Sei sulla pagina 1di 28

Amazon.com, INC.

strategic position and business model of


the retail giant in the USA
Executive Summary
Amazon is a company that is rewarded for not making money There are three key drivers of revenue for Amazon. The on-
(Yarow, 2013). Its investors persist in pushing its stock price to line retail industry is forecasted to grow and Amazon proves
record levels. Amazon posted $75 billion in revenues in 2013 efficient in providing an alternative to traditional retail stores.
with a market cap of $166 billion. Yet its profit margin is at a Another key driver is that of online traffic. Broadband adoption
poor -0.24% (Statista, 2014). “This isn’t supposed to happen, has reached 70% penetration in the US. Alongside this, there
it violates mainstream finance theory” highlights David Streit- are aggressively growing trends in tablet and smartphone
feld of the New York Times. sales.

The scepticism that Amazon has amassed over the media This leaves Amazon with strong industry positions as a leader
isn’t shared by its investors, nor does it contribute to corrod- with an outstanding track record with being able to sell prod-
ing investor confidence in the retail giant. Amazon’s mission ucts at cut-throat prices and world class warehousing and
is to be the world’s most customer centric company (Ama- distribution systems, achieving eonomies of scope and scale.
zon, 2014). Streitfeld (2013) further highlights that “Bezos (Jeff This could allow for Amazon to establish a physical presence
Bezos, CEO of Amazon) has chosen to run Amazon to be and increase revenues through its subscription plans. Despite
the biggest, most powerful and successful retailer on Earth 20 this it faces profitability challenges and threats and attacks to
years from now. Any fool could run it profitably today”. its security systems.

Amazon has branched into many forms of commerce and Furthermore, Amazon faces intense competitive pressure
technology but at the core of this ecosystem, it sells goods from industry players who are more experienced and are
cheap and delivers them cheap. The analysis of this ecosys- more resourceful. Amazon also faces organizational complex-
tem is beyond the scope of this report. Instead it focuses on ity, proportional to its growth. Mismanagement could result in
the core of this ecosystem- online retail in the United States. growth restrictions, damage reputation and also affect operat-
The purpose of this report is to identify Amazon’s next best ing results. Amazon also faces issues with seasonality in Q4 of
move. This report will do this by conducting a situational anal- every year with a spike in unanticipated demand and shipping
ysis, closely examining its business model and the dynamics delays.
of the online retail industry.
Amazon has attempted to counter these strategic challenges
At an impressive $200 billion, this online retail industry is set by minimizing costs wherever possible and drawing in sales
to grow to over $371 billion by 2017 in the USA. Competition from its ecosystem. It has also had to execute countermea-
in this industry is primarily dominated by the behemoth Apple sures such as offering discounts to unsatisfied customers.
and Walmart along with Staples, EBay and Best Buy. Amazon has inadequately addressed its growth strategies by
failing to rectify human resource issues and logistics misman-
A broader, macroeconomic look at the online retail industry agement, particularly in the high demand Q4 period.
reveals that the 2008 financial crisis and the credit squeeze
have had a negative effect on the industry however this has Amazon should consider entering a new market with a new
directed consumers to seek out cheaper online retail alterna- product to boost customer loyalty. It should continue to devel-
tives. A fury of tax issues regarding online retailers have added op this ecosystem that keeps customers engaged and loyal.
to legislative woes in the industry. The rapid growth in busi- It can do this by developing a smartphone, proprietary built to
ness intelligence has resulted in firms becoming more cus- focus customers back to Amazon’s own retail services, much
tomer centric. like the Kindle. This will give it considerable edge over com-
petitors because it will enable Amazon to capture the growing
Amazon relies on three integral streams of revenue. It has smartphone and mobile shopping trend, understand custom-
amassed huge growth in the sales of its online products, ers better by collecting intelligence from this personal device
charges usage fees to users who sell on Amazon and charges based on user behavior to anticipate and forecast demand.
a commission. Amazon also earns revenues through the sub- This customer centric tactic is strongly aligned with its mis-
scription fees accumulated from its Prime, Mom and Smile. sion, is future proof and a logical product extension of its own
electronics product line such as the Kindle.
A Business Model C Amazon.com, INC
A1 Target Client Base 7 C1 Value Chain Analysis 15
A2 Value Added Proposition 7 C1.1 Logistics 15
A2.1 Subscription Plans 7 C1.2 Marketing 15
A2.2 Price Leadership 7 C1.3 IT and HR Support Activities 15
A3 Cost Driven Structure 8 C2 Core Competencies and Capabilities 16
A3.1 Distribution Center 8 C2.1 Price Leadership 16
A3.2 Automation 8 C2.2 Third Party Ecosystem 16
A4 Revenue Streams 9 C2.3 User Experience 16
A4.1 Asset Sales 9
A4.2 Usage Fees 9
A4.3 Subscription Fees 9 D Strategic Challenges
A5.1 Revenue Drivers 10
A5.2 Online Retail Industry growth 10
D1 Competitive Threats 18
A5.3 Online Traffic Growth 10
D2 Operational Complexity 18
A5.4 Profit Margins 10
D3 Seasonality Issues 18

B The Online Retail Industry


B1 Macroeconomic Analysis 11
B1.1 Internet Usage 11
B1.2 The US Economy 11
B1.3 Legislation 11
B1.4 Comprehensive Scan 11
B2 Players in the Online Retail Industry 12
B2.1 Strategies of Different Groups 12
B2.2 Strategic Mobility 12
B3 Industry Rivalry 13
B4 Critical Success Factors 14

Photo: An Amazon.com employee grabs boxes off the conveyor belt to load in a truck at their Fernley, NV warehouse. Scott Sady/AP

4
E Addressing Challenges G Recommendation 23
E1 Competitive Threats 19 H Additional Material
E2 Operational Complexity 19
H1 Reference List 15
E3 Seasonality Issues 19
H2 List of Tables & Figures 15
H3 Supplementary Appendix 15
F Strategic Options
F1 TOWS Matrix 20
F2 Generating Strategic Options 21
F2.1 New product in New Market 21
F2.2 Existing Product New Market 21
F2.3 Existing Product Penetration 22
F2.4 Evaluating Options 22

5
Introduction
Online Retail
Online retail is a $200 bilion industry which consists of revenues
generated by the sale of goods on online retail channels. The
sector is expected to grow healthily to $371.4bil by 2017 as it
has been since 2009 (Figure 1).

