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External Environments

In terms of Amazon’s customers, their bargaining power is extremely high considering that many outlets distribute similar products for similar prices as Amazon’s current products. Consumers have the benefit of choosing to purchase a particular product. In addition, customers are more mobile considering consumers are able to physically purchase an item compared to Amazon, where the only form of delivery is by shipment. Moreover, Amazon is the largest retailer in terms of e-commerce solely, which excludes major discount retailers that offer the same or similar products for lower prices.

Considering the size and position of Amazon, the bargaining power of suppliers is medium to low depending on the product and the brand. Amazon’s large pool of suppliers does not have the advantage of retail considering the consumers and Amazon themselves have the resources and data to support and bargain with suppliers. Overall, Amazon’s whole business model is surrounded by outsourcing their products from specific suppliers for products high in demand. In addition to relationship with suppliers, Amazon also relies on partnerships with specific brands that provide consumers with household products. Despite the flexibility in bargaining, Amazon has the ability to choose from multiple suppliers. Considering Amazon’s diverse palette of suppliers, Amazon has the power over suppliers depending on the product.

Certainly, the initial threat of new entrants is extremely low in light of the size and the amount of market share Amazon provides to its consumers. In the end, it is almost impossible to reach the level of Amazon. There are many online e-commerce retailers, but the possibility of any of the retailers, in the market, to reach or allocate Amazon’s consumers is unrealistic. Amazon’s position in the market is solidified in the market, which makes it more difficult for smaller, less resourceful businesses to retain and supply to the vast number of Amazon’s current customers. Furthermore, Amazon’s economies of scale and cost advantages, in addition to Amazon’s brand recognition, has created and takes advantage of the primary market of the online retail e-commerce business.

Indeed, the possibility of the threat of substitute products offered in the market is high because of Amazon’s lack of diversity in its products. Amazon is a competitor in the discount commerce business, which highlights the importance of their competitive pricing strategy. Moreover, Amazon offers products at similar prices as the largest retailers in the market do as well. Consumers have the ability to choose from multiple retailers which creates a larger threat for many new entrants and substitute products. Considering the size of Amazon, their ability to compete in the market and lower prices is benefit of their company because of its financial stability and plentiful resources.  Yet, the threat of outlets with lower prices is still possible considering the large diverse market of the retail discount business. Overall, Amazon considers the threat of substitute products high because of consumer’s feasibility to choose a substitute product because of factors that range from price to quality.  

The competitive rivalry within the e-commerce industry is high. Considering the largest retailers in the market, they offer their service via the Internet, which directly competes with Amazon. Currently, Amazon is the largest online retailer, but companies, such as Walmart and Target, are expanding their services to rival Amazon’s world renowned service. Furthermore, Amazon has acquired other larger companies, such as Zappos, to limit the competition from larger traditional retailers. Acquiring mid-sized companies while also differentiating their product is essential for Amazon in terms of expansion, in addition to the retention of their customers. Diversifying the products Amazon offers is ideal considering the shift in companies offering more selective products for particular target markets. Concentrating on different product categories, such as Amazon Fashion and Amazon Fresh, will attract customers who desire services with these specific Amazon benefits.

Ultimately, the biggest difference from more traditional retailers is Amazon’s large network of suppliers. Clearly, this network of suppliers translates into a larger range of products, in addition to the ability to price competitively. Amazon’s ability to substitute suppliers benefits their customers who need a diverse range of products. Furthermore, this particular external aspect has the potential to affect Amazon’s ultimate performance, while keeping in mind that Amazon’s consumers want more products for a lower price. Amazon’s advantage over other firms dealing with suppliers has the potential to grow Amazon in terms of the products they currently offer. Diversifying their suppliers will translate to a larger performance specifically in customer’s satisfaction. In addition, more products will satisfy consumers’ needs, which will grow Amazon’s performance in terms of sales. Overall, Amazon’s ability to choose their suppliers will give them to power to diversify the products they offer which will, in turn, improve revenues.

Competitive Advantages of Focal Firms

Amazon’s primary tangible resource is its incredible supply chain system. Indeed, Amazon has over 300 distribution and fulfillment centers around the world, allowing it to get products to its consumers very quickly and easily. These distribution centers are massive technologically advanced warehouses in which humans and robots alike effortlessly find products that are needed to be sent out. Furthermore, automation allows for around the clock order fulfillment and improved efficiency over an entirely human workforce. Since 2012, Amazon has been saving money and enjoying more efficient logistics through employing robots in its warehouses. This resource of an ultra-efficient supply chain has yet to be fully matched or countered by any competitor.

Clearly, Amazon also has massive technological resources, in the form of its cloud computing infrastructure and ubiquitous online presence. Amazon is presently the largest cloud infrastructure services company in the market, way ahead of Microsoft. This resource allows them to be the dominant player in the cloud services market, providing substantial revenue to the firm. Likewise, Amazon has a feature of its website for nearly any demand, whether it is books, music, retail, or groceries. This expansive online presence allows them to capture market share in a wide variety of industries. Moreover, this resource allows them to be the dominant player in the cloud services market, providing substantial revenue to the firm. Similarly, Amazon has a feature of its website for nearly any demand, whether it is books, music, retail, or groceries. This expansive online presence allows them to capture market share in a wide variety of industries. As a result of these resources, Amazon is able to derive its most important capability, which is the ability to quickly deliver a variety of products to consumers. People can order almost anything from Amazon and have that product sent to their home quickly or sent digitally in an instant. Thus, Amazon’s core competency is its Amazon Prime service – a combination of its massive technological resources and its ability to quickly or instantly supply consumers with their purchased goods.

