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Dustin Nagy

Brenda Baker

Thomas Rowell

Natalie J. Edwards

BUSN 204

3/2/2011

Amazon

The case study summarizes Amazon.com, one of the leading internet marketing

companies today. Amazon was founded by Jeffery Bezos in 1995. Bezos started his company in

Seattle, Washington so that he could be closer to leading software developers, like Microsoft.

Amazon has come a long way from where it began, but it has still hit bumps in the road on its

pathway to success. As time went on, other’s realized that Bezos had the right idea. As other

corporations opened, they challenged Amazon by selling their products at lower prices.

Amazon is one of the leading competitors in internet sales today. They are always a step above

competitors, with technological advances.[ CITATION Hil09 \l 1033 ]

The history, development, and growth of Amazon over time. The identification of

internal strengths and weaknesses, nature of the external environment. A SWAT analysis. The
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kind of corporate-level strategy they are pursuing. The structure and control systems and how

they match its strategy.

History

In 1994, Jeffrey Bezos, a computer science and electrical engineering graduate from

Princeton University, was growing weary of working for a Wall Street investment bank. Seeking

to take advantage of his computer science background, he saw an entrepreneurial opportunity

in the fact the usage of the internet was growing enormously, and every year tens of millions of

new users where becoming aware of it potential uses. Bezos decided the bookselling market

offered and excellent opportunity for him to take advantage of his ID skills in the new

electronic, virtual market place. His vision was an online bookstore that could offer millions

more books to millions more customers than a typical bricks and mortar (B&M) bookstore. To

act on his vision, he packed up his belongings and headed for the West Coast to found his new

dot-com start-up. On route, he had a hunch that Seattle, the hometown of Microsoft and

Starbucks, was a place where first-rate software developers could be easily found. His trip

ended there, and he began to flesh out the business model for his new venture.

What was his vision for his new venture? To build an online bookstore that would be

customer-friendly, be easy to navigate, provide buying advice, and offer the broadest possible

selection of books at low prices. Bezos’s original mission was to use the internet to offer books

“that would educate, inform and inspire.” And from the beginning, Bezos realized that

compared to a physical B&M bookstore, and online bookstore could offer customers and much

larger and more diverse selection of books. Indeed, there are about 1.5 million books in print,
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but most B&M bookstores stock only around 10,000 books; to 60,000. Moreover, online

customers would be able to search easily for any book in print using computerized catalogs.

There was also scope for an online company to find ways to tempt customers to browse books

in different subject areas, read reviews of books, and even ask other shoppers for online

recommendations.

Operating from his garage in Seattle with a handful of employees, Bezos launched his online

venture in 1995 with $7 million in borrowed capital. Because Amazon was one of the first major

Internet, or dot-com, retailers, it received a huge amount of free national publicity, and the

new venture quickly attracted more and more book buyers. Book sales quickly picked up as

satisfied Internet customers spread the good word and Amazon became a model for other dot-

com retailers to follow. Within weeks Bezos was forced to relocate to larger premises, a 2,000-

square-foot warehouse, and hire new employees to receive books from book publishers and fill

and mail customer orders as book sales soared. Within Six months, he was once again searching

for additional capital to fund his growing venture; he raised another $7 million from venture

capitalists, which he used to move to a 17,000-square-foot warehouse that was not required to

handle increasing book sales. As book sales continued to soar month by month over the next

two years, Bezos decided that the best way to raise more capital would be to take his company

public and issue stock. This, of course, would reward him as the founder and the venture

capitalists that had funded Amazon.com’s stock began trading on the NASDAQ stock exchange.

Corporate-level Strategy
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What business or businesses should Amazon pursue to maximize the long-run

profitability and profit growth for their organization? How should Amazon enter and increase

their presence in other online marketing companies to gain a competitive advantage? Amazon’s

founder, Jeffrey Bezos, a computer science and electrical engineering graduated from Princeton

University, came up with the idea to sell books using the growing internet industry. Bezos

created an online bookstore that would be customer-friendly, easy to navigate, provide buying

advice, and offer the broadest possible selection of books at low prices. Selling the books online

rather than in a bookstore would give readers a larger selection of books to choose from.

