Amazon Company’s E-Business Strategy

Introduction

Amazon is a global online retail giant headquartered in the US. Established in 1994, the company has grown over the years into a multinational corporation with an active presence in the US, Europe, Asia and parts of Africa. Amazon has maintained its quality service charter by ensuring that only genuine products are sold to customers. This charter has made it possible for systematic and quick market penetration. This paper reviews the external and internal drivers of Amazon’s successful e-Business strategy and performs a comprehensive SWOT analysis of current online platforms.

External and Internal Drivers of Amazon’s e-Business

External Drivers

In terms of PESTEL analysis, political stability, government endorsement of e-commerce and improved cyber security present opportunities for Amazon to excel in regional markets. To begin with, the regional value chain is well-developed across the three major continents of America, Europe and Asia (Strom, Sears & Kelly 2013). There is an improved and affordable Internet network for Amazon’s e-Business platform within the targeted regions. At present, more than 1 billion people have daily access to the Internet (Cravens & Piercy 2013). The industry analysis indicates a highly stratified online retail market at a global level. As a multinational company, Amazon has taken advantage of industry variables to sustain its low cost pricing model and expand further into other regions beyond the three continents. Secondly, the economic stability in the targeted markets and increasing disposable income among potential customers is projected to further the company’s market expansion strategies.

However, the current economic wars between China and the US might affect business in the future since it might spill into Indian market. The ever rising global wealth disparity has been a threat to Amazon’s business survival as a social factor. Increasing online purchase habits and consumerism present opportunities for growth (Searcy & Buslovich 2014). Rapid obsolescence in technology and the increasing cyber crimes are a threat to Amazon’s online business platform. However, Amazon enjoys high economies of scale, thus, is not threatened by the technological dynamics in the global e-Business market. Thirdly, the online retail sector across the globe is highly stratified with high brand development cost. The global online retail industry life cycle analysis projects positive future trends (Cravens & Piercy 2013). The middle class is booming at an annual growth rate of 12% (Sostrin 2013).

For instance, Amazon’s Indian market is ranked third in the global publishing of English language books. E-commerce has unlimited potential since the online market is projected to grow as more people embrace digital shopping. However, due to a strong market capitalisation of $607.20 billion and high revenue stream estimated at $161.15 billion, Amazon has been able to survive the impact of economic forces. Specifically, the company has diversified product bundles that are attached to competitive pricing (Oakland 2014). The vision of the company is based on ‘customer centricity’ and technological leverage to provide the best shopping experience on the online platform. The wide coverage of the global market has contributed to the current success. The Amazon’s business strategies include a vast selection of services, low pricing, relatively fast delivery and rely on the online business platform. The company has developed a cross-platform to capture the attention of advertisers and users across more than ten channels that are currently operational. As captured in table 1, the PESTEL analysis of Amazon regional markets indicates a positive trend that could be integrated in a region-specific ‘customer centricity’ business approach.

Table 1. PESTEL analysis of Amazon. (Source: Self-generated).

Political Factors Economic Factors
  • Well-organised governments in target markets
  • Political stability in regions of operation
  • Stable global economic growth
  • Low inflation and sustainable economic policies in targeted markets
  • Consumer confidence
Social factors Technological factors
  • Fair economic distribution
  • Predictable demographic changes
  • Integrated language and religious expectations in its business functions for each region
  • High rate of technological transfer
  • High speed of technological obsolesce
  • High changes in expensive technological needs
Legal factors Environmental regulations
  • Attractive tax policies in targeted markets
  • Fair trade policies that favour Amazon’s online business platform
  • Strict employment laws that are standard to home country regulations
  • Stable competition regulation laws
  • Strict regulations on pollution and business sustainability

Internal Drivers

Internal drivers are factors influencing Amazon’s micro business environment. The VRIO (Value, Rarity, Imitability and Organisation) is a critical tool for reviewing Amazon’s e-Business strategies to ascertain successes and positioning in the market environment (Kotler & Keller 2016). According to Sostrin (2013, p. 38), “web tracking technology permits sites that practicing E-commerce to monitor customer satisfaction and preference”. As captured in table 2, Amazon’s capabilities and resources are well integrated to attract the first mover benefits. For instance, the Amazon Prime product is rare and valuable to customers since it offers free delivery within selected markets with a timeline of 48 hours. Moreover, the Amazon Prime product is costly for any rival company to imitate. This gives the company a competitive edge over eBay and Best Buy, which have a similar service.

