Company’s Objective: The Company aspires to be ‘earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online.
Company’s Strengths and Weaknesses
Strengths
Well Known Global Brand
Amazon is a well-known brand in online retailing. The reach of the internet knows no boundaries, therefore amazon.com diversified in a range of products, which further helped in strengthening its image internationally. A strong brand image helps in taking on the competition and also provides a competitive edge to the company in the online retail industry and helps in attracting more dedicated as well as curious customer traffic.
Amazon’s ranking amongst the top 100 global brands ranking has consistently improved over the years from 68 in 2005 to 65 in 2006 and 62 in the year 2007. The company registered similar improvements in its brand value from $4,248 million in 2005 to $4,707 million in 2006 and subsequently to $5,411 in 2007. Amazon has put a lot of effort into the personalization of the online shopping experience. The online search-find-obtain experience is one such innovation from Amazon.com. To further strengthen the brand value, the company has started exploring overseas markets as well. It has a good localized presence in Canada, France, Germany, China, Japan, and the UK.
Tie-up with other Reputed Brands
Amazon has entered into partnership agreements with other reputed brands like Canon, Nikon, Sony, Panasonic, Blackberry, Casio, Fuji, HP, Olympus, etc. which not only makes it a reliable online marketplace but establishes it as a company offering quality at reasonable prices.
Unique Business Model
The online retailer operates on a unique business model which enables buyers and sellers to interact over safe technology platforms. Such interaction helps in saving transaction costs as no intermediaries are present. Such an arrangement works quite perfectly for products that are otherwise very difficult to find in the marketplace e.g. vintage products, end-of-life products, etc.
Focus on R&D
Amazon has a dedicated team of professionals, and a good amount earmarked for research and development activities. During 2006, the company invested about $662 million in R&D with a consistent increase in the amount over the years. This helps the company in maintaining its leadership position in the market.
Weaknesses
- Declining profit margins: The operating profit margins of the company saw a declining trend over the last couple of years. Though there are some indications of improvement in the year 2007, the situation remains grim in view of increasing competition and cost pressure.
- Weak performance in some promising markets: Though Amazon.com diversified in a couple of markets outside the US by entering into strategic tie-ups and acquisitions, the picture is not that rosy as it was visualized. For example, Company entered the Chinese market by acquiring Joyo.com in 2004, but the competition became more prominent from another domestic player dangdang.com in China. China, having a huge customer base, is stated to be a market full of promises, and China Internet Network Information Center (CNNIC) also states that online shopping in the country is expected to grow by 190% in the coming year. But, Joyo.com has a weak market share of 12% against 18% of dangdang.com (Datamonitor, 2007).
- Declining cash flows: Amazon.com has seen a decrease in cash flows over the years. Cash from operations declined from $733 million in 2005 to $702 million in 2006, but it is heartening for the company that the Free Cash Flow figure became more than double for 2007. The settlement and litigation proceedings pressure was also a reason for the decline in cash flows.
Opportunities and Threats for Amazon.com
Opportunities
- Chinese Market: China has now opened up its economy and it promises to be a market with vast potential on account of more than 1.3 billion consumers. Since Amazon.com has already established itself as a reputed brand in the Chinese market, therefore, it stands to gain from the experience of these 2-3 years and create a niche for itself in the market.
- Growing emphasis on E-commerce: All around the globe, there’s a growing curiosity and emphasis on e-business and related technologies. This augurs well for the company, as its core competency is in the field of e-business and online retailing only.
- A number of Acquisitions and Partners: Over the years, Amazon.com has been able to strike strategic deals with a number of reputed partners and online ventures in different markets, which promises to provide the company enough opportunities in respective markets. In the recent past, the company acquired dpreview.com, the web’s most comprehensive site for digital camera information and reviews. In May 2007, the company acquired Brilliance audio, the largest independent publisher of audiobooks in the US.
- Digital Music Store free of copy-protection technology: Company’s new venture providing free MP3s and a range of other music formats, promises to bring in a revolution in the market. This will help Amazon.com in offering millions of songs, free of copy protection technology, which allows them to be played on any personal device. The company has obtained the license to the digital catalog of EMI, a music company. Until now, Digital Rights Management (DRM) prevents buyers from making multiple copies of the music. Therefore, the company’s sales are bound to increase when it provides DRM-free music to patrons.
Threats
- Increasing Competition: The level of competition is increasing from the existing retailers like Wal-Mart, Tesco, etc. Such retailers have the added advantage that they have a strong physical presence. In addition, such retailers are now firming up their online presence as well, by entering into strategic partnerships with some companies. This promises to pose a good competition for Amazon.
- Dependence on vendors: Amazon takes its supplies from a number of vendors, with whom the company enters into agreements from time to time. In the absence of any long-term agreements, these vendors hold the key to the profitability margins of Amazon.com. In case such vendors are attracted by rival companies, things might become difficult for Amazon.
- Legal Wrangling: Amazon.com has been contesting a number of legal cases of patent infringement. Such court battles not only take a huge sum of money but also invite some adverse publicity for the company as well. In the recent past, IBM also filed two patent violation cases against Amazon.
Stakeholder Analysis
For any organization to work, a number of stakeholders have to pool their efforts. The key stakeholders for Amazon.com include the employees, the customers, the financial institutions, the media management team, the shareholders, and of course the general public.
Current Problems
The major problems being faced by the company include;
- The host of legal proceedings.
- Pressure on profitability margins.
- The increasing dominance of the rival companies in some markets.
- Regularly updating the levels of security for online transactions.
- Making the logistics appear more cost effective.
Recommendations
It is no secret that today we are living in an era where customer convenience is of utmost importance. If a company is able to provide quality products to the customers at reasonable prices and at the doorsteps of the customers, then the company will be able to have a long-lasting relationship with customers. The company can acquire a competitive advantage over its rivals on account of marketing efforts, brand building, value creation, innovation, operational efficiencies, etc. But more important is to sustain the advantage.
Therefore it is very important that Amazon keeps investing in value configuration i.e. keep thinking about newer methods on how value is created for its customers, how the most important business processes function to create value for customers. Some of the value addition gradually takes the form of threshold competencies for the organization, and the consumer starts expecting these value additions from the company. The process of value creation encompasses managing quality in the entire chain of processes leading to the production of the final product or service.