Online Retail:
$371bil by 2017

Figure 1: A steadily growing industry, Source: Marketline, 2012

The growth is driven by rivalry among a few key players such


as Amazon™, Apple™, Staples™, Walmart™, Ebay™ and
Best Buy™. This report will specifically focus on a situational
analysis of Amazon’s online retail arm in the USA using tools
such as strategic group analysis (SGA), macroeconomic
analysis, Porter’s 5 Forces analysis (P5) compiled with business
intelligence from EBSCO databases and the Chartered
Management Institute.

The report will then proceed to advise on Amazon’s future


strategic direction and how it can increase its revenues and
gain a bigger share of the growing online retail industry.

6
A. Business Model

A1Target Client Base Ultimately, the results of its efforts has led to Amazon securing
higher consumer satisfaction scores than other retailers in the
ACSI online retail industry benchmark (ACSI, 2013). Further-
As of 2013, Amazon has a mass market client base of 143 more, Amazon has performed better than other retailers and
million active customers throughout the US for its online re- beat the industry benchmark for the last 10 years (Figure 3).
tail (Compete.com). The Wharton School of Finance highlights
that its target client base is unclear. Amazon is “part retailer,
part shopping mall and part landlord to third party retailers
who leverage Amazon’s existing resources. Wharton futhers
on to highlight that this makes Amazon a “mass market player
with niche products”.

Despite this Alexa breaks down its online traffic between male
and female consumers with an over representative females
along with equal dispersions between no college education to
graduate school and a minority with a college education (Al-
exa, 2014). See Supplementary Appendix J for a more com-
prehensive breakdown.

Figure 3: American Customer Satisfaction Index Scores, Source: ACSI, 2013

A2 Value Added Proposition


A2.1 Subscription Plans A2.2 Price Leadership

Amazon also brings its products to online retail at the low-


Amazon delivers value to select target clients such as mothers
est prices possible. Being able to sell consumer goods like
and students with its “Amazon Mom™” and “Amazon Stu-
books and toys at a cheaper price gives them advantages in
dent™”. Value is delivered to these clients with discounts in
the market and helps Amazon retain consumers (Bloomberg,
baby and family household products with free two day ship-
2013). For example, in winter 2013, Amazon priced their toys
ping along with discounts and deals for students (Amazon,
3 percent below Walmart on average, a sucessful tactic to win
2013). Figure 2 shows a breakdown of these consumer seg-
market share and customers during holiday seasons. Com-
ments where 93% of customers state that they would either
petitive measures such as these have ultimately resulted in
join or renew their program, this service delivers value and
Amazon achieving price leadership over the top 5 retailers in
promises strong returns for Amazon (Levin, 2013).
this industry (Figure 4).

Figure 2: Breakdown of
Subscription Plans, Source:
McKinsey, 2012
Figure 4: Amazon’s Price leadership over competitors, Source: McKinsey, 2012

7
A3 Cost Driven Structure A3.2 Automation
A3.1 Distribution Centers Economies of scope are also characteristic of Amazon’s cost
driven business model. In 2012, Amazon acquired Kiva Sys-
Amazon have announced that they plan to open a 1.2 million- tems, a company whose software and hardware systems
square-foot logistics center in Moreno Valley, North America, streamline the process of picking, packing and shipping e-
this warehouse would need more than 1,000 employees commerce products (TechCrunch, 2012). This decision to
(Press Enterprise, 2012). Warehouses like these are part of incorporate Kiva Systems into its own business model has
Amazon’s huge scale of supply chain components. The veloc- allowed for more cost savings which can be passed on to on-
ity at which Amazon shifts stock is almost half that of physical line retail consumers; thereby supporting its customer centric
retail stores and contributes to significant cost advantages for mission.
Amazon through economies of scale (Tutor2u, 2012). Table 1
details the end results of its logistics power compared to typi-
cal multichannel retailers, specifically in terms of distribution
centers in the United States (Mckinsey, 2012).

8
A4 Revenue Streams A4.2 Usage Fees
Amazon charges usage fees to sellers online, thereby earning
commissions from the sale of third party products. Amazon
Amazon’s revenue streams rely on fixed menu pricing strate- earns a 0.99 USD fee per successfully sold item plus a sales
gies and dynamic ones such as real time market pricing (RTM). fee, which is a percentage of the final sale value (Amazon,
Prices will adjust based on Amazon’s competitive analysis 2013). Examples of some of the highest and lowest sales fees
technologies to compare prices across retailers and deliver are detailed in Figure 8.
the best possible price.

A4.1 Asset Sales


Amazon sells ownership rights of physical products (Oster-
walder and Pigneur, 2010). Amazon.com™ sells books, mu-
sic, consumer electronics and more online. The sales and rev-
enue shown in Figure 13 and 6 show that although Amazon
Commission %
has had increasing revenues year on year, its growth percent-
age had declined 2011 to 2012. An improvement may be ex-
Figure 8: Some product categories have different fee structures, for a full
pected in Q4 2013 given Amazon’s 9 month improvement in breakdown see Appendix 1, Source: Amazon, 2013
2013 (Figure 7).

A4.3 Subscription Fees


Amazon charges subscription fees on its Amazon Prime™,
2011
Amazon Student™, Amazon Mom™ and Amazon Smile™
2010 programs (Amazon, 2013). Consumers that have been locked
in by these subscription programs have higher spending and
therefore the programs improve contributions to cash flow.
56% of US product sales by Amazon are affiliated with con-
2012
sumers in these programs (Levin, 2013). 40% of Amazon’s
total USA customers are affiliated with these programs and
contribute up to $1200 in revenue per year, per member, il-
Figure 6: Decline in revenue growth 2012 Source: Amazon, 2013
lustrated in Figure 9 (Morningstar, 2013).

