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Critical Factors in Diversification Strategies
The five essential factors of diversification strategies that determine its further success refer to the availability of workforce, financial capacity, government regulations, availability of resources, and relative attractiveness of the market. Due to the combination of the aforementioned determinants of diversification strategies, the two possible outcomes of the tactics’ implementation can occur. Successful diversification strategies are commonly labeled as related diversification, which takes place when a business moves into a new industry that has significant similarities with the existing firm’s model or its business lines.
While the introduction of strategies aimed at diversification is essential for successful business performance, the steps taken to diversify the corporate environment may not necessarily lead to desirable outcomes. For example, the application of diversification tools at Amazon exemplifies both successful and unsuccessful diversification approaches. Although the decision to enter the digital market has helped to attract the attention of a larger market segment, it has also featured a series of difficulties caused by the necessity to readjust the company’s performance, management, and operations to an entirely new setting with the help of a diversification-performance approach. For example, as the case under analysis mentions, the first stages of diversification and the introduction of the organization to the digital market caused a slight decline in the company’s performance: “Amazon’s performance in the third quarter of 2016, especially in terms of profits, was lower than expected, and this caused its stock price to decrease by 7 per cent” (“Amazon Go: Venturing into traditional retail,” 2017, p. 3).
Predicted Success of Offline Retail Segments
After the initiation of Amazon Go, the first convenience product store without cashiers, Amazon entered the market of offline retail segments. Current revenue reports and technological advancements present in the store signify the high likelihood of future success of the company’s innovation. With the introduction of the offline retail segment, Amazon did not lose its primary characteristics: high accuracy, fast delivery, and convenient payment. The integration of online and offline experiences leaves hope to believe that Amazon Go will become a future model of convenience stores, effectively responding to the customers’ needs and current trends in the industry.
For Amazon to replicate its success in offline segments, the company will need to integrate different types of diversification strategies and adopt a situational approach toward navigating both on- and offline markets. By establishing the strategies geared toward diversification-performance, Amazon will be able to create a competitive advantage as a flexible organization that recognizes the different needs of its online and offline segments. Using the core competence-market matrix, one will realize that Amazon currently defaults on the development of its traditional core competencies in the new offline market. For the organization to succeed, it will need to differentiate between the key characteristics of its online and offline audiences.
Amazon Go’s Competitive Advantage
Though Amazon Go is new to the industry of convenience stores, it has already established a competitive advantage with other similar businesses. Being the first to move customer checkout to the next level by eradicating the need to waste time in queues, Amazon made a series of important actions. The competitive advantage is further sustained because all customers who enter the shop are already known, contactable, and preauthorized. This feature present in Amazon Go enhances the humane relationship between the company and the customer, creating a higher level of commitment for the consumers.
The first-mover advantage that the organization gained due to the unique specifics of its checkout system serves a crucial function in the development of a comprehensive competitive advantage of Amazon in the global market. Due to the implicit connection to its supply chain and the relevant processes, the specified advantage will allow the organization to transition to the offline market without experiencing significant hindrances. The specified approach will help to address the principal-agent problem, which may occur if Amazon starts developing relationships in the offline environment unprepared. However, the first-mover option will help the company to gain experience in balancing relationships with its stakeholders in the offline market. The increased preparedness levels, in turn, will lower the risks that Amazon is likely to encounter in the target context.
Deployment of Amazon Go Globally
Amazon’s offline retail store concept has the potential to be implemented globally. However, the scope of the countries where it might work is limited, as the successful operation of such retail segments depends heavily on the culture. Amazon Go might work in developed countries with individualistic cultures, where the safety level is relatively high; thus, the temptation to steal is relatively low. Meanwhile, the store might experience difficulties if operated in developing countries. Generally speaking, if Amazon Go were to expand globally, the best countries to start with would be Canada, Western Europe, Great Britain, and Australia.
To achieve success on the global scale, Amazon will need to explore the full potential of strategic alliances. The latter is a strong source of power for innovative companies since they help to improve a firm’s supply chain, enter new markets, and attract new audiences. Therefore, Amazon will have to create strategic alliances with other organizations to expand its capabilities and hedge against the uncertainties that new markets create. The latter option is especially important given the company’s lack of experience in navigating the offline market and addressing the needs of offline buyers. For this purpose, Amazon will require establishing alliance governance mechanisms that will lead to greater flexibility in managing decision-making and crucial processes within the supply chain. Thus, joint ventures seem to be the most appropriate form of alliances for Amazon at present due to the need for the company to control critical aspects of its offline performance.
Amazon Go: Venturing into traditional retail. (2017). Harvard, MA: Ivey Publishing.