphasize on their logistics, so that company resources are not over used. The organization will have to boost the morale of the employees and exploiting the weakness of the competitor when the availability of resources is low. Moreover, the organization should have effective exits strategies so that they can exit the market when the strategy does not work out.
The next strategy is uniting the organization to attain strength and effectiveness within the organizational activities. Moreover, instead of competing for head-on with the rival companies, Amazon will have to create their monopoly in the market. This can be done by developing superior quality product and being the first movers to enter a market and capture new business segments by using innovative ideas and gain share in the market. Another strategy is the use of excess resources to capture the majority of the market by using Me-too approach (Bul-Godley 2013). The next strategy is price war where Amazon will have to have a competitive head on regarding pricing in the industry.
The next strategy is tactical disposition is a strategy of maintaining defensive behaviour where the organization consolidate its position in the market waiting for suitable opportunities in the market to explore. This strategy has already been utilized Amazon to gain a competitive advantage in the market and become the global leaders. The next strategy deals with the act of using the element of surprise and deception to hide the true strengths of the organization. Moreover, baiting out the opponent to fulfil their true intention is another strategy used in warfare perspective. The next strategy focuses on not wasting the company resources and focus on the weakness of the organization to do better in those areas. Market awareness and through an understanding of the competition the market will provide better opportunities for developing innovative products in the market (Bul-Godley 2013). This means that the organization will have to be adaptive at all times so it so it difficult for the competitors to predict the organizational strategies. The organization will have to wait for the right to implement a particular to exploit its maximum effectiveness. The variation in strategic option is another strategy where the organization should be aware of their limitation in the markets. This will take a 360-degree approach to management where the organization should be aware of all the factors that will be affecting the operations of the organization.
The warfare perspective shows that Amazon can use the above mentioned strategies to gain the competitive advantage in the market. All these strategies are feasible for the organization, but the organization will have to take the market situation in to account before applying any of the above strategies.
|
Strategic options |
Consonance |
Advantage |
Consistency |
Feasibility |
|
Business Segmentation |
Yes |
Yes |
Yes |
Yes |
|
Development of new product and brand |
Yes |
Yes |
Yes |
Yes |
|
Mergers and Acquisitions |
Yes |
Yes |
Yes |
Yes |
|
Increase in physical presence |
Yes |
Yes |
Yes |
Yes |
(Table 4: As created by Author)
The Rumelt’s criteria are used to identify whether the strategic options are consistent, feasible, consonant and advantageous to the organization. In this current, report, Rumelt’s criteria have been effectively used for evaluating the marketing opportunities and the respective strategies to define their position in the market. The strategic option describes the means by which the organizations can achieve their end goals (Perez-Franco et al. 2014). A strategy is appropriate if the goals are consistent where the inconsistency in the goals and policies will result in conflict. This means that failure of one department within the organization will fail in another department which shows the inconsistency of the strategy. In this scenario, the strategies of Amazon are consistent, and none of the department will face any problem in operations.
Similarly, consonance shows the adaptability of the strategies in correspondence to the external trends in the market. In this report, it can be seen that all the strategies are adaptable to the market trends. Amazon has the resources which they can use effectively to adapt to the change in the market environment. The feasibility of the strategies is also high as Amazon has the physical, financial and human resources capabilities to complete the strategies. Moreover, these strategies will provide the competitive advantage to Amazon. Business segmentation will enable them to diversify their product portfolio and provide different unique offerings to the consumers. This strategy is feasible, consistent and can adapt to the changing need of the market. Development of new product in the market is also feasible as the company as the technological background and infrastructure to develop new technology which can fulfil the changing need of the consumers. Moreover, the business analytics unit of the organization is strong, and they can predict the future demands of the consumers which will help the company to develop products that will be based on the upcoming consumer needs.
Amazon has been in the industry for a long time and has a strong financial background. Therefore, mergers and acquisition is a suitable option for the company to reduce the competition. Strategic acquisition is a feasible option for the company as it can be seen from the recent talks of Amazon’s acquisition of Flipkart.
Amazon will focus on four strategies current to make sure that they remain the market leader. The first strategy is diversification of the business segment to develop products to cater to the new segments. Amazon has been providing cloud based services to other companies and business analytics services. Similarly, the organization should develop products in other segments to offer their services. Amazon will have to focus on developing their private labelled products so that they can change their strategic positioning from cost leadership to differentiation. This will reduce their threat of substitute in the market, and they will have the opportunity of increasing their market share. The next recommendation is the acquisition of the smaller companies in the market to reduce the level of competition.
Conclusion
Thus, it can be concluded from the study that Amazon is the market leader in ecommerce and has been using cost leadership strategy to gain competitive advantage. However, the organization should use differentiation strategy shortly to increase the market share and the entry barriers in the market.
References
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