Case Study on Strategic Management of Amazon.Com Inc.

Question: Critically examine the relationship and the need for compatibility between corporate strategic and functional management policies. Analyse the internal and external influences on corporate objectives and strategy. Demonstrate the need for flexibility in strategic management and the practical limits of quantifying corporate strategy. Answer: Introduction Amazon.com Inc. is the American electronic commerce company, which is popularly known as Amazon (Rollins and Sandberg 2013). The organization has cloud services as well and is headquartered in Seattle, Washington. In the United States, Amazon is the biggest internet-based retailer (Klaus 2013). The organization was started initially as online bookstore and later with product diversification, it expanded in United Kingdom, Germany, Canada, France, Italy, Mexico, India, China, Japan, Brazil, Australia and Netherlands (Klaus 2013). In this report, strategic choices that Amazon has taken will be discussed through internal and external analysis, competitive strategy, strategic choice and strategy evaluation. Corporate Objectives Amazon was founded by Jeff Bezos in the year 1994 and sold its first book in 1995. After that, the organization became one of the largest e-commerce giant in internet retail world. The vision statement of the organization is Our vision is 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 (Amazon.co.uk. 2016). In order to incorporate the vision, the organization has developed the best transparent leadership style and its mission statement Earths most customer centric company reflects it (Amazon.co.uk. (2016). The corporate values of the organization include customer obsession, innovation, bias for action and leveraging commitment (Amazon.co.uk. 2016). The organization allocates a lot of information from target market and finally introduces wide range of daily products in cheap price. The organization collected revenue of US$ 107 billion in the year 2015, and it has net income of US$ 596 milli on in 2015 (Amazon.co.uk. 2016). Amazon has its scope of expansion in developing countries, especially in India. Figure 1: Amazon Revenue Earning (Source: Mooney and Slobodian 2016) External Analysis Macroeconomic Analysis Macro environmental analysis will be done by PESTLE analysis. Factors Explanation Politics Amazon was blocked in UK market in the past but in the recent years, government does not affect its operation Stable political scenario of UK has let the organization to operative exponentially Economics Consumer spending in UK varies so as to control inflation, which is reflected on interest rates, affecting the sales of Amazon Due to credit crunch and house loan tightening, UK e-commerce market has dropped slightly, giving rise to open markets in India and China With globalization, Amazon will get the opportunity to serve new products Social Online social networking has increased by 31.7% in UK giving rise to increased online retail advertisement High advantage to market products in the website reducing cost of operation Growth of internet by 28.9% has resulted more social bonding, which will give rise to sales Technology Technological innovation and enhanced Information Communication Technology will surely give rise to business broadening with cheaper cost Demand of technical devices such as TV, Smartphone, Tablets and laptops has enhanced the online shopping in UK Availability of rich media applications will enhance sales in the forthcoming years Legal There is no regulatory standards such as data protection act for e-commerce in UK No harsh governmental standards for e-commerce platform Environment UK is highly aware of global warming and pollution With reduction in travel more online shopping will increase in future Increasing motive of corporate social responsibility Green concept in packaging and postage Table 1: PESTLE Analysis of Amazon in UK (Source: Ritala, Golnam and Wegmann 2014) Competitive Analysis Porters Five Forces will provide detailed competitive analysis for Amazon. Threat from Substitute Threat of New Entry According to Chaudhari (2015), the threat of new market entry is quite lower for Amazon UK. This is because the organization has developed itself to a huge extent and provides numerous range of product for each category, which will not be supported by any new e-commerce company. Rivalry among Competitors The rivalry among competitors is high for Amazon UK. Hennig-Thurau, Hofacker and Bloching (2013) pointed out that Amazon provides wide range of products for each category, still its competitors such as eBay, Netflix, Apple, Google and Time Warner Cable are affecting its business in UK. On the other hand, Reid (2015) pointed out that auction websites are competitive enough for Amazon such as eBay, Ubid.com and other internet portal companies. Bargaining Power of Customer According to Irani and Silberman (2013), with high bargaining power of consumer, Amazon has to keep competitive pricing strategy. On the other hand, Bao and Chang (2014) pointed out that Amazon has very less overhead costs as it operates only through online. Amazon has