Sales 0,000 millions

Figure 7: Stronger sales compared to last year, Source: Amazon, 2013 USD per person

Figure 9: Over half of Amazon’s sales come through the Prime program,
Source: McKinsey, 2012

9
A5 Revenue Drivers

A5.1 Online Retail Industry Growth


The online retail industry is expected to grow yearly in revenue
(Figure 10). Forbes (2013) highlights that Amazon is likely to
lead the way in this future growth. Forrester Research (2013),
emphasizes that online stores such as Amazon prove to erode
into traditional brick and mortar stores, thereby strengthen-
ing its growth forecast, provided they sustain their competitive
advantages.

Figure 12: Tablet sales to double by 2016 (millions), Source: IDC, 2013

A5.3 Profit Margins


Despite Amazon showing promising growth in revenues and op-
erations, its razor thin profit margins and net income are of key
concern (Figure 13). It currently performs the worst compared
Figure 10: Online retail industry forecast, Source: Marckeline, 2012 to other players in this industry, illustrated by the light blue line
(Figure 14). Apple dominates on its 20% margin while Amazon
actually operates on a loss. Amazon may try to improve these
A5.2 Online Traffic margins in future after successfully locking in enough customers
Figure 11 shows an impressive home broadband adoption
which places adequate criticality on improving market share and
trend in the USA. Over 70% of US adults currently have home
sales targets.
broadband. This widens the customer pool for Amazon’s on-
line retail business in two perspectives. Consumers are now
more likely to shop online using desktop PC’s and the simul-
taneous increase in Kindle and tablet shipments (Figure 12)
means that Amazon can focus Kindle users back to its online
retail through in-tablet purchases (Forbes, 2013). Kindles cur-
rently make up 22% of the US tablet market (Owen, 2012).
This gives Amazon a strong advantage in locking in consum-
ers who will purchase through Amazons own retail service.
Figure 13: Amazon’s low income Source: Statista, 2013

Figure 11: Broadband adoption in the USA at 70%, Figure 14: Amazon’s profit margins compared to competition
Source: Pew Internet and American Life project Surveys, 2013 Source: Statista, 2013

10
B The Online Retail Industry
B1 Macroeconomic Analysis
B1.1 The US Economy
The Economic state in the US is both an advantage and a
disadvantage to online retailing companies as there is less ex-
penditure due to the results of the credit squeeze from the
2008 financial crisis. People have turned to online retailing as
a means to saving money by comparing goods as well as sav-
ing money on travel expenses which proves beneficial on an
environmental front.

B1.2 Legislation
There have constantly been new regulations within the online
retailing industry requiring companies within this industry to be
aware of these ever changing factors. If companies are not
careful they are likely to constantly face legal charges because
of the fast growing market within the online retailing.

B1.3 Internet Usage


Companies within this industry have a social and political ad-
vantage as the government are encouraging broadband net-
work providers to increase their competition and drive down
prices. This is particularly important as there is a fast internet
growth rate leading to people using internet services more

such as social networks and more importantly online retailing.

B1.4 Comprehensive Table

11
B2 Players in the Online Retail Industry
B2.1 Characteristics of different groups B2.2 Strategic Mobility

Figure 15: Strategic clusters A, B and C found through SGA analysis

12
B3 Industry Forces

Figure 16: Porter’s 5 Forces Analysis Source: Marketline et.al., 2013

is

13
B4 Critical Success Factors

B4.1 Logistics
Efficient distribution systems are a hallmark strategy of this
industry. Amazon must keep up a well-configured distribu-
tion strategy. It has a number of warehouses that are geo-
graphically spread within the country and caters to every
market. Amazon must compete with other industries that
also require logistics to be a critical success factor such as
Walmart where every store is at the maximum, a day’s drive
from the distribution center. These centers operate 24x7 us-
ing cutting edge stock processing IT systems along with a
fleet of over 12,00 trailers, all of which are satellite tracked for
centralized information relay (BoozandCo, 2002).

B4.2 Brand Value


Brand value is an intangible resource and a key competi-
tive advantage for all online retail industry players. It helps
retain customers and creates a barrier to entry for unknown
online retail brands. Figure 17 shows the strong positions
of Walmart and Apple (Forbes, 2013) with Amazon (Brand
Directory, 2013) coming into third position when revenues
are plotted against brand values.

Figure 17: Amazon comes into 3rd in brand value, Source: Interbrand, 2013

B4.3 Customer Centricity


Customer centricity is a key success factor for all competi-
tors in this industry. The degree of centricity varies from
one company to another, for example, Apple Inc. aims to
“delight the customer” and deliver a “superior customer
experience” at its retail stores (Denning, 2011), while Ama-
zon uses the “sense and respond” method where it uses
technology-based capabilities to collect and analyse data
on customer experiences and in turn work to keep custom-
er satisfaction at its best (Hinshaw, 2013).

Photo: Christopher Chan/Flickr

14
C. Amazon.com, INC
C1 Value Chain Analysis C1.3 IT and HR Support Activities
Amazon’s primary marketing activities were supported by up
to $4.5bil of technology investments and up to $1bil of human
C1.1 Logistics resource and administrative expenditures. These investments
Taking into account customer centric approach of the com- have been necessary to further deliver value to the customer
pany, one of the key aspects of value creation for Amazon is by providing a secure online web service and the ability to
order fulfilment, which is when the product is actually received personalize a customer’s shopping experience. Search engine
by the customer. This process is tightly connected with sup- optimization investments have also led to Amazon’s website
ply chain and is supported by outbound and inbound logistics competing with the worlds top 10 most visited websites (Al-
(Figure 13). In inbound logistics, the company reduces costs exa, 2013); enhancing its brand equity.
by ordering the products from distributors, which contributes
to optimization of stock management processes. Outbound Figure 18 illustrates the positive impacts of Amazons’ best in
logistics consists of picking, sorting, packing and shipping. class logistics systems (McKinsey, 2012). Amazon spends up
Here, the costs are being constantly reduced by technological to 300% more in RandD than the top 5 retailers in the US to
improvements. deliver the maximum value at the end of its value chain (Figure
19).
Investment in expansion of fulfilment space brings Amazon
ever closer to the customer. Amazon ensures even faster or-
der fulfilment using its supply chain partners, which deliver
items packaged in Amazon packaging directly to customer.
This also contributes to increased product range, product
availability, and minimization of transportation costs in fulfil-
ment. Technological improvements, drop shipping, and broad
fulfilment space help Amazon realize its swiftness potential
and to provide a wider range of products ensuring company’s

image of the fastest shipper and “everything store”.

