Company Background
Amazon is an American e-commerce company that was founded by Jeff Bezos in 1994. Headquartered in Seattle, Amazon has become the largest online retailer in the world by market capitalization and sales. It offers a wide variety of products in the global market. Hoffman notes that Amazon is currently the largest provider of cloud infrastructure products in the world (87).
Europe, North and South America, and parts of Asia are some of the leading markets for this online retailer. The firm is facing serious competition from other online stores such as Alibaba and e-Bay. Traditional brick-and-mortar retailers such as Wal-Mart, Kroger, and Costco are also becoming direct competitors because they have started offering their products on the online platform. To deal with the current market challenges, the management of Amazon will need to come up with an effective strategy that will give it an edge over its rivals. In this paper, the focus will be to determine the strategies that this firm can use in the market.
Company’s mission
Amazon’s mission statement defines its strategic objectives in the market. As Ahn observes, the mission statement of Amazon reads, “We strive to offer our customers the lowest possible prices, the best available selection, and the utmost convenience” (56). The statement emphasizes the firm’s commitment to offering its clients the lowest prices, the best available selection of products, and convenience.
Company’s goal
The primary goal of Amazon is clearly stated in its vision statement. The vision statement reads, “To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online” (Ahn 57). The company’s primary goal is to become the leading online retailer in the global market.
Company’s values
The values of Amazon define how it relates to its customers, suppliers, the government, competitors, and the public. As indicated in the firm’s website, integrity, honesty, commitment towards customers and the environment, and respect towards employees and other stakeholders are the guiding principles of this company.
External Analysis
Conducting an external analysis of this firm’s environment is critical because it makes it possible to understand the forces that are affecting its operations in the market. Amazon is currently the leading online retailer that operates in Europe, North and South America, and Asia-Pacific. In order to conduct a comprehensive external analysis of the firm’s environment, it will be necessary to use Porter’s Five Forces.
Porter’s Five Forces
This model of analyzing the external environment identifies five key areas that have a direct impact on a firm’s operations in the market. The figure below shows the five areas of external analysis as defined by this model.
The rivalry among the existing competitors is one of the most significant factors in the external environment that must be analyzed. Amazon is currently facing stiff competition from its market rivals around the world. Best-Buy, e-Bay, and Alibaba have become the traditional market rivals of Amazon. Wal-Mart, Macy’s, the Home Depot, Costco, and Target are known to be leading brick-and-mortar retailers. However, these firms have now introduced their own online stores in the market, thereby becoming direct competitors of Amazon. The level of rivalry is expected to become stiff as many firms focus on e-commerce as a way of reaching out to the customers.
The threat of new entrants is real. Establishing an online retail store is not as involving as putting up a brick-and-mortar store. With an effective website, an online payment platform, and means of delivering products to the customers, one can easily set up an electronic store. It means that Amazon is facing a serious threat of possible new entrants getting into the market. The threat of substitute products is also serious. In this case of Amazon, the substitute product is posed by brick-and-mortar stores. Many clients still prefer walking into physical stores in order to test and feel the product they want to buy before making a purchase.
The power of the buyers is growing because of the increasing number of players in this industry. Buyers often have many options when they want to make online purchases. With many options to make, these customers have become very demanding. They are demanding more value but are keen on paying less. Most of the online buyers are academically empowered and are keen on the value offered to them, a fact that puts even more pressure on these retailers. The bargaining power of the suppliers is relatively low. Most of the suppliers are also competing with other suppliers. As such, they are often willing to negotiate flexible terms of payment and price for their products.
Amazon’s Macro-Environment
The macro-environment in which Amazon operates at a global level offers a number of opportunities that it can take advantage of if it develops appropriate strategies. However, there are also threats that it must learn how to deal with in order to survive.
Opportunities
The growing popularity of e-commerce in Europe, North America, and Parts of Asia offers this firm an opportunity to expand its market share in these markets. Cheap internet access is also becoming available in Africa, South America, Asia, and some of the regions classified as third world countries. It means that there is a massive opportunity for Amazon to expand its operations to these markets. The growing middle class in Asia, Africa, and South America is another opportunity that this firm should be keen to take advantage of in the global market.
Threats
Stiff market competition remains to be the biggest threat for Amazon in the market. Large retailers such as Wal-Mart and Target have also established their own online stores to compete directly with Amazon. These retailers have an edge over Amazon because they also have brick-and-mortar stores for customers interested in seeing and testing a product before making a purchase. Reduced purchasing power in some of its market such as Greece also reduces its profitability.
Internal Analysis
The internal environment of a firm defines how well it can overcome the external challenges in the market (Hoffman 78). In this section, the focus will be to analyze the internal environment of Amazon in order to know how capable it is to overcome the challenges identified in the section above.
