Introduction
The present essay focuses on the business-level and corporate-level strategies of Amazon, the largest marketplace in the world. This way, the paper analyzes how this company gains competitive advantages and generates the value of the provided services. In addition to that, the essay compares the strategies of Amazon and eBay, its primary competitor, to predict which company will be more successful in the long run. Finally, this decision is analyzed for slow-cycle and fast-cycle markets.
Business-Level Strategies
The concept of a business-level strategy refers to the set of actions that ensure a company’s competitive advantages. Currently, Amazon utilizes the cost leadership strategy that allows the company to achieve better performance and increase profits (Firoz et al., 2019). The primary feature that characterizes this strategy is that a company reduces its costs to maximize profits (Hitt, 2020). Besides, such companies carry out trade with standardized goods and actively introduce innovations (Hitt, 2020). All of the features described above apply to Amazon. This way, it could be suggested that Amazon could retain its success in the long-term perspective; it should stick to the cost leadership strategy.
As has already been mentioned, Amazon generates its competitive advantage by lowering its cost of operation. This e-marketplace cannot affect the prices of the sold products because they are determined by their sellers. Nonetheless, the company follows the strategy of reducing the shipping and delivery costs for the customers. More precisely, the subscription to Amazon Prime guarantees free delivery of the ordered products. Undoubtedly, this is a way to attract more customers and advantageously differ from the competitors because this way, Amazon makes it more convenient to use its services. At the same time, this strategy led to a twofold increase in Amazon’s spending from 2015 to 2017 (Semuels, 2018). To mitigate these losses, the company has increased the annual Amazon Prime membership price to $119 per year (Amazon, 2018). Still, the increase is not drastic, and the cost of active customers subscriptions to Amazon Prime will pay off.
Another reason why a cost leadership strategy will help Amazon to retain success in the future lies in its inbound logistics. Overall, a cost leadership strategy emphasizes the development of competitive advantage in logistics and supply chain management (Hitt, 2020). In particular, the strong point of Amazon is that a significant proportion of the ordered goods are not stored in its warehouses. Instead, the products are delivered from the warehouses of third-party sellers. More precisely, since 2017, more than 50 percent of the total amount of sold goods belong to third parties that are allowed to realize their products via Amazon (Coppola, 2021a). This strategy is innovative and enables Amazon to economize on storage of a significant share of the products.
Additionally, robotization of the order assembly process leads to a substantial economy because the company needs to hire fewer employees. All these factors taken together do not affect the price of goods sold on Amazon. Nonetheless, these actions allow to reduce costs for the company and, hence, allocate a significant share of revenue to covering shipping costs for the users of Amazon Prime. The 30 years of the company’s operation prove that its cost leadership business-level strategy is effective. It is expected that it will help Amazon remain a successful organization in the long-term perspective.
Corporate-Level Strategies
Companies develop corporate-level strategies to make them more competitive and increase revenues through managing a group of businesses in diverse markets. Amazon which started as an online bookstore employed a diversification strategy to expand the scope of sold products (Hitt, 2020). Later, the company applied a vertical integration strategy and turned into Amazon Web Services which sells these services to other clients (Hitt, 2020). The method of vertical integration serves value-creating purposes and increases the market power of a company (Hitt, 2020). The initial strategy of diversification made Amazon the largest e-marketplace in the world, where customers can purchase everything from books and video games to food and furniture. At this point, one might say that Amazon has no additional space for diversification because it provides even cloud-based services via Amazon Web Services. Nonetheless, there is still an option to employ the corporate-level strategy of unrelated linked diversification.
The essence of related linked diversification is that the dominant business brings less than 70 percent of revenues, and 30 percent is retrieved from other companies, the links between which are limited (Hitt, 2020). To be successful and competitive in the long run, Amazon should keep entering foreign markets and diversify the provided services. One of the suggestions for Amazon is to become not only a marketplace but also a provider of services for hotel booking and renting. Currently, Amazon Prime clients receive cashback for making hotel reservations via Booking.com. This way, it seems that Amazon could diversify and substitute such worldwide popular services as Booking or Airbnb.
Related linked diversification is believed to be a good choice for Amazon. The link between reservation and renting services and services provided by Amazon is that, in both cases, the customers could purchase what they need online. Besides, the businesses are also related since they use similar sourcing (Hitt, 2020). In the given example, the strategy of becoming a platform for booking will not increase Amazon’s economy of scale. Still, Amazon has a large base of constant consumers who could be potentially interested in booking services. Therefore, this diversification will allow Amazon to use its capabilities to develop in a new sphere and provide its customers with a more significant number of helpful services. In other words, related linked diversification will bring success to Amazon because it will make this company more than a one-stop shop. Customers will be able to use Amazon for almost every occasion in their lives.