C1.2 Marketing
Amazon utilize traditional forms of marketing such as print,
internet banners, television and also leverage its participatory
network (see section C2.3) to great promotional advantage.
This includes Pay-per-click advertising on search engines
such as Google, Bing and Yahoo, E-Mail direct marketing and
a dedicated customer service (Amazon, 2013)

Amazons associates program founded in 1996 allows smaller


sites on the internet to generate traffic for Amazon. Amazon’s
products are posted on the third party sites and pays up to
15% if a successful lead is obtained. This presence is seen
across millions of websites (Spainhower, 2004). This has led to
unsurpassed visibility of Amazon and has boosted search en-
gine rankings. Ultimately, this has given competitive advantage
in its value chain, created by its own network of consumers.

Figure 18: Amazon’s spends 300% more on R&D, Source: McKinsey, 2013

15
Table 7:Threats to Amazon’s operability, Source: Amazon, 2013

C2 Core Competencies and


Capabilities

C2.1Price
Amazon is adept on offering low prices to boost sales and
retain customers. One of the key ways it is able to do this
is to minimize logistics costs. Amazon reduces its overheads
by only stocking a small percentage of its products. The effi-
cient cost effective distribution and work capital management
(Figure 15) allows Amazon to pass on the savings to custom-
ers (Sapinhower, 2004). If the top 10 retailers had Amazon’s
abilities to cut these costs in distribution, they could save over
$150bil which makes this a key, unique competency (McKin-
sey, 2012).

Figure 19: Amazon’s superior work capital management, Source: McKinsey, 2013

C2.2 Third party Ecosystem


Amazon has created a competitive ecosystem of third party
sellers who place their products for sale on Amazon. This
strategy helps Amazon promote its reputation and deliver the
cheapest prices from the result of pricing competition in the
ecosystem. Therefore, sellers in turn serve Amazon’s own in-
terests and boosts customer loyalty (Sapinhower, 2004).

C2.3 User Experience


Amazon’s huge knowledge database of reviews and ratings
has developed into a platform for a large community of con-
sumers. The Economist (2009) highlights that these reviews
are significant factors that influence a purchase decision at
Amazon. They deliver a social style to shopping on Amazon.
This participatory network of reviews elevate the online experi-
ence by creating a community, thereby delivering a valuable
sense of belonging to the end consumer (Subramani, 2003).

16
C3 SWOT

“Hoverdrones right to
your door,
your delivery in 30
minutes”

17
D. Strategic Challenges
D1 Competitive Threats D3 Seasonality Issues
Amazon faces intense competition as illustrated in the strategic Seasonality is another key strategic concern. As shown in pre-
group analysis. Amazon faces multiple competitive threats both viously, in figure 13, Amazon experiences a spike in Q4 of ev-
inside the online retail industry and outside, from other industries ery year. Amazon highlights the following reasons which may
such as digital content, digital media devices and web services. cause fluctuations in operating results and fluctuations (Ama-
Many of Amazon’s current competitors such as Apple and Ama- zon, 2013):
zon have greater resources, longer histories and greater brand
recognition. The ability to retain and increase sales to existing customers,
attract new customers and satisfy customer demands
This competition can intensify if competitors choose to venture
into industries where Amazon already faces competition, for ex- The ability to retain and expand its network of sellers
ample, Apple competes in online retail and cloud storage ser-
vices with its iCloud against Amazon’s retail and Web Services. The ability to offer products on favourable terms, manage in-
ventory and fulfil orders
Traditional brick and mortar firms such as WalMart and Best Buy
are rapidly developing their competencies in online retail. Despite Timing, effectiveness and costs of expansion and upgrades of
this, “merchants and marketers not renowned for their techno- Amazons systems and infrastructure
logical skills have more to do to catch up with the way people are
shopping” (Jopson, 2013). Variations in the mix of products and services Amazon sells.

The extent to which Amazon invests in technology & content,


D2 Operational Complexity fulfilment and other expenses
Amazon faces an ever increasing amount of operational com-
plexity. Amazon is rapidly and significantly expanding its op- The consequences of these are significantly heightened during
erations in North America and abroad. This has led to scaling Q4 when it is imperative that Amazon successfully meet con-
IT systems, infrastructure and human resources. In result, this sumer expectations and demand. Furthermore, if Amazon is un-
places pressure on Amazon’s management, personnel, financial able to stock or restock popular products in sufficient amounts,
resources and operations. it could have a significant impact on revenue and future growth.
On the other hand, overstocking may lead to discounting and
Management of these new developments is crucial and other- write offs which can reduce profitability. Q4 or the holiday sea-
wise could lead to growth restrictions, damage reputation, and son can also bring increases in net shipping costs.
also affect operating results. Amazon already have low profit
margins and any such consequences could also lead to a loss of
investor confidence and ultimately its market value.

Competitors such as Ebay are able to evade many of these is-


sues as they offer no physical services while Apple and Wal-Mart
already have considerable expertise and competency in dealing
with complex operational structures.

