MARY ANNJAYNETTE I. DALUPANG PROF.

MARK GLENN VILLAMOR, MBA

MBA Student Course Facilitator

Company Background & Profile

Amazon is an e-commerce company providing a marketplace for consumers, sellers

and content creators. Jeff Bezos is the founder of Amazon since its establishment

in 1994. The Company offers its users merchandise and content purchased for resale
from vendors and those offered by third-party sellers. It also enables authors,
musicians, filmmakers, app developers and others to publish and sell content via its
branded websites. Amazon also provides Kindle Direct Publishing, an online platform
that allows independent authors and publishers to make their books available in the
Kindle Store. In addition, the Company offers co-branded credit card agreements and
advertising services, serves developers and enterprises through Amazon Web Services
and manufactures and sells electronic devices. Currently Amazon operates in three
segments: North America, International, and Amazon Web Services (“AWS”).

“Amazon.com opened its virtual doors on the World Wide Web in July 1995. We seek to be
Earth’s most customer-centric company. We are guided by four principles: customer obsession
rather than competitor focus, passion for invention, commitment to operational excellence, and
long-term thinking. In each of our segments, we serve our primary customer sets, consisting of
consumers, sellers, developers, enterprises, and content creators. In addition, we provide
services, such as advertising services and co-branded credit card agreements. We have organized
our operations into three segments: North America, International, and Amazon Web Services
(“AWS”). These segments reflect the way the Company evaluates its business performance and
manages its operations.”

Strategies

Corporate Strategies
Corporate-level strategies can help organizations stay on top of the industry. Its atrefy ,
diversification, and international expansion. By concentrating on a single industry, the
organization is reinvesting a company's profits in order to strengthen the position within
an industry. Vertical integration can expand business operations backward or forward in
the industry. An example of backward vertical integration occurs when a business takes
over in creating raw materials, rather than purchasing it from a supplier. An example
forward vertical integration is when a product developer goes from purely developing
products to opening a chain of stores to distribute the product. Diversification means
when a business expands their reach by producing new kinds of goods or services
within an industry. International expansion means marketing products by reaching out to
different national markets.

In 2007, Amazon debuted its Kindle e-reader; four years later, the
company announced it was selling more e-books than print books. Also
in 2011, Amazon’s tablet computer, the Kindle Fire, was released.
Among a variety of other ventures, Amazon launched a cloud computing
service in 2006; a studio that develops movies and TV series, in 2010;
and an online marketplace for fine art, in 2013, which has featured
original works by artists including Claude Monet and Norman Rockwell.
Additionally, Amazon has acquired a number of companies over the
course of its history, including online shoe shop Zappos, video game
streaming site Twitch.tv and Kiva Systems a maker of automation
technology for fulfillment centers.
Amazon is the world’s largest online retailer and is indeed a pioneer in the online retailing space. Though
it started as an online bookstore, its success in its venture spurred it to diversify into selling anything that
can be sold online. Amazon started as an online bookstore & quickly diversified into other
product lines & services. You can find anything from; books, movies, games, music,
electronics, apparel and accessories, auto parts, home furnishing, health and beauty,
aides, toys and groceries.
When Amazon.com went live to the general public in July 1995, the
company boldly billed itself as “Earth’s biggest bookstore,” although
sales initially were drummed up solely by word of mouth and Bezos
assisted with assembling orders and driving the packages to the post
office. However, by the end of 1996 Amazon had racked up $15.7 million
in revenues, and in 1997 Bezos took the company public with an initial
public offering that raised $54 million. That same year, Bezos personally
delivered his company’s one-millionth order, to a customer in Japan
who’d purchased a Windows NT manual and a Princess Diana biography.
In 1998, Amazon extended beyond books and started selling music CDs,
and by the following year it had added more product categories, such as
toys, electronics and tools.

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By December 1999, Amazon had shipped 20 million items to 150

countries around the globe. That same month, Bezos was named Time
magazine’s Person of the Year. In 2000, the company introduced a
service allowing individual sellers and other outside merchants to peddle
their products alongside Amazon’s own items. Meanwhile, Amazon
continued to spend heavily on expansion and didn’t post its first full-year
profit until 2003.

In 2007, Amazon debuted its Kindle e-reader; four years later, the
company announced it was selling more e-books than print books. Also
in 2011, Amazon’s tablet computer, the Kindle Fire, was released.
Among a variety of other ventures, Amazon launched a cloud computing
service in 2006; a studio that develops movies and TV series, in 2010;
and an online marketplace for fine art, in 2013, which has featured
original works by artists including Claude Monet and Norman Rockwell.
Additionally, Amazon has acquired a number of companies over the
course of its history, including online shoe shop Zappos, video game
streaming site Twitch.tv and Kiva Systems a maker of automation
technology for fulfillment centers. In 2015, Amazon surpassed Walmart
as the world’s most valuable retailer. Two decades after its founding and
with Bezos still at the helm, Amazon’s market value was $250 billion.

Further, Amazon has also expanded globally and now operates around the world through a combination
of localized portals and globalized delivery and logistics platforms.
Amazon’s generic corporate strategy can be described as concentric diversification. This strategy is
based on leveraging technological capabilities for business success and following a cost leadership
strategy aimed at offering the maximum value for its customers at the lowest price in addition to wrapping
its business around the customers wherein they find Amazon to be the go-to portal for their online
shopping needs.

