Value Chain-Primary Services
Amazon started off as an online book store (Saunders 2001). However, it has grown to become a provider of technological products and services. In order for the company to meet the growing demands of its customers, it has had to improve its storage capacity. In 2008, after assessing feedback from their customers, the company set up new warehouses in Hazleton and Arizona in order to meet the ever-increasing demand for its products (Schepp, Schepp and Richardson 2009). The company has also had to upgrade its inventory control systems to accommodate the new products that have entered its database.
As Amazon started, it mainly supplied books (Saunders 2001). However, over time, its inventory to include technological products and services such as cloud computing. In this period of expansion and growth, the company continuously assesses the needs of the market and comes with the most convenient way of addressing this need. So instead of providing digital books and hoping that the buyers will devise ways of reading them, the company invested in the development of the kindle which allowed users to buy and read books from one platform (Johnson, Whittington and Scholes 2011).
Amazon has continuously maintained dominance in the online retail business by ensuring that it provides high-quality and affordable services to its customers. In this regard, the company gives out discounts from time to time without compromising timeliness in delivery. The company has also set up smaller warehouses in America, Europe and Asia in order to ensure that they deliver products to customers on time. The company has built credibility by only charging for services provided and in most cases, their charges are lower than the market average.
Having identified an unexploited market, Amazon set out to ensure that they adequately met the needs of the customers. However, for further expansion, a marketing and advertising budget was set up and this was for both television and online platforms. The company also ensured that it maintained a good reputation by meeting all their promises (Saunders 2001). This good relationship with customers helped get the name out and over time the company has had little need for more advertising. The company has also made headway by investing in research.
In order to maintain the customers that had tried obtaining goods and services from Amazon, the company has set up an effective customer service department. The company offers a money-back guarantee if the needs of the customer are not met (Johnson, Whittington and Scholes 2011). This provision of after-sales services has helped the customer maintain a good reputation as well as secure repeat clients. For the Kindle, the company’s reading device, repair services are provided, free of charge during the warrantee period and at subsidized rates after the warrantee expires.
The five elements listed and explained above are the primary activities that have helped the company maintain a competitive edge in the online retail business. The value chain elements were identified and popularized by Michael Porter in his book Competitive Advantage: Creating and Sustaining Superior Performance (Porter 1985). Each of the activities listed above is needed to work in tandem with the others for its impact on the profitability of the company to be felt.
For instance, without a proper distribution service for its products, Amazon marketing and sales office would have found it difficult to secure the customers’ trust. In order for Amazon’s value chain to yield the positive results, it should be linked to the value chains of suppliers and customers. For instance, for its book-supply business, the company’s inbound logistics are affected by the decisions that publishers make. The same applies for its services which depend on market demand.
The primary value chain elements explained above can only work if a number of support functions are present. These support activities were classified by Porter into four categories as illustrated below:
Amazon started off as an online book store (Saunders 2001). At that time, the company obtained books from publishers and distributed them to the market at a profit. Later, the company branched into the marketing of gadgets though its business model remained the same (Spector 2000).
However, the company’s strategists noticed that there was a lack of digital material access tools. This led to the release of the Kindle, a gadget that made the customers continue depending on the company for the supply of electronic and published content. The development of the Kindle turned the company from an intermediary into a producer. It had to purchase raw materials and other inputs for the production of the product; hence such a situation called for the formation of an independent procurement unit.
Amazon’s founders realized that the only way they could survive in the business was by investing in research (Spector 2000). This has helped the company continually identify market shortages and come up with products to meet these needs. For instance, with the growth of the cyberspace, the Amazon realized that there was a need for hosting and cloud computing services. For this purpose, Amazon Web Services was launched (Kalpanik and Pamela 2011).
The company has also ensured that its inherent process automation functions were properly upgraded to meet the demands of the day. These new technological developments weaved into each of the five primary activities of the company’s value chain. For example, after Amazon had developed the Kindle, it had to set up an entirely new value chain to handle every step from the production to the marketing and sale of the product.
Human Resource Management
From a company started as one person’s idea, Amazon has grown into a global venture employing thousands of workers. These workers are involved in different kinds of activities, starting from inbound logistic to service provision. In this regard, the company has set up a comprehensive human resource management department to oversee the recruitment, development and compensation of the staff members (Saunders 2001).
As a fully-fledged company, Amazon has set up departments to handle legal, finance and quality management functions. These are the three units on which the company’s success is based, and as long as they all are effectively managed, profitability is ascertained. The firm infrastructure affects how effectively each of the five primary value chain activities runs.
The abovementioned support activities are generally seen as additional needs (Porter 1985). However, some companies, such as Amazon, have effectively utilized them to gain a competitive advantage. For example, the acquisition of new technology has helped the company meet the increasing demands from their customers without an increase in the cost of their products and services.
Johnson, G, Whittington, R & Scholes, K 2011, Exploring Strategy: Text & Cases, Pearson Education Limited, Essex.
Kalpanik S & Pamela, T 2011, Inside the Giant Machine: An Amazon.com Story, CreateSpace, Washington.
Porter, M 1985, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, New York.
Saunders, R 2001, Business the Amazon.com way: secrets of the world’s most astonishing Web business, John Wiley & Sons, New Jersey.
Schepp, B, Schepp D & Richardson, G 2009, Amazon Top Seller Secrets: Insider Tips from Amazon’s Most Successful Sellers, AMACOM Div American Mgmt Assn, New York.
Spector, R 2000, Amazon.com-Get Big fast: Inside the Revolutionary Business Model That Changed the World, Harper Collins Publishers, New York.