18
E. Addressing Challenges
E1 Competitive Threats E3 Seasonality Issues
Amazon has already established itself as a leader in low cost Addressing seasonality issues is something Amazon also strug-
online retail. This offers significant competitive advantages over gling with. Despite having state of the art business intelligence
other competitors in this industry. The key strategy which Ama- processing capabilities with its cloud infrastructure, it has been
zon deploys to compete is a “platform strategy” (Saughnessy, unable to prudently forecast and anticipate heightened demand
2012). Similar to Apple, Amazon’s core business is online retail. and this has caused adverse effects on its profitability, for ex-
The tactic used to attract customers to online retail is by creating ample, issuing discounts and gift vouchers after failing to deliver
an ecosystem with other products such as the Kindle and Ama- orders in December 2013.
zon Web Services- Amazon’s cloud storage system.
In other perspectives, Amazon has been successful in attract-
Amazon’s value propositions of cost leadership and loyalty ing new customers. Figure 20 shows Amazons inclining trend
schemes also help gain bigger market share. Despite this, Ama- in the number of website visits which currently stands at 143mil
zon’s growth strategy is long term oriented and still has a long in the United States, up 19% from last year (Compete.com,
way to go before it reaches the profit and revenue levels of Apple 2014). Amazon has been able to maintain its online retail at-
and Wal-Mart. It is still in the early phases of developing a fully tractiveness.
functional ecosystem like Apple has done with its iTunes store,
electronic products and developer community.

Its long term platform/ ecosystem may be at a risk if it is un-


able to improve its profit levels as it will need adequate financing
for diversification plans to fully develop this ecosystem. Overall,
Amazon is still in the early phases of competing with other online
retail players but has gained strong competencies in several are-
nas which will help its long term strategy. Figure 20: Amazon hits close to 150M unique consumers, Source: Compete, 2014

E2 Operational Complexity
Another area of concern is Amazon’s new expansion into Ama-
Amazon has recently been having issues regarding scalability,
zonFresh, a service that delivers fresh groceries for a yearly fee
especially regarding its fulfilment centers. December 2013 con-
of $299.
cluded in a mass of undelivered orders due to third party de-
livery failures (Walters, 2013). Furthermore, Amazon states that
Although this may add to Amazons revenue streams as a sub-
this could have been the result of unintended consequences of
scription plan, it needs to be noted that this new venture will
its Prime program. The key value proposition discussed earlier
require extensive resources such as new warehousing, delivery
received 1 million new customers in December and Amazon is
and IT systems. Given Amazon’s already low profitability and re-
restricting the number of new subscriptions so that the quality of
peated inability to successfully meet cyclical demand, the tim-
service to older members does not deteriorate.
ing of the launch of AmazonFresh is questionable.

Amazon has already issued $20 gift cards to those who did not
On the other hand, in the longer term, the combined resourc-
get their deliveries in time for Christmas. A spokeswoman re-
es of Amazon as a whole with the addition of AmazonFresh
cently stated that Amazon could not forecast the spike in or-
may help combat seasonal pressures in demand. Therefore,
ders. This clearly shows mis management given that Amazon is
although it may not seem like an evident countermeasure, cur-
expected to have spikes in Q4 of every year. In addition to this,
rent diversifications may prove beneficial in the long run.
amazon also faces woes in its distribution centers from union-
ized workers who protest against poor working conditions and
health risks (Young, 2013).

It is inadequately addressing its growth strategies by failing to


rectify human resource issues and it has been unable to scale its
logistics operations. These have tarnished its brand reputation
and impeded successful growth.

19
F. Strategic Options
F1 Putting the SWOT Lack of physical presence(W1)+Grow subscription

into action plans(O2)+Establish physical presence= potential to increase

customer loyalty, similar as O1+O2

The SWOT matrix features limitations in that it is restricted to


the analysis of strengths and weaknesses to reduce threats and Cost Leadership(S3)+Scalability issues(T2)+Leaders in
maximize opportunity. The TOWS matrix enables the identifica-
tion of external opportunities and threats and compares them to distribution(S4)= If Amazon maintains this strength, it can chan-
Amazon’s internal strengths and weaknesses to help develop nel cost savings to facilitate and finance organizational scalability
ideas for strategic options.
such as IT infrastructure and human resources

Strengths Weaknesses Opportunities Threats


Industry leading Lack of physical Establish physical Outsourced pay-
retailer (S1) presence (W1) presence (O1) ments systems are Incredibly low margins(W2)+Scalability issues(T2)+Customer
a major risk (T1)

Best customer Incredibly low Grow subscription Scalability issues satisfaction scores(S2)= Customer loyalty may incur an accept-
satisfaction scores margins (W2) plans (O2) (T2)
(S2)
able amount of damage if Amazon were to increase its margins
Cost Leadership IT systems at risk
(S3) of cyber attacks
(W3) to facilitate scalability for future growth.
Leaders in distribu-
tion (S4)

Table 9: Cross examining SWOT with TOWS matrix

Leaders in distribution(S4)+Establish physical presence(O1)= im-

proved ability and opportunity in leveraging current distribution

competencies to physical stores.

Best customer satisfaction scores(S2)+Grow subscription

plans(O2)= opportunity to expand customer base and grow fu-

ture revenues with subscription plans

Industry leading retailer(S1)+leaders in distribution(S4)+Establish

physical presence(O1)= brand image and reputation that has al-

ready been built can enable physical stores to be a success and

distribution strengths can ensure reliability.

Establishing physical presence(O1)+Growing subscription

plans(O2)+Best customer satisfaction scores= potential to cre-

ate more subscription customers through retail, increasing rev-

enues and physical assets

Incredibly low margins(W2)+Grow subscription plans(O2)= pos-

sibility to increase subscription plan prices to improve margins

20
F2 Generating Feasibility of implementing required organisational changes
The SWOT shows that Amazon has the necessary skills and
Strategic Options competencies required to develop its own smartphone. Given its
Kindle success, it has the necessary industry relations in order
to research, build and develop a smartphone. The same Android
F2.1 New Product New Market operating system can be ported into the phone.