Table 1. Summary of VRIO analysis for Amazon. (Source: Self-generated).

Valuable Rare Costly to imitate Exploited by Amazon Competitive implication
Physical efficiencies and resources Yes Yes Yes Yes Sustainable competitive advantage
Financial resources Yes Yes Yes Yes
Management and training Yes Yes Yes Yes
Brand Yes Yes Yes Yes

Secondly, in terms of value, at the end of the 2017 financial year, Amazon was valued at more than $161 billion. The company revenues increased from $98 billion in 2016 to $144 billion in 2017. The total equity increased from $152 billion in 2016 to $163.096 billion in 2017. The net profit also grew from $12 billion in 2016 to $39 billion in 2017. The return on revenues (ROR) grew by a ratio of 1:4 between 2014 and 2017. The return on Assets (ROA) also experienced a positive growth by a ratio of 1:13. This suggests a strong resource standing for Amazon (Osterwalder & Pigneur 2013). The company has unique and rare cyberspace resources, which have benefits such as social ads, social bookmarking, flyers, virtual gifts and connect. Amazon is patented and very costly to imitate under the United States laws. Lastly, the company has integrated a well-structured system of management with stringent business polices focused on customer satisfaction (Monks & Minow 2014). For instance, the features and ads enable customers to shop online and create an interactive environment for increased resourcefulness.

Thirdly, Amazon has developed an innovative online retailing approach as its primary business model within the intention-adoption-continuance framework (Martelo, Barroso & Cepeda 2013). This model integrates Ira’s attitudinal and Kotler’s expectation-confirmation theoretical frameworks (Kotler & Keller 2016). According to Myerson (2015, p. 67), “the intention-adoption-continuance framework explains behaviour as principally determined by intent. Other factors like, perceived behavioural control, subjective norms and attitudes are also shown to be related to an appropriate set of significant normative, behavioural, and control values about that behaviour”. At Amazon, this strategy has created a bridge for the transition from commodity-based e-commerce to service-based model (Kotler & Keller 2016).

For instance, Amazon Home Service guarantees happiness to customers and aims at adapting the Alibaba’s traditional customer request approach. Other service models by Amazon include Amazon Go, Amazon Echo, Dash Wad and Amazon Fresh. These strategies are aimed at arresting the influence of Google and Facebook in the online business platform. Specifically, Amazon intends to reclaim the US market share for online retail business that Facebook and Google companies have penetrated (Cravens & Piercy 2013). Amazon’s role in the global online retail industry has been to improve quality of services and sustain its low pricing business model (Osterwalder & Pigneur 2013). The global online retail sector’s KSFs are high-quality services, widened branding and awareness, proactive business flexibility and advancement in technology, which have been internalised by Amazon in its online business model (Cravens & Piercy 2013).

Key Strengths and Weaknesses

Key Strengths

The first strength of Amazon Company is a combination of a strong background, customer centricity and cost leadership. Amazon has a strong brand image and stable capital structure (Mangan, Lalwani & Lalwani 2016). The company has a net worth of more than $150 billion, with an active presence in nearly all the continents. The US, Europe and Asia markets are fully developed and functional in line with Amazon’s global expansionary strategies. Amazon has a large product range that includes games, toys, online book store, electronics, home appliances and white goods. These products are branded differently to appeal to diverse customers (Liu, Shang & Han 2017). The company has also embraced the local languages in packaging and selling these products online to minimise the impacts of communication barriers (Oakland 2014). Through multiple branding, the company has been able to effectively create an environment of own competition as customers shopping online can get nearly anything they want at a good deal.

Secondly, Amazon runs a successful customer loyalty program that has increased the number of repeat and new clients over the years. In addition, the company has differentiated itself through strategic alliances to offer quality customer service and build a strong value chain (KIP Institute 2013). There are strong legal networks, economic stability and positive government intervention policies across all the regions of operation. The global market is fertile for expansionary business strategies (Singh & Singh 2014). For instance, the large population, positive government interventions on e-commerce, well-developed Internet infrastructure and increasing online buying habits among the middle-class population are attractive ingredients for successful business growth and strategic expansion. Thirdly, Amazon has an efficient delivery network that is supported by a strong online business platform. The company has organised itself in the regions of operations as a futuristic and efficient online shop.

