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Amazon.com and Bankruptcy Essay

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Updated: Jul 20th, 2021

The occurrence at Amazon-com in 1999 was an amazing experience in the world market. Applegate (2010) observes that “the momentum buying that fueled the meteoric rise in stock market valuations in the late 1990s turned into momentum selling during the latter half of 2000” (p.1).

Momentum buying led to the onset of bankruptcy of this big company. Since competition was quite stiff, the company experienced sharp price decline after reporting inventory boosting. Interestingly, its inventory jumped from $ 30 million to $ 221 million. This was a rise of about 650 percent. It faced a threat of being bankrupt just like other big companies of that time after experiencing a fall of 80 percent during the same period.

Amazon.Com failed to maintain dynamic pricing in its trading portfolio (‘Amazon.Com Fails at Dynamic-Pricing Trial’ 2000, p. 12). This online gigantic company came up with a strategy of dynamic pricing which meant that it charged different prices for various products according to demand posed by prevailing circumstances. They sold the same product at a different price to different customers. A good example was how it sold DVD movies which were sold to different clients at various prices.

Since customers communicated this information through discussion boards which were posted online, they sent complaints and management had to apologize. Amazon had to discontinue that practice. The idea of maximizing profits through dynamic pricing did not work according to its expectations.

Amazon.com was one of the main companies which took advantage of first mover into the market. In this case, it used a faulty business model of dynamic pricing. It was through such an undertaking that it failed it to maximize its profits in 1990s. It enjoyed the advantage of being the first mover into the new markets. During 1990s, it had an opportunity to make profit due to wide customer base.

The company had tremendous past experiences. Though its stock prices decreased, the number of customers increased in the same time. In 1999, its stock prices fell from $ 113 to $15 by the end of 2000 (‘Amazon.Com Fails at Dynamic-Pricing Trial’ 2000, p. 13). During 1999, it started to search for new business models like auctions and marketplaces in order to expand its market.

It afforded services and software as an agent instead of being a retailer. Later, it expanded its business by making partnership with some of the leading online companies which later were declared bankrupt. The relationship was affected and it had to reconsider its business model.

Although the company was quite popular, it experienced the challenge of generating more profits. It had the brand, consumers, financial potency and determination but inadequate profit models. If the company could not achieve that challenge by devising better strategies, it could have failed to capture market competition. Since it was running out of its financial resources, It could not achieve high level of profitability.

Finally, it is vital to note that during the same period, Amazon.com experienced strong competition. It had realized that attracting online revenues and maintaining customers was not enough to meet challenges posed by competition. It believed that its digital trade infrastructure was an advantage to counteract any strong competition.

In conclusion, stock market crashed with its challenges at hand and many of its online partners were declared bankrupt as a result. Its past experiences during the blink of bankruptcy before the close of the 1990s was a major blow towards its economic performance in the highly competitive online market.

References

‘Amazon.Com Fails at Dynamic-Pricing Trial’ 2000’, InfoWorld. Vol. 22 no. 40, pp. 4-104.

Applegate, L 2010, “Amazon-com: The Brink of Bankruptcy”. Boston. Harvard Business School Publishing. Vol. 9 no. 14, pp.1-11.

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