Indeed, this strategy has paid off well as can be seen from the fact that it is the world’s largest online
retailer and has consistently been the leader in the market segments in which it operates. Having said
that, it must also be noted that cost leadership can follow the law of diminishing returns wherein firms
following this strategy find that they are unable to sustain growth or increase profitability once the “low-
hanging fruit” are plucked.

Continuing the discussion, the generic business strategy followed by Amazon can be explained using The
Ansoff matrix as represented pictorially in the figure above. Amazon is placed in the Overall Cost
Leadership quadrant and its relentless focus on costs is the key to understanding its overall strategy.

The specific measures taken by Amazon in pursuit of this strategy include steep discounts for is regular
members through the Amazon Prime program, ensuring timely and even express delivery and at times,
waiving off the shipping charges, passing on the benefits of avoiding state taxes to the customers thereby
lowering the price even further, and an overall strategy based on making the customer experience as
seamless and as smooth as possible.

Division Strategies

Porter also developed a theory of how managers can choose a business-level strategy.
George and Jones describe this as "a plan to gain a competitive advantage in a
particular market or industry." Successful business-level strategy "reduces rivalry,
prevents new competitors from entering the industry, reduces the power of suppliers or
buyers, and lowers the threat of substitutes--and this raises prices and profits."
Managers must choose to pursue one of four business-level strategies: low cost,
differentation, focused low cost or focused differentation. Differentiation increases value
to customer by distinguishing its product from other competitors through tweaking
product design, quality, or customer service. By lowering costs in making the product,
you can lower overall costs compared to its rivals, making it more competitive in the
market. Low-cost strategy and differentation strategy aim to serve many or most
segments of a certain market, while focused differentation and focused low cost serves
only one or few segments of the overall market.
Amazon has long pursued a strategy of winning by pricing low. Amazon’s primary
objective is to gain market share. With increasing their market share, Amazon in return
can continue to reduce its costs with increasing the output of products.

Amazon also allows other retailers to sell their products, while taking a cut of every
purchase, this has helped Amazon expand its available selection without having to
increase its overhead cost.

Another approach Amazon has taken, is introducing the sale of used products through
its seller marketplace.

Amazon has done a great job executing their current strategy of pricing low to gain
market share.

Amazon is ablt to dominate their strategy by offering customers an equally good or

better product at a lower price or offering a low-priced, lower-quality product that give
customers more value for their money.

Consumers often highly focus on price, which gives Amazon a competitive edge.

The way in which Amazon has leveraged technology as a source of competitive advantage and reaped
the benefits of the economies of scale in addition to leveraging the synergies between its internal
resources and external drivers has spawned many rivals who aim to imitate and better its business
model.

Function Strategies

Apart from this, Amazon’s strategy is driven by its sources of competitive advantage wherein it is
focus on technology, actualizing the benefits of economies of scale, and leveraging the efficiencies from
the synergies between its external drivers and internal resources have been the cornerstones of its
business model. Further, Amazon uses Big Data Analytics as a tool to map consumer behavior. Indeed,
Big Data has been embraced to such an extent by the company that it is now in a position to market this
as another service offering.

Anyone who has shopped on Amazon encounters a list of recommended products that are picked
according to the browsing history and the mapping of their purchases with that of likely purchases in the
future. This has meant that Amazon can sense and intuit what consumers want and tailor its strategies
accordingly. As mentioned throughout this article, Amazon uses technology to the fullest, which is not
surprising considering it is after all an internet-based company.

However, Amazon’s overall cost leadership with little product differentiation means that its business
model has been copied by “me-too” competitors in a cutthroat price war that has left everyone bruised.
Further, its focus on cost reduction at the expense of product differentiation means that its products are
available on other portals as well and there is no product line that is exclusive or unique to it.
Apart from this, Amazon does not stock products that appeal to the need for “instant gratification” wherein
consumers make impulsive purchases and who are impatient and need quick fixes. For instance, except
for its movies and other digital items, the other product lines are all not in the category of those that
provide this gratification to the customers.

Having said that, it must be noted that Amazon’s current strategy is also built around the
convenience aspect wherein customers need not go to a physical bookstore or even wait for their
purchases to arrive after some time as it has introduced same day delivery in many countries and is even
toying with the idea of using Drones for near instantaneous delivery. Apart from that, its focus on non-
retail product lines such as cloud based services means that it is addressing the issue of differentiation as
well as its overreliance on cost leadership.

Amazon has popularized “one-click” selling wherein customers can buy anything and everything that is for
sale on its portal with just a click of the mouse. Going by the rate at it, which Amazon is growing, it is
indeed the case that its business model is “clicking” with its customers. Having said that, the need of the
hour for Amazon is to sustain its growth rates and maintain the momentum.

Further, a worrying factor for the company is that it has not made profits in many of the quarters over the
last three years. A possible reason for this can be its excessive focus on cost leadership, which means
that in the “race to the bottom” its bottom line is being impacted.

Finally, Amazon needs to adopt a Glocal approach in its international markets wherein it adapts its Global
business model with that of its Local delivery and logistics supply chain. This would indeed create a
globalized business value chain wherein anyone anywhere can buy products anytime and every time.

In conclusion, the future looks bright for Amazon and if it continues to focus on its core competencies and
at the same time expands its global value chain, there is no reason why it cannot maintain its market
leadership.

https://craft.co/amazoncom

https://prezi.com/cfx0_loywmk_/amazon-strategic-plan/

https://www.managementstudyguide.com/analysis-of-amazon-corporate-strategy.htm

https://www.reuters.com/finance/stocks/company-profile/AMZN.O