Value Chain Activities Contributing to Amazon’s Competitiveness
The value chain activities at Amazon define its success in the market and the ability to overcome its challenges in the market. Porter’s value chain identifies specific primary activities and support activities that can help a firm achieve its objectives in the market.
At Amazon, inbound and outbound logistics are often treated as very important activities because they define the time within which customers get their products after making a purchase. Marketing and sales activities are also given a lot of emphases to help popularize the firm’s brand and the products it offers in the market. Its services and operations are always focused on meeting the interest of its customers in the best way possible. The supportive activities such as procurement, human resource, management, firm’s infrastructure, and technology development have also contributed to giving this firm a competitive edge over its rivals in the market. For instance, its online infrastructure allows its clients to navigate through the online stores and to access the needed products by just typing keywords.
Amazon’s resources and capabilities
Amazon’s key resource is its experience in e-commerce. It is one of the pioneer retailers in the e-market. Its team of highly talented employees who understand the global online market is another critical resource. According to Hill and Jones, many years of successfully operating in the online market has earned the firm financial resources that it can use for research and expansion (41). These resources make it possible for the firm to undertake various projects aimed at improving its performance in the market. Amazon also has a team of highly capable techno-savvy managers who understand changes in the market and how they can be dealt with to enhance the firm’s success.
Strengths and Weaknesses
Based on the above analysis of the firm’s resources and capabilities, it is possible to determine its strengths and weaknesses. One of the main strengths of this firm is its team of the highly skilled workforce that understands the online business platform. These employees have played critical roles in ensuring that the firm’s operations are in line with the emerging market needs. The firm’s financial might is another strength that enables it to undertakes various developmental activities in the market. Amazon’s main weakness is its inability to tap into the brick and mortar market. It is also slow when it comes to capitalizing on the opportunities in the emerging markets.
Business-Level and Corporate-Level Strategies
Amazon is one of the most successful online retailers in the global market. Its business-level and corporate-level strategies have enabled it to achieve its current success in the market. The firm has been using a cost leadership strategy to gain a competitive edge over its market rivals. Most of the products available at Amazon’s online stores are also available in other brick-and-mortar stores or other online stores. In order to gain a competitive edge over its rivals, the firm has come up with a strategy that allows it to charge slightly lower prices for its products because it enjoys economies of scale.
According to Keyes, cost leadership is a strategy that can effectively be implemented by large firms if differentiation is not an option (74). At Amazon, cost differentiation has helped this firm gain popularity as it has won the trust of most customers who believe that they can get the best deals at this firm in terms of pricing. A critical analysis of the delivery system that the firm uses shows that there is a trade-off between cost leadership and differentiation strategy. It often takes a shorter time for clients to get their products when they order it from Amazon. The efficiency with which it delivers its products to the customers has helped it differentiate its services from that of its market rivals. It helps in creating additional value for the customers once they make their purchase.
Recommendations
Amazon is currently the leading online retail store in the global market. However, the firm is facing stiff competition from other firms that have emerged all over the world targeting the same market segments that it has been serving. To ensure that it protects its market share locally and internationally, the management of this company should take into consideration the following recommendations.
- Amazon should tap into the opportunities available in the foreign emerging markets. African is developing rapidly and it has a growing middle class that relies heavily on the internet to communicate. Amazon should make an effort to be one of the firms to tap into this market before other rivals can.
- It may be necessary for Amazon to have brick-and-mortar stores in strategic locations to enhance its revenue stream. Traditional brick-and-mortar stores have established online stores to increase their sales. It is high time Amazon established its own brick-and-mortar stores to enable it to compete favorably with the market rivals.
- The management of this firm should be keen on hiring highly talented employees capable of monitoring and predicting changes in the online market. Technology keeps changing and it may not be easy to predict what the future carries unless the firm has a team of experts who can help in that area.
- Amazon should develop strategic partnerships with its suppliers to help cut the cost of warehousing. Most of the products should be moving from the suppliers’ warehouse directly to the customers.
Works Cited
Ahn, Jung-Hyun. “The Impact of the Banking Competition in Funding and Lending Markets on Lending Technology.” Revue Économique, vol. 67, no. 6, 2016, pp. 1117–1139.
Fernández, Valenzuela, and Eduardo Moraga. “Does Customer Value-Oriented Management Influence Financial Results? A Supplier’s Perspective.” Revista De Ciencias Administrativasy Sociales, vol. 27, no. 63, 2017, pp. 29–41.
Hill, Charles, and Gareth Jones. Essentials of Strategic Management. South-Western, 2009.
Hoffman, Allan. Amazon: Retailing Giant to High-Tech Player, Strategic Management: An Integrated Approach. Cengage Learning, 2015.
Keyes, Jessica. Implementing the IT Balanced Scorecard: Aligning IT with Corporate Strategy. Taylor & Francis Group, 2016.
Puranam, Phanish, and Bart Vanneste. Corporate Strategy: Tools for Analysis and Decision-Making. Cengage Learning, 2016.