Certainly, Amazon Prime passes all four tests of being a core competency. The retail products, including physical items and the media products, that are available through Prime make up a huge part of Amazon’s total revenue. The service continues to gain subscribers and be a highly profitable component of Amazon’s total portfolio. Second, Amazon’s prime service is rare in the marketplace. No other websites are willing to offer free shipping on so many products, especially considering that shipping can often be same day for large metropolitan areas. Additionally, no other service has such a mix of products that is available. Amazon Prime offers streaming video, including original series like those Netflix produces, music streaming and purchasing services, a wide variety of retail products and electronics, and also a service that delivers groceries to one’s doorstep. The only comparison is if Target or Wal-Mart offered their entire inventory online with a quick checkout and free, fast delivery.

        In fact, Amazon Prime is hard to imitate. Amazon has spent a decade researching and establishing efficient distribution centers that allow their same day shipping. The infrastructure required for the extremely rapid transmission of both physical products and online streaming media is staggering in cost and complexity to the extent that competitors are fundamentally unable to match Amazon. The amount of goodwill in the market that Amazon Prime has also makes it impossible to imitate. For many people, the first choice for purchasing something online is Amazon.

Consequently, Amazon Prime is also not substitutable. Rather than paying for a variety of online subscriptions for different types of products, a consumer can just subscribe to Prime and get everything that they want. People also generally prefer to order things and have them delivered rather than driving or taking public transit to stores. Amazon Prime also allows instant comparison shopping on its site, something that can be more challenging without being able to see the reviews of other consumers.

Altogether, Amazon Prime is very sustainable, even in the long run. The service continues to gain new subscribers, even as prices for it go up, and matching its massive infrastructure is almost impossible. Competing firms would have to build incredibly costly and complex fulfillment centers like those that Amazon operates in order to efficiently move goods to consumers. This would not be profitable for most competing firms like Target, who rely on distribution centers that are designed to serve large brick-and-mortar stores rather than individual consumers. Additionally, even if Target or a similar firm tried to invade Amazon’s online market, it would be challenging for that firm to spread the word about their new service and steal away consumers who are already subscribed to Amazon. Because Prime is designed as a loyalty program and is based on an annual fee, rather than a monthly fee, the switching costs would likely be too high for most consumers to give up their existing relationship with Amazon. Accordingly, Amazon’s first mover advantage in revolutionizing supply and distribution chains and gaining very large market share is unlikely to be countered in the near future.

Current Strategy

Amazon has taken advantage of the online boom like few companies have done. Due to their efficient global strategy, they are currently the world’s largest online retailer. Amazon prides their customer service, as it is what keeps their customers loyal and allows them to capitalize more in the long run rather than focusing on short-term profits. The company is a customer-centric company where customers are the most important aspect no matter what. Their main concern is to satisfy their customers with their purchases rather than just selling as much as they can.

Indeed, Amazon has been able to combine many strategies throughout its lifetime to gain the competitive advantage they currently possess in the market. Diversification could be defined as Amazon’s primary corporate strategy. They started as an online store for selling books, but now, they offer anything that could be sold online. Moreover, Amazon has established long-term relationships with its customers due to the variety of products and services they offer. Economies of scope has also played a huge rule in Amazon’s diversification strategy success. The enormous online customer base has helped Amazon explore new markets through their online software which has made it easier for customers to search and buy what they are looking for. It provides customers with a list of bestsellers, Top 100, and best reviews facilitating customers to make their purchases.

        The firm has also developed a cost leadership strategy by offering the maximum value at the lowest price. This strategy has made Amazon the largest online retailer and leader in the various market segments in which they compete. Amazon offers great discounts through their program, Amazon Prime, where they ensure a timely and fast delivery.

In terms of business level strategy, Amazon has formulated and combined three strategies: Cost leadership, differentiation, and focus. This has allowed Amazon to compete in various markets and attract more customers to increase their market share. For example, Amazon has become a global leader in the e-book market by effectively combining cost leadership and focus strategy. According to Forbes, with the creation of the Kindle in 2009, Amazon has shipped more than 200 million units worldwide and estimates to sell more than one billion in the next 5 years. Despite the huge success, the Kindle is still offered at an affordable price and it was effectively marketed for Amazon’s huge customer base. Other innovations by Amazon includes the “1-Click” ordering system and Amazon Prime.

As a firm, Amazon is aware that some of its practices can cut profits and make stakeholders unpleasant, but it has developed a mechanism to offer low prices and maintain a loyal customer base. For example, if a customer is not satisfied with their purchase, Amazon is willing to refund their purchase. Amazon also compares their prices with its competitors and if there is a price difference, they will refund it to the customer. Cutting profits in the short-term ensures Amazon always has a large market share and thus higher profits in the long-run.

