What do you think is the most critical strategic issue confronting Amazon? Explain your answer.
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Amazon.com was launched in the year 1995. Its headquarters is situated in Seattle in the United States of America. In the beginning, the company sold books as its main business (Saunders 2009, p. 3). However, since then the company has extended into selling CDs, DVDs, computer software, electronics, and other household appliances. The company has spent a huge amount of money on building their brand. Along its growth path, the company has encountered numerous challenges. This section focuses on the most critical strategic issues confronting the company.
One of the major challenges faced by amazon.com is stiff competition. During its earlier years of operation, there were few online retailers unlike it is today. Over time, several players have entered the market eating into the company’s customers. Currently, there is enormous pressure being put on the company from the rivals (Scally 2012, p. 5). A few years ago, several online retailers merged with the aim of competing against Amazon on the online business. These companies were the Ingram Book Group, Barnes, and Noble. Through merging, the companies gained a competitive advantage. Apart from online competitors, the company still faces indirect competition from offline retailers.
Another major challenge that affects Amazon’s operations is disintermediation (Saunders 2009, p. 5). For instance, the company faces immense threats from producers and publishers who are now targeting consumers bypassing the role that the company should have played. If companies that are relying on Amazon for their distribution begin distributing their products and services online as some have already done, the company will become obsolete in the future unless they invest in other sectors. Other challenges faced by the company are changes in technology and the risk of heading in the wrong direction.
Drawing on relevant topics in this unit, what do you consider Amazon’s strategic capabilities? Explain your answer.
Based on the relevant topics in this unit, I consider acquisition, alliances, strategic partners, and offering to be the company’s strategic capabilities. Since the establishment of the company, it has always been on the lookout for fresh markets, which embrace technological applications. With this strategy, the company has been able to collaborate with several emerging companies outside the publishing industry. For instance, the company has expanded its operations to retailing CDs, DVDs, computer software, electronics, and other household appliances over the years (Saunders 2009, p. 8).
Equally, through acquisition, the company has managed to purchase Junglee and PlanetAll (Spector 2000, p. 12). By acquiring the above companies, the company has been able to enter into the European market. Junglee enables the company to do an evaluation shopping on the internet. On the other hand, PlanetAll acts as a prompt website for the company reminding customers to purchase their gifts through its website. Similarly, by collaborating with drugstore.com, the company has been able to retail pharmaceuticals expanding its line of products.
By signing agreements with other online companies, the company has been able to direct hotlinks to its mother website. Over the past years, the company has signed several limited agreements with AOL.com, Netscape, Geocities, @Home Network, Alta Vista, a0nd with other thousands of independent sites. Through all these agreements, each website is required to suggest some books for its customers and hotlinks them to the company’s website. Thereafter, if the customer buys the book suggested to him or her Amazon.com is responsible for the logistics, order fulfillment, and compiles and communicate sales reports through emails.
In the early 2000s, the company felt the need to expand its operation outside the US. In a bid to satisfy this ambition, they acquired two websites in Europe. The websites were ABC Bucherdienst and BookpagesLtd. Through another similar agreement with Yahoo, the company signed a pledge to make the company a leading book mercantile for Yahoo’s world sites across North America and Asia. Through this agreement, the company obtained Yahoo’s hotlinks around the globe.
Based on its expansion, it can be argued that the company’s success has heavily relied on the offering strategy. This is evidenced by the type and range of products retailed online by the company. Although there are various products the company can retail online, it is worth noting that it settled on offering a range of these products. Another offering strategy employed by the company is customizing, personalizing, and standardizing. Through customizing, the company has been able to tailor, reconfigure, and design its offerings in accordance with the customers’ needs. Personalizing has enabled the company to adjust the format and content of a website to cater to individual customers. On the other hand, through standardizing the company has been able to uniform products and website design options for all customers.
How do you think Amazon can identify and leverage its strategic capabilities to achieve or sustain its competitive advantage?
For Amazon to identify its strategic capabilities or to sustain its competitive advantage it must fulfill some key factors. One of these key factors is to know its customers. It is alleged that before Amazon’s founder founded the company, he reads from a book that there was a need to fulfill the needs of specific customers. Having been familiar with the internet, he managed to integrate what he read from the book and started the first online retail shop. In this regard, the company should not relent on finding new customers and products. To find new customers and products to offer online retail shops, the company must know the market and the industry. Therefore, for the company to remain competitive it must continue with its ambitions to identify and recognize the market and the industry. By focusing on market and industry identification, the company can identify other strategies that will enable it to outdo its competitors (Lucas 2002, p. 48).