In 1995 Bezos’ started selling books online for the start of a profitable online company.

The company didn’t show much profit in the beginning, but would soon grow. In 1999 Amazon

announced that it would be the largest online book and music store. Bezo realized CD’s and

books would be a good fit to sell. Profits finally started to show coming into the new

millennium.

From 2000 on, Bezos expanded amazon’s storefronts and began to sell a wide range of

electronic and digital products. Even though Bezos original idea was to just sell a larger variety

of books, expanding the company by selling other retail would give Amazon a better

competitive advantage among other online companies. By 2003, Amazon had created twenty-

three storefronts and by 2006, Amazon created thirty-five storefronts. All of which sold

products as varied as books, CDs, DVDs, software, consumer electronics, kitchen items, tools,

lawn and garden items, toys, games, baby products, apparel, sporting goods, gourmet food,
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jewelry, watches, health and personal-care items, beauty products, musical instruments,

industrial, and scientific supplies.

Amazon has entered their way into a majority of online businesses and should continue

to look for new marketing products for profit growth. Amazon needs to create partnerships

with other leading online marketing companies and look for new strategies to keep its revenue

growing. Advertising on other leading online stores websites could generate more customers.

Finding ways to provide a product with the least price, faster, and cheapest shipping rate would

give them a higher competitive advantage.

Business Level strategy

In order for Amazon to become profitable, they must put together a business level

strategy to gain a better competitive advantage. This will enable them to outperform rivals and

achieve above average returns. There are three different basic generic competitive approaches

Amazon can choose from cost leadership, differentiation, and focus. Each of these basic generic

competitive approaches will help Amazon to make consistent choices on product, market, and

distinctive competences. Using these different approaches to reinforce each other will

strengthen Amazon’s business level strategy.

Cost- leadership strategy

Cost-leadership is a strategy used by companies to outperform their competitors in

every way possible, to produce their goods, or provide services at a lower cost. Amazon must

strive to be the cost leader in order to gain higher profit by selling a product for much lower
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than its competitor. Being able to sell these products at a lower price will also give Amazon a

competitive advantage against rival companies in case of a competition in price. Amazon seeks

to reduce their variable costs per unit and work to leverage their fixed costs. To lower their

variable costs on a per unit basis and enable them to lower prices for customers, Amazon seeks

to increase their direct to content provider and manufacturer sourcing, maximize discounts

available to them from suppliers, and reduce defects in their processes.

Differentiation

There are two types of differentiation in business, product differentiation and

differentiation strategy. Amazon can use product differentiation to create a competitive

advantage by designing goods or services to satisfy customer needs. For example Bezo looked

for ways to please customers by offering free shipping and “deals of the day”. Amazon also

forged alliances with other companies to make their services more convenient. A differentiation

strategy is similar by trying to achieve a competitive advantage over competitors by creating a

product or service that is perceived by customers in some type of important way.

Focus

The focus strategy is a different strategy than cost leadership and differentiation

because it directs itself toward serving the needs of a limited customer group or segment. This

strategy concentrates on their particular niche or segment of the market. Bezos’ original focus

and mission was to offer books “that would educate, inform and inspire”. (Hill/Jones, C33)

Today Amazon’s focus has changed to accommodate customers with much more than just

books. Amazon’s new mission is to be “Earth’s most customer-centric company, where

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customers can find and discover virtually anything they might want to buy online”. (Hill/Jones,

C33)

Company Structure

Amazon has used its business, cost-level strategies, differentiation, and focus to develop

its company structure. Under the 1934 ACT, Amazon has developed procedures with the help of

their principal executive officer and principal financial officer, for use in the effectiveness of the

design and operation of our disclosure controls as defined in Rule 13a-15(e) of the 1934 Act . As

of December 31, 2009, Amazon has used their principle executive officer and principle financial

manger to gather any information for disclosure controls and procedures to be effective and

provide reasonable assurance by them in any reports they file or submit. Amazon has used

organizational change to alter their strategies and structures to solve strategic problems. They

have increased the type of products they offer and practiced ways to keep and please

customers.

