Background of the Company
Jeffrey Bezos established Amazon.com in 1994 and introduced virtual doors on the World Wide Web in 1995 to start online bookstore; however, the prime goal of this company was to become the world’s largest and best service provider and develop Earth’s most customer centric company (focused on customer’s need, innovation and the idea of personalisation).
Amazon’s Diversification Strategy
According to the annual report 2011 of Amazon.com, the net sales revenue of this company has increased dramatically after following diversification strategy though recession affected this industry in 2009 and slowdown its profit margin; however, the subsequent table demonstrates the financial condition of Amazon.com –
Table 1: Financial Overview from 2008 to 2011 of Amazon.com
Source: Self generated from Amazon (2011, p.25) and Yahoo Finance (2012)
Diversification was one of the most effective strategic tools of this company to gain competitive advantage over the competitors; however, it started to diversify its product line, for instance, it introduced DVD, CDs, MP3 format, Kindle, software, toys, gifts and other electronics, etc. from the fiscal year 1999 (Amazon.com, 2011 and Bezos & Risher, 2000, p.2).
According to the given case study, this company provided a wide range of products at comparatively low price to the customers through retail websites; however, retail offerings of this company included –
- browsing, searching, review and content,
- Recommendation and personalisation,
- one-click technology,
- secure credit card payment,
- availability and fulfilment,
- kindle and accessibility, and digital contents
Reyes (2006) and Kha (2000) stated that implementation of diversification strategy was complicated task to this company because it had to consider a number of limitation, such as, limited fit between market demand and offer, risk of negative risk return and the transferability of Amazon’s economies of scope like its customer service and security system.
On the other hand, Reyes (2006) further addressed that Amazon had not experienced huge success from the very beginning of its operation and the investors had not interested to invest more for the future; in this context, diversification strategy played vital role to increase sales volume and profit margin and reduced long-term debt.
However, Bezos & Risher (2000, p.3) pointed out that by ensuring an enjoyable buying experience, Amazon had intended to provide what the customers want, but the concept of diversification may create hindrance to offer products in accordance with customer choice, for example, the US people need to use garden furniture, but Asian people might not need this kind of goods.
Most of the companies in this industry such as eBay, Barnes and Noble, Google, Apple, etc. are highly diversified company; therefore, Amazon had concentrated on innovation, advance technology and development of some emerging products including Kindle, Amazon Web Services, and so on (Johnson, 2010).
Proposed Strategy for Amazon and Justification
The given case scenario presented the Amazon’s study from 2007 to 2009 when the world economy has evidenced the greatest global financial crisis, although the case has presented a picture of financial growth by this period.
However, DeMaagd (2009) pointed out that the global financial crisis has seriously affected the ICT and ICT enabled service-providing companies by lowering their investment, reducing sales while Amazon may not secure it from the devastating impact of the crisis if it does not take any appropriate strategy to coup with the upcoming challenge.
Undoubtedly, Amazon is the most diversified company with advanced innovation that assisted the company for not to have any serious impact on the financial position, but the shifting norms of the global economy lead to suggest Amazon a new strategy to drive to the Asian emerging market with discriminated price to increase sales volume and to reduce operating costs.
Under the new strategy, Amazon needed to shift its market focus from North America and Europe to the Asia emerging countries.
Although Amazon claimed that, it always integrated lower price and this concept may be true for the western markets, but for Asian people with lower income level, Amazon needs to offer its digital products at least one fourth price of the westerns and for the manual product for physical delivery at half price. Without such discriminated pricing strategy, it would be difficult for Amazon to penetrate in the emerging market.
On the other hand, the new strategy would suggest Amazon to reducing the number of high cost executives and hire them from the low cost talents from the Asian emerging especially from Bangladesh, India, and Sri Lanka to hire merchandising and logistics system, supply chain systems from this region.
At the same time, the ICT sector of this area has gained sufficient advancement to take any challenge of the global market. Such a new strategy would facilitate Amazon with greater competitive advantages that would ultimately provide enhanced revenue generation with tremendous market growth by improved efficiency, lowering operating cost.
Reference List
Amazon. 2011, Annual Report 2011 of Amazon.com. Web.
Bezos, J. & Risher, D. 2000, Customer Fulfillment in the Digital Economy: Amazon.com E-tail Customer Fulfillment Networks Pioneer. Web.
DeMaagd, K. 2009, The ICT-Enabled Global Economic Crisis. Web.
Johnson, M. W. 2010, Amazon’s Smart Innovation Strategy. Web.
Kha, L. 2000, Critical Success Factors for Business-to-Customer E-Business: Lessons from Amazon and Dell. Web.
Reyes, D. 2006, Diversification in E- Commerce: Amazon.com. Web.
Yahoo Finance 2012, Balance Sheet of Amazon.com.Web.