Equally, for the company to remain competitive it must focus its attention on adding value to its products. Considered that the company’s success has attracted numerous competitors, it will not be long before these companies eat into their customers through product reduction. Therefore, the company must be on the look to identify ways of retaining their customers and attracting more customers. One major way of fulfilling the above is through value addition. This will ensure that the company offers unmatched and user-certified products.
By offering unbeatable logistics, the company can sustain its competitive advantage. The company should ensure that they always work with distribution channels that are providing efficient, quick, and safe delivery (Sherman 2001, p. 78). By doing so, they would foster consumer confidence and reduce the risks of their rivals to get hold of their suppliers. Similarly, the company should not bring into play third party logistics corporations to accomplish the orders taken from their website. They should always handle their delivery in the house as they have done in the past. Through this, they will be able to be in charge of their customers’ satisfaction.
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In addition, to leverage its strategic capabilities and achieve a competitive advantage the company should always strive to make it easy for customers to carry out business with them by collaborating with the best partners. It is a fact that every time the company acquires or collaborates with new companies it attracts more visitors to its website. Usually, small firms find it harder to enter into the traditional delivery channels as they lack sufficient advertising funds. However, if these firms could collaborate with online retailers such as Amazon they would modify the competitive landscape (Schepp 2009, p. 70). Therefore, the company should always be ready to acquire or collaborate with the best partners to make it easy for their customers to carry out business with them.
Lastly, through continuous innovation, the company can outperform its direct and indirect competitors. With technological advancements, they should always be ready to adopt innovations in their service to ensure that they remain relevant in the business field. In the same way, they should always be ready to keep pace with the changes in market opportunities.
Drawing on the relevant topics in this unit, what do you think is/are the strategic direction/s in the corporate and business-levels Amazon should pursue over the next three years? Be able to explain your answer by highlighting how and why the strategic directions create value for Amazon. Explain your answer comprehensively but concisely.
Recession in many markets combined with new sources of competition has raised the consciousness of customers towards value (Chorafas 2011, p. 45). Therefore, Amazon should note that value in today’s context does not only mean money but also the perceived benefits of the product offered. Customers are increasingly demanding products with a benefit at a lower cost. Hence, over the next three years, Amazon’s new competitive imperative should be to seek ways to achieve these strategies at the corporate and business levels.
Amazon’s competitive success over the next three years can only come through cost-leadership and offering differentiated products and services (Zerdick 2008, p. 39). Companies with higher costs and no differential advantage in the eyes of the consumers are in effect commodity suppliers with little hopes of long-term success unless they find ways to improve on their situations.
In reality, it will not be sufficient for Amazon to compete based on being the lowest cost retailer. If it does so, the consumers will perceive their products as commodities with no value. However, if they implement a strategy based on differentiation they will justify their reasons to compete on grounds other than price. Despite the fact that value for money will always be an issue, they should focus on increasing their customers’ perception of the values they are receiving and hence their willingness to pay a higher price (Gaol 2012, p. 34).
Equally, Amazon should consider tapping into the emerging teen segment on the internet. Unlike in the past, teenagers spent billions of money on cosmetics, CDs, and other consumer goods (Hartman 2010, p. 123). Because most youths are addicted to the internet, it is no surprise to find that they purchase most of their products online. Therefore, Amazon should consider moving into this segment. While doing so, they should be aware that these teenagers do not possess credit cards like their parents. Therefore, the company should collaborate with teen-oriented merchants.
As it has done in the past, the company should not stop its innovation efforts. Through continuous innovation, the company can outperform its direct and indirect competitors. With technological advancements, they should always be ready to adopt innovations in their service to ensure that they remain relevant in the business field. In the same way, they should always be ready to keep pace with the changes in market opportunities. By being innovative, the company should always be on the lookout for emerging market segments. They should consider strengthening its business in developing countries. According to the latest studies, it is alleged that the economy in most developing countries is growing faster compared with the developed countries. This implies that there are new opportunities the company can venture in these regions.
In conclusion, the company should continue to merge, partner, and acquire new companies. Through this strategy, the company in the past managed to attract millions of customers to their website consequently increasing their returns. Given that new innovative online companies are formed daily, the company should look forward to collaborating with these companies. These companies would not only increase their line of business but will also bring along new technologies needed for survival in the future. Therefore, the company should adopt and implement the above strategic directions at the corporate and business-levels over the next three years.
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Lucas, H. C. 2002. Strategies for electronic commerce and the Internet.: MIT Press. Cambridge, Mass.
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Scally, R. 2012. Jeff Bezos: founder of Amazon and the Kindle: Morgan Reynolds Pub. Greensboro, N.C.
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