Competitive Environment
The primary competitor of Amazon is eBay, an e-commerce company that operates as a B2C and a C2C marketplace. These companies have a lot in common: these two marketplaces were founded slightly more than 25 years ago and are regarded as the world’s most prosperous e-commerce companies. However, from 2013 to 2020, the annual growth of Amazon is at least three times higher than the one of eBay (Coppola, 2021b). Considering the statistics, it is most likely that Amazon will be more successful than its competitor in the long-term perspective. The major reason for this lies in the strategies utilized by these two companies.
As has already been mentioned above, Amazon follows the cost leadership strategy that is aimed at profit maximization and cost reduction. The business-level strategy implemented by eBay is differentiation. The essence of this strategy lies in creating such products or services that customers perceive as different, and innovative but still immensely helpful and needed (Hitt, 2020). In the case of eBay, this strategy is evident from its attempts to modify the website to make it more attractive and user-friendly. Still, the experience depicts that eBay’s differentiation strategy loses to Amazon’s cost leadership strategy. eBay is not concerned with the comfort of its customers as strongly as Amazon does and the customer-centered culture of the latter brings its significant benefits. More precisely, eBay has no “prime” memberships, and there is no option for free shipping. Besides, eBay’s option to purchase goods directly from other customers questions the trust in the quality of products sold there.
As for the corporate-level strategies, both Amazon and eBay are highly diversified companies. For example, eBay owns such popular services as Skype, PayPal, and Kijiji. In addition to that, eBay has eBay Motors, a platform on which users can sell and purchase vehicles and their components. In addition to that, eBay acquires Positronic Inc., Corrigon, and Terapeak, i.e., companies that specialize in machine learning, Inventory management, and big data processing, respectively. Amazon, in its turn, owns a multimedia company Metro-Goldwyn-Mayer, cloud, software, and big data services, not to mention online pharmacies, bookshops, groceries, and gaming websites. However, Amazon has acquired much more companies and services than eBay does. Still, it seems relevant to argue that the success of Amazon is determined not by its corporate-level strategy but by its customer- and profit-oriented approach that makes the target audience prefer it to eBay.
Market Cycles
In the condition of a slow-cycle market, Amazon undoubtedly will be more successful than eBay in the short run. Slow-cycle markets are characterized by competitors’ inability to copy each other’s major competitive advantages (Hitt, 2020). This means that it becomes easier for a company to sustain its unique competitive advantage for a long time (Hitt, 2020). Hence, the customers of this company are doubtful to use the services of other companies that do not possess the robust features this one. The principal competitive advantage of Amazon is its focus on customers, differentiation, and low cost-leadership. In a slow-cycle market, it is costly for other companies to imitate Amazon’s features, such as example, prime subscription for free shipping. For this reason, in slow-cycle markets in the short term, Amazon will be preferred over eBay and other e-marketplaces.
At the same time, Hitt (2020) argues that even in slow-cycle markets, competitive advantage cannot be sustained forever and the decline of this advantage’s value is unavoidable. This way, the key to success in this market is the creation of some proprietary capability that is impossible to copy (Hitt, 2020). From this, it could be inferred that focusing on customers will not help Amazon successfully operate in a slow-cycle market in the long run. Even though the services provided by Amazon are highly useful and topical, they are not inherently unique. Even though cloud technologies, the attraction of third-party sellers, and logistic schemes help Amazon rapidly increase its profits, they would not protect this company from decline if its competitors are developing.
On the contrary, in fast-cycle markets, competitors could easily imitate focal advantages of one another. Consequently, even the most substantial competitive advantage of one company is not sustainable in fast-cycle markets (Hitt, 2020). If everyone would copy Amazon’s policies, strategies, and innovations, Amazon per se will lose its value, distinctiveness, and attractiveness to the target audience. Thus, success in fast-cycle markets depends on companies abilities to develop and implement innovations. It is necessary to constantly move forward, diversify goods and services, gain access to new markets, and enlarge the target audience. This way, in fast-cycle markets, Amazon and eBay have almost equal chances for success in the future because it depends only on the strategies that the leadership would employ to keep companies competitive.
Sources
Michael A. Hitt. 2020. Strategic Management: Concepts and Cases: Competitiveness and Globalization 13th ed. Cengage Learning.
Marwa Firoz Suleman, Mona Rashidirad, & Saffa Firoz Suleman. 2019. The Applicability of Porter’s Generic Strategies in Pure Online Firms: A Case Study Approach. p. 170. Web.
Alana Semuels. 2018. Free Shipping Isn’t Hurting Amazon. Web.
Amazon. 2018. Amazon Prime Price Change. Web.
Daniela Coppola. Share of Paid Units Sold by Third-Party Sellers on Amazon Platform as of 3rd Quarter 2021. Web.
Daniela Coppola. 2021b. Year-Over-Year Revenue Growth of Amazon.com and ebay Inc. Web.