huge customer centric tactics that has resulted in reducing its negative publicity. Bargaining power of Supplier Armstrong et al. (2014) pointed out that with medium-high bargaining power of supplier, Amazon has able to enrich its inventory with numerous suppliers from local companies in UK. Amazons goal is to offer everything to everyone. Furthermore, Scott (2015) pointed out that Amazon gives the opportunities to local entrepreneurs and new business to expand their sales through online platform. Figure 2: Porters Five Forces Analysis of Amazon (Source: Armstrong et al. 2014) Internal Analysis Strategic Capabilities Organizational resources and competences Scott (2015) opined that organizational resources are consisted of human, capital and physical factors. Amazon currently has 132,600 employees and more than 260 million registered clients. Some of the human resource policies that this organization enlists are employee empowerment, career choices, pay to quit and virtual contact center. On the other hand, Lafferty and Edmondson (2014) pointed out that the organization has the widest range of supply chain. This consists of local entrepreneurs, retail business sector and IT sector products, which indicates Amazon has the top range products in its market. As a result, the organization has created itself as the benchmark for other organizations in terms of cost cutting and product diversification. Basic and Unique Resources Basic and Unique Resources of Amazon Basic Resources Products consist of digital goods and services, books, household products and many others Warehouse Development system and employee training Customer database Customer service support Online marketing channel and promotion Kindle services Brand Popularity Supply chain Unique Resources Most diversified product category Strong revenue growth One click payment Product development Competitive pricing (heavy discounts) Amazon Web Services EC2 and S3 Quick delivery logistics Long term partnership with third party Senior management team has strong negotiation ability Flexible business expansion Table 2: Basic and Unique Resources of Amazon (Source: Malaga 2012) Business Functions The business function is consisted of online retail, internet services and Kindle ecosystem. Business Functions of Amazon.com Inc Online retail Traditional business consisting of online products, also known as traditional retailer Online retail is considered as the low cost retailer Biggest product selection consisting of family products, teenager products and digital gadgets Claims to be the long-tail retailer Internet Services Consisted of both retail business and Kindle Ecosystem Started to provided services such as Amazon Prime, video-streaming, retail purchases at convenient price All you can eat and subscription business model Amazon Web Services (AWS) Kindle ecosystem Expanding the family of Kindle tablets in the UK market Electronic eBook reader Acts as both traditional retailer and manufacturer Business Model canvas in given in Appendix 1 Table 3: Business Functions of Amazon.com Inc (Source: Fowler, Pitta and Leventhal 2013) Basis of Competitive Strategy Key Market Segments According to Bruce and Solomon (2013), Amazon.com identifies the most appropriate market segments for its wide range of products. Reczek, Haws and Summers (2014) pointed out that Amazon has product range from all category of people and thus, it has the widest range of consumer. The market segments of Amazon.com are given below. Market segmentation of Amazon.com is given in figure 3. Johnston (2014) pointed out that Amazon.com is not restricted to any behavioral segment, which indicates it has the widest range of products. The products are available in all countries and are recently launched in China. Products such as baby toys and handicapped items are available online, which indicates consumers of all age are satisfied with the products. Amazon products are available for any type of family, any income group and middle-education level people. Figure 3: Market Segmentation of Amazon.com (Source: Hathaway 2014) Business Strategy Through Porters Generic Strategy Framework, business strategy will be defined. Figure 4: Porters Generic Strategy Framework for Amazon.com (Source: Gopaldas 2015) According to Mata and Quesada (2014), the broad functions of Amazon consists price determination and cost cutting. Both of these functions reduces the cost of products and even reduces the organizational expenditure. On the other hand, Kim (2014) pointed out that Amazon has ensured differentiation in terms of both product and price. The organization maintains different pricing strategy such as competitive pricing for saturated products and premium pricing for latest entries. Chaffey, Smith and Smith (2012) pointed out that Amazon ensures bulk supplies and keeps strong relationship with them. In this way, focus on cost reduction has been ensured by Amazon, which gave rise to accelerated consumer loyalty. Strategic Choice Ansoff Matrix will explain Strategic choice of Amazon.com. Figure 5: Ansoff Matrix of Amazon.com (Source: Ivanova, Scholz and Dorner 2013) According to Sheth, Parvatiyar and