Internal Strengths

Ability to handle large amounts of product in their warehouses

Efficient and creative uses of technology

Flexibility to add new product lines

Ability to have a world wide customer base

Ability to give customer fast service

Effective marketing skills

Efficient management systems

Hands on management style

Creative ability to procure new customer bases using existing resources

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Capital to acquire businesses

Ability to leverage core competences

Decentralized decision making authority

Internal Weaknesses

Difficult to control costs with technology

Difficult to control costs with logistics

Continuous battle to maintain profitability

Must continuously look for new product lines to add to site

Difficult to expand globally

External Environment

The external environment for Amazon is volatile and very competitive. The one good thing about
Amazon is the infra structure is so vast and expensive there is a small risk of entry for new competitors.
There are opportunities for very large companies with large amounts of cash to attempt to duplicate
what Amazon has in place.

The more Amazon adds to its product line the greater the competition will become. Each industry or
market Amazon enters adds to the chance of profits being reduced due to price wars and other
competitive measures that can be taken by rival companies.

Buyers in this type of retail setting control and maintain most of the power. With the simple click of a
button they can purchase their products elsewhere, or simply go to the store and take it that day.
Amazons buying power comes into play due to their ability to make large quantity purchases. Much like
Wal-Mart, their buying power comes from quantity so they do have some control over what they pay for
products.

Amazon has always claimed to be a technology company first. The amount of technology that is
required to maintain such a vast array of warehouses, computers, and logistical infra-structure again
keeps the threat of substitutes to a minimum.
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Porters Five Forces

1. Risk of entry

In the beginning there was no competition as they are a first-mover company. Some of the major book
retailers did attempt to go online but like Amazon, found out the infra structure was very costly. As time
has gone by the risk of entry has increased as many major corporations like Wal-Mart and Google are
attempting to take away some of the profits in the industry. Many of the companies that Amazon has
bought have been struggling dot com companies that helped to increase there product line. The reason
they were able to acquire these companies is due to the costs involved in maintaining and operating an
online company which does show the risk of entry is high.

2. Rivalry among companies within the industry

The companies that are in the internet retail business tend to be very competitive. Although Amazon is
considered a technology company the rivalry carries over into the brick and mortar retail stores. Much
of the competition comes from normal businesses since this it is Amazon that is really trying to take
away there business.

3. Bargaining power of buyers

In this case, the bargaining power of the buyer which is the customer is huge. Since this is an online
company, many people want their products now.

4. Bargaining power of sellers

In this case, Amazon being the seller has little bargaining power. They are at the mercy of other
competitors and retailers.

5. Threat of substitutes

The threat of substitutes continues to increase as time goes by. Amazon is the leader and is now the
biggest target in the industry. This makes the threat of substitutes a real concern for Amazon. The one
thing in there favor is the high cost of the infra structure that is required to operate there business.

SWOT Analysis
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Amazon has been and continues to be an innovator in the on-line retail business. According to the letter
to the shareholders 2009 was a record year for sales as well as many new innovative product offerings
and services.

Strengths:

 An original proven leader in the online retail business

 Innovator in using technology to acquire new customers
 Flexibility to add new product lines on a continuous basis
 Creating of Amazon as a global brand
 Effective management skills
 Effective marketing skills
 Proven leader in logistics operations

Weaknesses

 Difficult to continuously integrate new technologies

 Must continuously add new technologies and product lines to maintain profitability
 Loss of brand recognition with always changing product lines
 Continuous battle to maintain high technology costs

Opportunities

 Unlimited product lines available to integrate into the Amazon system

 New relationships to increase future e-businesses partners
 Ability to use their logistics operation for new and creative ventures
 Ability to partner with public sector venues as well as private sector
 Global opportunities in new markets

Threats

 Competition continues to increase with the addition of new product lines

 Unknown issues with governmental regulations in other markets
 Continued maintenance of current and future infra structure costs
 Risk of much lower profits due to increased competition
 Poor economy can reduce profits and slow growth
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References

[ CITATION Hil092 \l 1033 ]

Amazon.com