This option recommends that Amazon venture into the smart- Robustness under different future scenarios
phone market. Its Kindle device propels Amazon’s retail of This option is highly robust for future scenarios, smartphones
books, music and video. Amazon can accelerate and increase are emerging technologies and as a result, they are commonly
online retail of these by generating sales through a smartphone. priced at a premium such as the iPhone and the GalaxyS4 by
Samsung. Amazon can expend into the low cost smartphones
Consistency with strategic objectives & vision market.
As analysed before, Amazon chose to pursue an ecosystem
strategy to maximize online sales. Amazon’s vision is to be cus- F2.2 Existing Product New Market
tomer centric. A smartphone will be used by consumers on a
regular basis and delivering Amazon’s online retail experience Consistency with strategic objectives & vision
through the phone will be highly customer centric. Bensinger (2013) highlights that Amazon can use this as a strat-
egy to drive sales of general merchandise which can bring high-
Creation of competitive advantage er profit margins. This contributes well to Amazons long term
Amazon already uses Kindle to drive online retail sales. This ef- strategy of becoming the biggest retailer in the future. This also
fectively enables it to compete with Apple in retail against the entrusts shareholder confidence who are already sceptical at its
iPad. Launching a phone at breakeven prices like the Kindle will razor thin margins.
ensure fast consumer adoption rate and in turn, increase online
retail revenues through Amazon’s own app store. Creation of competitive advantage
Provided that Amazon is able to scale this operation effectively
Financial Viability and manage entry into new markets, this will create consider-
Amazon can gain considerable cost savings by using the same able competitive threat to others. The Amazon Fresh service will
manufacturers it uses to build its Kindle line. This diversification bring along with it the brand image and recognition Amazon has
should be able to achieve capital from investors because of its already built. Despite this, many consumers may still prefer self-
close link to Amazon’s mission. Despite this, a delayed R&D ex- shopping at traditional stores.
penditure be more advisable due to the cash flow strains Ama-
zon has experienced over December 2013. Financial Viability
New IT infrastructures will need to be developed to cope with
Satisfaction of current and future customer needs the additional demand, and a scaled logistics network will also
As analysed before, smartphone trends are expected to con- be required. Additional human resources will be required in the
tinue to grow, as online shopping shifts to mobile mediums, management and delivery of this service such as warehouse
Amazon will be able to satisfy this customer need with Kindle personnel. It is advised that Amazon progress from one market
tablet and Smartphone. Furthermore, Nielsen (2013) states that to another at a point in the financial year when it will not create a
smartphone penetration in the USA stands at 61%. This provides drastic impact in other core operations.
Amazon ample opportunity to cater to a low cost segment of the
market and ultimately achieve its mission of customer centricity Satisfaction of current and future customer needs
Groceries are commodities and therefore there will always exist
Potential response of competitors demand for them. Amazon brings same day door to door gro-
Kindle posed a threat to Apples iPad in the US and developing a cery deliveries as a value proposition and provided it can meet
smartphone can be perceived as an additional threat. Other re- future demands by expanding its grocery range, it should grow
tailers in the US such as Wal-Mart have the financial resources to its loyal customer base.
develop their own products however, unlike Apple and Amazon
who have an ecosystem of services developed to increase online
retail sales, Wal-Mart may be unable to compete here.

21
Potential response of competitors Feasibility of implementing required organisational changes
Wal-Mart, is most likely to see AmazonFresh as a threat to its High costs and organizational changes will be required to oper-
grocery business. It is likely that it will imitate Amazon’s value ate a duplicity of online and retail channels.
proposition with same day door to door deliveries given its re-
sources. Robustness under different future scenarios
Poorly oriented for future however traditional retail channels will
Feasibility of implementing required organisational changes exist but cost-benefit may be unsatisfactory to pursue this op-
Amazon will need to scale its logistics capabilities and its busi- tion.
ness intelligence capabilities. It needs to be able to make ad-
equate storage for grocery products, manage the delivery of
F2.4 Evaluating Options
products and forecast order demand adequately.

Option 1 Option 2 Option 3


Robustness under different future scenarios
Consistency with 4 4 1
This competitive strategy can be easily imitated by Wal-Mart strategic objectives
& vision
however home grocery deliveries is an emerging service and fu- 1=Poor Strate-
gic alignment,
ture oriented. Amazon should attempt to capture the physical 5=Strong align-
ment
retail store market alongside this.
Creation of com- 5 4 2
petitive advantage
F2.3 Existing Product Penetration 1=Unattractive
competitive attrac-
tiveness, 5=Strong
competitive advan-
Consistency with strategic objectives & vision tages

Physical stores can become customer centric such as Apple Financial Viability 4 3 1
1=Extremely high
and can contribute to Amazon’s vision to become the biggest costs, severe im-
retailer however a physical presence is not Amazon’s compe- pact on finances,
5=Acceptable level
tency. of risk

Satisfaction of 4 3 4
current customer
Creation of competitive advantage needs
1=Inadequate sat-
Minimal competitive advantage to be gained here other than isfaction, 5=Meets
brand image development and recognition. needs well

Satisfaction of 5 4 3
future customer
Financial Viability needs
1=Inadequate,
Highly capital intensive in setting up physical stores and add to 5=Meets future
depreciation of assets on balance sheets. Can severely impact needs well

cash flow and liquidity. Potential response 4 3 2


of competitors
1=Minimal com-
petitor response
Satisfaction of current and future customer needs 5=May be detected
as competitive
Growing attractiveness of online retail combined with the in- threat
crease in mobile shopping will show misalignment with custom-
Feasibility of imple- 4 3 2
er needs for the future. Physical retail may be attractive for the menting required
organisational
near future. changes
1=Difficult to
implement, needs
to undergo exten-
Potential response of competitors sive organization
All retailers in strategic groups A & B have physical retail stores. reconfiguration
and disruption,
EBay and Amazon do not. Capital investment required is too 5=Acceptable level
of organizational
high. Other competitors already have considerable history and change

expertise. It may not be worth competing here. Robustness under 5 3 1


different future
scenarios
1=Futuristic,
5=Shows strong
future orientation

Total 35 27 16
Table 10: Option 1 ranks the highest after evaluating options

22
G. Recommendation
The comparison table shows that Option 1 is the most attractive
option. Launching a smartphone to channel customers into Ama-
zon’s online retail service meets strategic objectives of customer
centricity because it is a highly personal product, creates strong
competitive advantages because it acts as another channel to
grow its customers and revenue and the intellectual property rights
associated with the device will minimize duplication of this advan-
tage.