Any customer interested in buying an item online is empowered to do so within minutes just by a ‘click-at-a-button’ (Kotler & Keller 2016). The efficient delivery network has endured the company to its customers besides free-cost delivery in selected regions. For instance, Amazon Prime service in the US is a unique delivery system that guarantees customers of a fixed timeline for getting any product purchased online. The service is efficient since it delivers within 48 hours in any part of the US. The favourable home conditions for Amazon include high disposable income, stable legal and political regimes, well-developed infrastructure and limited language barrier since the English language is acceptable in most of the targeted markets (Lohdi & Naz 2016). In addition, the corporate social responsibility initiatives of the company are likely to endure the company in foreign markets and develop a large and loyal customer base beyond the US market (Kotler & Keller 2016).

Key Weaknesses

The first weakness of Amazon is high debt since the development of its services and supply chain maintenance is capital intensive. Amazon has been struggling with high debt as its technology is made outdated in a few years (Kiran 2016). Since the online business platform is characterised by a constant technological paradigm shift, Amazon has invested heavily in new technology to avoid rendering its platforms obsolete (Kotler & Keller 2016). These investments are capital intensive and have reduced its profit margins. Moreover, the company has previously invested heavily in the development of new products that did not meet its market penetration targets (Kim-Soon, Rahman & Ahmed 2014). For instance, Amazon Kindle was a capital intensive investment that did not survive to become a profitable service (Abusa & Gibson 2013). Amazon has been active in supporting environmental programs through business sustainability reporting and low-carbon lifestyle promotion.

These initiatives are financed by the company and sometimes the costs run into millions of dollars. Although these programmes point at a bright future for the company in the US and other regions of operation, the hidden cost implication is counterproductive. The second weakness is product flop due to constant changes in customer preferences on the online business platform. For instance, the fire phone was a flop in the US and Kindle fire performed below the projections (Kiran 2016). These product failures have resulted in reduced profitability margin. Thirdly, Amazon has a complex business model, especially in terms of supply chain management. Since the company operates across the globe, it has become a challenge on the best strategies to manage the ever expanding supply chain and efficiently deliver goods to customers who have paid online (Hyland, Lee & Mills 2015).

The cost of managing the supply chain has increased by 4% in the last five years against a decreasing price tag on services and products for the company to remain competitive (Cravens & Piercy 2013). However, Amazon has been able to balance the impact of increasing costs through benefits resulting from the expanding economies of scale (Homburg, Jozic & Kuehnl 2017). Apart from the traditional business of selling books, the company has incorporated online shopping, free delivery services and business support platforms to penetrate global markets. Amazon has managed to reach more than 200 million Internet customers annually through strong partnerships with publishing houses and electronic companies to sell affordable products on the online platform. However, the high cost of sustaining the supply chain is threatening to reverse these gains as the business model becomes more complex as a result of expansion. Moreover, the primary competitors have developed a better supply chain network and do not necessarily have to take care of any cost during delivery. For instance, eBay has integrated a hidden cost to cater for delivery as part of the price tag of any item purchased on its site.

Key Opportunities and Threats

Opportunities

The increasing economic growth and stability in the developing countries has increased disposable income of users and advertisers of Amazon products. The increasing online buying and preference for quality products present opportunities for Amazon establish a strong global market position (Harrison & Wicks 2013). The rising acceptance and usage of mobile devices, social media and online retail platforms present opportunities for growth and threats for reduced market dominance in the event of new entrants (Hahn & Kühnen 2013). Moreover, the company is present in three major continents of Europe, America and Asia. Amazon’s business strategies include a vast selection of services, low pricing and relatively fast delivery. In addition, the company has maintained its quality service charter by ensuring that only genuine products are sold to customers. These conditions are an indication of a stable organisation that has a strong capital base for future expansion. Secondly, Amazon has the opportunity of benefiting from localising the business strategies such as use of local languages, employments of the locals and establishing partnerships with the market-based suppliers (Habib et al. 2014).