Externally, Amazon has been able to keep a cost and differentiation advantage over its competitors. Furthermore, Amazon is able to deliver same products for a cheaper price and deliver benefits that are higher than competitors. With increased competition, Amazon needs to focus on sustaining their competitive advantage and their strategy must consolidate their market position. Amazon has seen the potential of new markets such as India and needs to take advantage as the Indian market is exponentially growing.

Internally, Amazon has created an incredible value chain that has given them a competitive advantage that will be very difficult to imitate by competitors. Amazon has created a strong technological infrastructure in a single platform and created an easy and fast payment system. It offers free return within 30 days and are constantly asking for new products to offer. Amazon’s different investments have brought positive results which are seen in their increased net sales, decreased cost of goods, and an increase in their net income. Moreover, Amazon is a resource based view company which needs to exploit their capabilities in order to sustain their strategies. With their economies of scale and consistency of service, Amazon is able to achieve this. Also, with all the different products it offers and the fast and convenient payment system, “1-Click”, Amazon’s strategy will only help the company grow. Its excellent customer relationship management enables Amazon to be the leading online retailer in the world.

Current Problem(s) 

Indeed, Amazon has not experienced many problems in its business model since its inception. In fact, Amazon is one of the most “problem-free” companies that avoids its brand from being negatively affected by media or news outlets. Although, every company, no matter how successful they are, will always experience problems in their lifetime. As of 2015, Amazon was portrayed in The New York Times as a brutal employer to work for. In the article, the author describes Amazon as “an employer that puts innovation and company innovation above the well-being of its people”. Certainly, top-level management within Amazon strongly refuted the claims in the article and cited it as ridiculous and preposterous. Once the story surfaced, more and more reports came out from anonymous workers within Amazon agreeing with the claims described in the New York Times article.

To the present day, Amazon has combated this article head-on and has been conscious of its corporate culture ever since. As a company, Amazon has high standards and expectations so when individuals do not perform then it is looked down upon. Yet, Amazon understands that failure takes place and problems arise. To correct their “questionable” corporate culture, Jeff Bezos, CEO of Amazon, has revamped their Human Relations (HR) department. In an open-letter to his employees, he told them to go to HR with any problem whatsoever and if they cannot help then to come straight to him. Furthermore, Bezos took the New York Times article to heart and has dedicated and allocated resources to ensure that Amazon’s corporate culture is at an elite-level like its entire business infrastructure.

Recommendations

Since Amazon’s first quarter revenues of 2016 blew all expectations, they are not going to slow down their spending on infrastructure. They are planning a huge logistics push in order to deliver products faster and more efficiently to consumers. Moreover, they are also going to spend a lot on original content, such as what Netflix is doing, in order to capitalize on the market. In fact, Amazon spending more on logistics now will help lower costs and improve profits later on. Amazon spent $3.36 billion on shipping costs over the quarter, which is up 44% from the same quarter last year.

Indeed, Amazon should focus on more services, such as cloud computing, or more features in its prime membership worldwide. While the population and profit in the United States are high, worldwide is a bigger audience to share. Investing more on other countries for cloud computing and prime availability will help soar Amazon’s profits exponentially.

Certainly, Amazon has become a widely profitable business over the last few quarters. That is because of AWS, which is the Amazon Web Services. This switch to newer technology has garnered the trust of many investors to see the bright light. Before, Amazon has had a few failures, such as the Fire Phone, but investors are at ease now that the second quarter of the 2016 fiscal year has garnered an $857 million profit. Overall, operating costs are at an all-time high because of the amount of inventory that is being sold each day. Because of that, profits are still not at the highest peak as they can be. Focusing more on the infrastructure and allowing room for more logistic efficiency will allow Amazon to grow.

Some of the challenges facing the implementation of the recommendations is competition. Right now, Alibaba has a larger share in Asia than Amazon does. Because of this, garnering traction to the consumers will be difficult. Furthermore, Amazon has been prominent in Japan since Prime shipping has been available. Amazon had just recently launched Prime shipping in China, but the delivery window is still 5-9 days as opposed to the U.S. shipping times of same-day, one-day, or two-day shipping. Because of that, people are remarking it as an attempt to take a crack at Alibaba. Alibaba is still at an all-time high. Having Amazon’s media services will be difficult in China too. Because of the media regulations in China, some, if not most, of Amazon’s media will be prohibited. One way to counteract Alibaba’s reign is to expand even further and build more infrastructure in China to help with delivery times. China is the world’s second largest economy. A large-scale push will help Amazon’s reputation of being efficient and quick in delivery and service. The regulation constraints in China will most likely stay, so the number of media production from Amazon will be voided. Adding to that, Amazon’s AWS will leave a huge impact. Expanding the servers to other regions will help offset the costs and benefits of Prime media. In 2016, Amazon has enjoyed its most profitable year which is due in part to Amazon’s launch of AWS in other regions. Expanding servers in other countries will help a great deal and garner even more profit in future quarters.  

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