Amazon already has successfully established a Kindle line to boost


online retail revenues of digital content and merchandise. There-
fore, the smartphone will be seen by investors as a logical portfolio
fit. It also satisfies the growing mobile shopping demand which
Option 3 does not satisfy. Despite this, this move may be seen as
a threat by competitors such as Apple.

Launching this product can be done by the same department re-


sponsible for developing the Kindle and therefore drastic organi-
zational changes should not be expected in contract to option 3.

Amazon should develop a smartphone with a proprietary Android


operating system like the Kindle and push its marketing to these
devices, offer digital content and customized access to its online
retail store. This device will enable Amazon to connect to its cus-
tomers better, anticipate demand to minimize Q4 spikes and boost
revenues.

23
H1 Reference List Bishop, T. March 2012, , Inside Amazon Prime’s ‘explosive’
growth: 10 million members and profitable. Available: http://
www.geekwire.com/2013/amazon-prime-10m-members-
Fair comment [Homepage of Economist], [Online]. Avail-
counting/ [2013, December].
able: http://www.economist.com/node/13174365 [2013,
January].
Compete.com, [Online], January 2014. Available from:
hhttps://siteanalytics.compete.com/amazon.com/
Inside Amazon [Homepage of Amazon], [Online]. Available:
http://www.amazon.co.uk/Inside-Careers/b?ie=UTF8and
Denning, S. , Apple’s Retail Success is More Than Magic
node=203043011.
[Homepage of Forbes], [Online]. Available: http://www.forbes.
com/sites/stevedenning/2011/06/17/apples-retail-stores-
Internet World Stats [Homepage of Internet World Stats],
more-than-magic/ [2013, December].
[Online]. Available: http://www.internetworldstats.com/am/
us.htm [2013, December].
Donici, A.N. “E-commerce accross United States of America:
Amazon.com”, [Online], vol. 15, no. 1/2012, pp. December
Alexa , Top Visited Sites [Homepage of Alexa], [Online].
2013. Available from: http://www.internetworldstats.com/am/
Available: http://www.alexa.com/topsites [2013, Decem-
us.htm.
ber].

Forbes , How Amazon Plans on Driving Future Growth


Alexa, Amazon Site Traffic . Available: http://www.alexa.
[Homepage of Forbes], [Online]. Available: http://www.forbes.
com/siteinfo/amazon.com[2014, January].
com/sites/greatspeculations/2013/05/15/how-amazon-
plans-on-driving-future-growth/ [2013, December].
Amazon 2012, “Company Profile: Amazon Inc”, .
Amazon Browsing , Amazon: Your Browsing His-
Hart, S. , MORENO VALLEY: Amazon.com to build warehouse
tory [Homepage of Amazon], [Online]. Available:
in city [Homepage of Press Enterprise], [Online]. Available:
http://www.amazon.co.uk/gp/help/customer/display.
http://www.pe.com/local-news/riverside-county/moreno-val-
html?ie=UTF8andnodeId=15891461 [2013, December].
ley/moreno-valley-headlines-index/20131029-moreno-valley-
amazon.com-to-build-warehouse-in-city.ece [2013, Decem-
Amazon Environment , Amazon and The Environment
ber].
[Homepage of Amazon], [Online]. Available: http://www.
amazon.com/b?ie=UTF8andnode=13786331.
Hinshaw, M. 2013, April-last update, The Secrets to Amazon’s
Wall st.: Defying Customer experience Strategy [Homepage of
Amazon Fees , Amazon Fees and Pricing [Homepage of
CMO.com], [Online]. Available: http://www.cmo.com/content/
Amazon Fees], [Online]. Available: http://www.amazon.
cmo-com/home/articles/2013/4/29/the_secrets_to_amazo.
com/gp/help/customer/display.html?nodeId=1161240
html [2013, December].
[2013, December].

Hoisl, B. , How Digital Business Models are Truly Special –


Amazon Student , Join Amazon Student [Homepage of
Cost Structure [Homepage of Barbara Hoisl], [Online]. Avail-
Amazon], [Online]. Available: http://www.amazon.com/gp/
able: http://www.barbarahoisl.com/digital-model-cost-struc-
student/signup/info [2013, Devember].
ture/.

ANN ARBOR, M. 2012, December-last update, US Holi-


Jopson, B. (2013) US bricks and mortar retailers seek online suc-
day Retail 2012 Foresee [Homepage of Forsee], [Online].
cess. Available at: http://www.ft.com/intl/cms/s/0/6773a16c-
Available: http://www.foresee.com/news-events/press-
69dc-11e3-aba3-00144feabdc0.html?siteedition=uk Finan-
releases/us-holiday-eretail-2012-foresee.shtml [2013, De-
cial Times. (Accessed: 01/02 2013).
cember].

Kiva , Kiva VS Traditional Systems [Homepage of Kiva Sys-


Badenhausen, K. 2013, June-last update, The World’s
tems], [Online]. Available: http://www.kivasystems.com/solu-
Most Powerful Brands [Homepage of Forbes], [Online].
tions/kiva-vs-traditional/solutionskiva-vs-traditionalkiva-vs-
Available: http://www.forbes.com/powerful-brands/ [2013,
agvs [2013, December].
December].

Levin, M. 2013, , Amazon Prime Has over 16 Million Members


Bensinger, G. (2013) Amazon Expands Grocery Business.
[Homepage of Michael R Levin], [Online]. Available: http://
Available at: http://online.wsj.com/news/articles/SB10001
www.huffingtonpost.com/michael-r-levin/amazon-prime-has-
424127887324798904578526820771744676 Wall Street
over-16-_b_4420798.htm [2013, December].
Journal. (Accessed: 01/03 2013).
24
Matthews, C. July 2012-last update, Will Amazon Take over Spainhower, M. 2004, “TURNING PARTICIPANTS INTO
the World [Homepage of Business Time], [Online]. Available: PROFITS:
http://business.time.com/2012/07/16/will-amazon-take-over- THE CASE OF AMAZON.COM”, [Online], . Available from:
the-world/ [2013, December]. http://mikespainhower.com/resume/amazon_final.htm.