This opportunity will improve the magnitude of company acceptance among employees, customers and suppliers as one of their own (Karatepe 2013). This strategy could be accompanied by rebranding and constant promotional activities to reach the highly conservative and closed foreign market cultures. Thirdly, Amazon could create a mobile application that is operated without the Internet to penetrate the unexploited market estimated at more than 600 million people to increase its revenue streams (Guiso, Sapienza & Zingales 2015). This application could be integrated with a free or subsidised delivery system through its already established ‘Go Global & Act Local’ network. As a result, it will give the company a competitive edge over Facebook, Google, Alibaba and other competitors since it offers discounts for mass purchase and repeated buying.

However, the implementation of these strategies should be done within the regional commerce laws to avoid unnecessary confrontation with the local authorities and competitors (Cravens & Piercy 2013). Over the years, Amazon has modified its business model to integrate the aspect of diversification to ensure that the intention-adoption-continuance framework drives the consumer satisfaction agenda. Specifically, “consumer satisfaction is the key focus of this model and expressed via the gap that exist between the perceived performances” (Kotler & Keller 2016, p. 45). Amazon owns many companies within its brand for the three product segments. The companies provide services in the online platform. Amazon generates revenues through users of these products through building a hole of big data (KIP Institute 2013). Amazon also generates revenues from payments by retailing online games. Other sources of revenue are social media networking service provision and sale of virtual reality products. Through integration of a mobile application, the company has unlimited opportunity for expanding its market coverage.

Threats

Amazon operates in more than fifty regions across the globe. The US market has the largest market share of Amazon business activities. This is followed by Europe market share. India is third in terms of annual sales. In all these regions, the favourable, political, economic, social, technological and environmental factors have propelled the growth of Amazon (Cravens & Piercy 2013). The governments where Amazon operates have the role of legislating strong cybercrime laws and effectively implementing them to protect the online business platform of this multinational company. The governments are also tasked with the duty of facilitating the expansion of Amazon through provision of incentives (tax breaks), improvement of Internet coverage and implementation of the patent regulations (Eman, Ayman & El-Nahas 2013). However, this is a threat since failure of these governments to create a healthy business environment would lead to massive losses for Amazon.

Secondly, the government should be at the forefront in ensuring business security to avoid loss during transit of customer orders, especially in the Indian market where security is still a challenge (Abusa & Gibson 2013). The loss of goods in transit is currently threatening Amazon’s online business platform in the Indian and parts of European markets (Daft & Marcic 2016). In addition, lack of legislation in place to standardise labour laws in some foreign markets is a threat to the sustainability of Amazon in this region (Cravens & Piercy 2013). Thirdly, Amazon faces stiff competition from five aggressive firms that provide perfect substitute services (Kotler & Keller 2016). There are competitors in three business segments: media, merchandise and electronics. Under the media segment, Amazon faces competition from eBay, Netflix, Apple, Google and Time Warner Cable (Cravens & Piercy 2013).

The main competitors under the general merchandise and electronics segments are Best Buy, RadiaShack, Family Dollar, Walmart, Systemacs and Target among others. Global online competitors are Alibaba Group, Vipshop Holdings and LightInTheBox Holding. Other secondary competitors are renowned global brands such as PC Connection, Oracle, Insight Enterprises and Accenture (Cravens & Piercy 2013). Moreover, the company has to deal with local competitors in foreign markets (Daft & Marcic 2016). For instance, Amazon’s competitors in India, such as Myntra, Flipkartand eBay, have adapted the low-cost pricing strategy to avoid the current price wars (Cravens & Piercy 2013). The market leader by share, the Flipkart has mobilised other competitors to set a standardised price limit to eliminate unfair competition (Battor & Battour 2013). Moreover, the competitors have internalised the ‘customer centricity’ business model to expand their current business segments. The competitors’ activities are a threat to Amazon’s online business interests in the local and foreign markets (Cravens & Piercy 2013).

Conclusion

Amazon is one of the most successful online-based businesses that have penetrated the global market. The external drivers of Amazon’s online business platform are competition, expanded business environment and friendly markets. Internal drivers of Amazon’s growth strategies are unique business value, strong capital base and innovative approaches to managing online platforms. Amazon Company’s business strengths include a strong brand image, customer centricity and efficient delivery network. The weaknesses of Amazon are high debt, product flops and shrinking margins. The threats Amazon is facing include FDI government regulations, low industry entry barriers and competition from local and international online-based businesses. The main opportunities for further expansion are improved global economic conditions, localisation of business strategies to appeal to different markets and further integration of technology to propel robust and sustainable growth.

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