Sinha (2015), Amazon.com needs to penetrate into new market by more advertising programs and loyalty programs. This is because Amazon has a lot of products available in its website that is not known by the consumers of UK. Such products are art supplies, medical equipment, and central government job exam materials. On the other hand, Pousttchi and Hufenbach (2014) pointed out that product development of Amazon.com has to be ensured by packaging system and new area development plan. Packaging will ensure product robustness and even act as the mode of advertisement. According to Shamma and Hassan (2013), in the new market, such products are required to be included by Amazon that has the highest demand in other countries such as technical gadgets and home equipment. On the other hand, Hannah et al. (2014) pointed out that in new market, penetration pricing of products is to be ensured so that new consumers are engaged. Furthermore, Panagiotelis, Smith and Danaher (2014) opined that Amazon.com needs to include new services such as virtual money, payment gateway elegancy and coupons for retail megastores. Strategy Evaluation Suitability According to Lund and Marinova (2014), in the UK market, a large number of people is spending more time in social networking sites than in television. Therefore, Amazon has the opportunity to give more advertisements through social networking sites, which will engage more consumers. Amazon does not consider marketing programs such as marketing campaign and events (Yadav et al. 2013). Therefore, for product expansion, it needs to ensure physical campaign in crowded areas, which will allocate more consumers. On the other hand, introduction of new products in the market will ensure huge suitability as the amount of entrepreneurship in increasing rapidly in UK. Such businesses will be able to sell their products via online platform such as Amazon. Serial Number Factors Explanation 1 Economic sense High demand with high supply and therefore low price for quality products 2 Economics of scale Lower fixed cost and variable cost due to rise in sale Increasing operational efficiencies Cost advantage leading to price reduction 3 Environment and capabilities Rising businesses in UK and entrepreneurship Table 4: Suitability Analysis (Source: Yadav et al. 2013) Acceptability Amazon can accept the strategies discussed in Ansoff Matrix because it is practical enough for the organization to expand its market in new nations through product diversification. Amazons amount of revenue earning is highest among its competitors in UK and therefore this may aid in establishing any new market (Yadav et al. 2013). On the other hand, the online services will include new coupon generation for retail megastores in the form of virtual money. This is acceptable for the organization, as it will in turn generate more revenue. Feasibility All the strategies that have been presented in the Ansoff Matrix require a lot of capital. Amazon has the ability to share 20 percent of its capital that is earned from other countries for establishing new markets (West, Ford and Ibrahim 2015). Therefore, it is feasible for the organization to establish new markets through events and marketing campaigns. Serial Number Factors Explanation 1 Funding Supporting fund from revenue generated by other matured markets Fund from investors 2 People Small businesses and entrepreneurs Human resource through campus drive 3 Time Within 10 months to 12 months 4 Information Demand forecasting Availability of suppliers Availability of entrepreneurs Identification of competitors Table 4: Feasibility factors fulfillment of Amazon (Source: West, Ford and Ibrahim 2015) Figure 6: Feasibility forecasting of Amazon (Source: Picard 2014) Conclusion and Recommendation Brief conclusion Amazon.com has been found to grow gradually in UK and other nations. The strategic issues are related with advertisements strategy and market penetration with new products. Therefore, through strategic analysis, it has been formulated that the organization needs to initiate marketing campaign and physical events in crowded locations. The products are available only in online store and therefore, Amazon needs to get in tough physically with the people of UK and in new markets as well so as to enhance brand awareness and consumer loyalty. Through feasibility test, it has been found that revenue will positively accelerate in the next four years, and therefore Amazon needs to organize such marketing events in future. Capitalizing Strength Amazon has reached in various nations in terms of market expansion by offering best discounts and daily products for its valuable consumers. On the other hand, Amazon does not organize marketing events. As this organization is following only product differentiation and cost cutting, hence it can be said that the company has been capitalizing its strengths. Main Weakness Amazon is moving away from its core competence of book selling to new product diversification, which may impact its business. Offering free shipping to its consumers Amazon might be in danger by losing margins. 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