Narayan, N. September 2011-last update, Brand Manage-


ment Study of Amazon. Available: http://www.slideshare.net/ Streitfeld, D. (2013) Sales are colossal, shares are soaring. All
nik123hil/brand-management-study-of-amazon [2013, De- Amazon is missing is a profit. Available at: http://www.nytimes.
cember]. com/2013/10/22/technology/sales-are-colossal-shares-are-
soaring-all-amazoncom-is-missing-is-a-profit.html?_r=2& The
Neilsen (2013) Mobile majority, US smartphone ownership New York Times. (Accessed: 01/02 2013).
tops 60. Available at: http://www.nielsen.com/us/en/news-
wire/2013/mobile-majority--u-s--smartphone-ownership-
tops-60-.html Nielsen. (Accessed: 01/05 2013). Vijay Govindarajan and Anil K. Gupta , Taking Walmart Glob-
al: Lessons From Retailing’s Giant [Homepage of Boozan-
Noel, J. October 2012-last update, Office of Fair Trading Puts dCo], [Online]. Available: http://www.strategy-business.com/
online Retailers in the firing Line [Homepage of Business 2 article/13866?pg=all.
Community], [Online]. Available: http://www.business2com-
munity.com/online-marketing/office-of-fair-trading-puts-on- Wire, B. (2013) Amazon Creating 70,000 Full Time Seasonal
line-retailers-in-the-firing-line-0315460 [2013, December]. Jobs in the U.S. to Fulfill Holiday Orders with Thousands. Avail-
able at: http://www.dailyfinance.com/2013/10/01/amazon-
Osterwalder, A. and Pigneur, Y. 2009, The Business Model creating-70000-full-time-seasonal-jobs-in-t/ Daily Finance.
Canvas, Osterwalder and Pigneur. (Accessed: 01/02 2013).

Owen, L.H. August 2012-last update, Amazon says Kindle Fire Yarow, J. (2013) Former Amazon Employee Explains How
makes up 22% of U.S tablet sales [Homepage of paidConent], the Company Business Model Really Works. Available at:
[Online]. Available: http://paidcontent.org/2012/08/30/ama- http://www.businessinsider.com/amazons-profits-what-peo-
zon-says-kindle-fire-makes-up-22-of-u-s-tablet-sales/ [De- ple-dont-understand-2013-10 Business Insider. (Accessed:
cember, 2013]. 01/02 2013).

Pick, T. 2012, , 101 Vital Social Media and Digital Marketing Young, A. (2013) Amazon.com’s Workers Are Low Paid Over-
Statistics [Homepage of Social Media Today], [Online]. Avail- worked And Unhappy; Is This The New Employee Model For
able: http://socialmediatoday.com/tompick/1647801/101- The Internet Age? Available at: http://www.ibtimes.com/am-
vital-social-media-and-digital-marketing-statistics-rest-2013 azoncoms-workers-are-low-paid-overworked-unhappy-new-
[2013, December]. employee-model-internet-age-1514780 International Busi-
ness Times. (Accessed: 01/01 2013).
Rao, L. March 2012-last update, Amazon Acquires Robot-Co-
ordinated Order Fulfillment Company Kiva Systems For $775
Million In Cash [Homepage of TechCrunch], [Online]. Available:
http://techcrunch.com/2012/03/19/amazon-acquires-online-
fulfillment-company-kiva-systems-for-775-million-in-cash/
[2013, December].

Rep. Mary Bono Mack 2011, SAFE Data Act.


Sen. Michael Enzi May 6 2013, Marketplace Fairness Act of
2013, GovTrack.us.

Shaughnessy, H. (2012) How To Succeed Like Apple and


Amazon. Available at: http://www.forbes.com/sites/haydn-
shaughnessy/2012/04/30/how-to-succeed-like-apple-and-
amazon/ Forbes. (Accessed: 01/05 2012).

Smith, K. , Amazon’s Leadership In E-Commerce . Available:


http://www.businessinsider.com/mckinsey-reveals-amazons-
secret-sauce-2013-5 [2013, January].

25
H2 List of Tables and Figures
Item no. Description Page

Figure 1 Online retail industry forecast

Business Model

A2.1 Figure 2 Subscription Plans p.4


A2.1 Figure 3 Subscription Plans p.5
A2.2 Figure 4 Cost Leadership p.5
p.5

A4.1 Figure 5 Asset Sales p.7


A4.1 Figure 6 Asset Sales p.7
A4.2 Figure 7 Usage Fees p.7
A4.3 Figure 8 Subscription Fees p.7

A5.1 Figure 9 Online retail industry growth p.8


A5.2 Figure 10 Online Traffic p.8
A5.2 Figure 11 Online Traffic p.8
A5.3 Figure 12 Profit Margins p.8
A5.3 Figure 13 Profit Margins p.8

The Online Retail Industry

Figure 14 Characteristics of strategic groups p.10


Figure 15 Industry Forces p.11
Figure 16 Brand Value p.12

Amazon.com, INC

C1.3 Figure 17 IT and HR Support Activities p.13


C2.1 Figure 18 Price p.14
C2.1 Figure 19 Work Capital Management p.16
E3 Figure 20 Unique visitors p.19

Tables
Distribution Centres p.6
A3.1 Table 1 Automation p.6
A3.2 Table 2
Comprehensive Table p.9
B1.4 Table 3 Characteristics of strategic groups p.10
B2.1 Table 4 Strategic Mobility p.10
B2.2 Table 5

C1.3 Table 6 IT and HR Support Activities p.13


C1.3 Table 7 IT and HR Support Activities p.13
C3 Table 8 SWOT p.15
F1 Table 9 TOWS p20
F2.4 Table 10 Evaluating Options p22

26
H3 Supplementary Appendix

27
© North Polar Consultancy Services
Produced in the United Kingdom, January 2014

Amazon an all related products are trademarks of Amazon.com, INC

The information in this document is provided “as is” without any warranty, express of implied,
including without any warranties of merchantability, and any warrant or condition on non infringement.

This document is current at the initial date of publication.


No portion of this document may be reproduced unless under explicit consent by its authors.

Potrebbero piacerti anche