Amazon Strategic Management Analysis Report

2013 Strategic Management

Contents 1.

Introduction ........................................................................................................................ 2

2.

Amazon’s Main Strategies ................................................................................................. 2 2.1 Business Level Strategy ................................................................................................... 2 2.2 Corporate Level Strategy ................................................................................................. 4

3.

Strategic Position ............................................................................................................... 6 3.1.

3.1.1.

Political ................................................................................................................ 6

3.1.2.

Economic ............................................................................................................. 7

3.1.3.

Social.................................................................................................................... 7

3.1.4.

Technology .......................................................................................................... 8

3.1.5.

Environment ......................................................................................................... 9

3.1.6.

Legal .................................................................................................................... 9

3.2.

Strategic Capability Analysis .................................................................................... 10

3.2.1.

Resources ........................................................................................................... 10

3.2.2.

Competencies ..................................................................................................... 12

3.3. 4.

PESTEL Analysis ........................................................................................................ 6

Stakeholders Expectations......................................................................................... 13

Evaluation of Strategies ................................................................................................... 14 4.1.

Definition of Suitability ............................................................................................ 14

4.2.

Evaluation of Business Level Strategy...................................................................... 14

4.3.

Evaluation of Corporate Level Strategy .................................................................... 14

5.

Conclusion ....................................................................................................................... 15

6.

References ........................................................................................................................ 16

1

1. Introduction

Amazon.com© prides itself as one of the key companies’ to have taken full advantage of the online boom/World Wide Web and develop a global strategy that has turned it into a major force in terms of technology and an increasing assortment of products and services, whilst keeping in mind the worthy customer service they offer to their consumers they deserve. The business strategies applied towards Amazon till date is in line with the external and internal environment without which the specifications that need to be achieved for a successful company base will not be possible. Since its humble beginning in 1995, Amazon has now become one of the world’s leading retailers with its net sales amounting to $13.2 billion in the first quarter of 2012, a 34% rise compared to previous year’s quarterly sales (Shaughnessy, 2012). The following report will describe Amazon’s main strategies by evaluating and assessing their suitability. Generic Strategy Options, PESTEL and Strategic Capability Analysis will be used as tools to analyse the organisation within the periods of economic recession and current recovery i.e. 2008 – 2012/13, along with reference to it’s past to explain certain aspects of the organisation in detail.

2. Amazon’s Main Strategies Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations (Johnson, Scholes, & Whittington, 2008). Amazon, since its formation in 1995, has had to deal with numerous changes in environment with the Y2K bug problem in the digital world in 1999-2000, sudden plunge and rise within the economic markets after the 9/11 attacks on the World Trade Centre in New York and 2008 economic crisis just to name a few. Despite these, Amazon sustained its competitive advantage amongst its competitors and has just expanded its ever increasing ‘empire’ into India, opening its first online store in this booming economy (BBC, 2013). Hence, in trying to achieve such advantage over its competitors, Amazon focusses on its Business Level Strategy as well as its Corporate Level Strategy. The main emphasis of Amazon’s main strategies lies within its ‘customer-centric’ approach by serving its three distinct groups of customers (Stockport, 2010): 1. Consumer customers: Amazon provides a wide range of merchandise, low prices and convenience to its customers 2. Seller customers: Customers selling their products through Amazon’s fulfilment facilities and 3. Developer customers: Amazon’s technology infrastructure enabled the users to create any type of business.

2.1 Business Level Strategy …An integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets (Kean University). According to Porter (2004), this competitive advantage can be gained through three generic strategies: Cost Leadership, Differentiation and Focus as shown in Figure 11.

1

Source: http://www.coursework4you.co.uk/essays-and-dissertations/images/porter-generic-fig1.jpg

2

Figure 1: Generic Strategic Options

Amazon.com operates using a Hybrid Business Strategy which combines two of the above three strategies depending on the Business sectors it is operating within. According to common belief, all three strategies can’t be combined especially cost leadership and differentiation as ‘differentiation is usually costly...conversely; cost leadership often requires a firm to forego some differentiation by standardising the product, reducing marketing overhead, and the like’ (Porter, 2004, p. 18). Within the period of 2009-2012, the one market that Amazon tapped into and turned itself into a global leader was the e-book reader market. The Hybrid strategy used towards this was the Cost Leadership and Focus Strategy where Amazon.com created its very own e-book reader called the Kindle of which an estimated ‘200 million units have been shipped worldwide since 2009 and another 1 billion are predicted to ship over the next five years’ (Forbes, 2013). In terms of Kindle, Amazon introduced a new product within an already existing niche market, but made it small and innovative and advertised it through its already existing large customer base giving it the competitive advantage and attractiveness it required to shift units in bulk. Kindle, a very recent innovation, has propelled Amazon to new heights within the ecommerce business. Despite the innovative Kindle receiving the Reader’s Choice award for the best e-book reader 3 years in a row (Gottesman, 2013), Amazon has kept the cost of this device affordable, hence sticking to their core emphasis of providing low-cost products to their customers in trying to achieve customer satisfaction. Apart from Kindle, Amazon innovates in other ways such as One-Click Ordering system, Vouchers and Amazon Prime which includes one day delivery. Regardless of Cost leadership and Differentiation strategies, within business circles, believed to be not going hand in hand, Amazon has always found itself dealing with products within niche markets and being sold at reasonable prices through sellers with huge access to economies of scale. Amazon has discovered ways to reduce cost not only without hurting their differentiation but by actually raising it, by using practices that are both efficient and effective or by employing a different technology (Porter, 2004, p. 18). For example, Beats

3

Headphones are one of the most high-end Headphones available within the Music market but whole-sale sellers can be found on Amazon selling them at much lower price compared to the actual MRP. Amazon, along with keeping the cost-down for the customers, also bases its warehouses in rural areas where the land is much cheaper than industrial estates or urban areas where land prices can be inflated. ‘Amazon has tried to stress how many jobs it is creating across the country at a time of economic malaise’ through these warehouses, with one of them situated in Rugeley, Staffordshire. (Roberts, 2013) Therefore, Amazon.com prides itself to be one of the major players in the world in providing quality products through good service. Good service in Amazon’s case is the competitive advantage for selling products. Amazon.com has built a four pillar strategy to guide and reach Bezos’ vision. These pillars are Selection comprising of vast selection of retail products; Price which is consistent and continuously offers products with no sacrifice to quality with a guaranteed on-time delivery; Convenience, for example offering customers review and feedback forms on all products (Stockport, 2010, p. 575) and finally; Technological capabilities in terms of logistics of delivering goods according to customers preference, innovation within the e-reader and tablet market, AWS (Amazon Web Services) which include Cloud Computing and Digital content such as Amazon MP3 Music store (Stockport, 2010, pp. 577-578).

2.2 Corporate Level Strategy Figure 2: Amazon's strategy

The above three customers: Consumers, Sellers and Developers (& Enterprises according to the recent Annual reports) are all focussed around the vision of Growth, that the Founder/CEO of Amazon, Jeff Bezos yearned from the beginning. This strategy to grow through mainly focussing on customer experience can be seen in Figure 22:

The customer focus is mainly based around ECommerce. It is this E-commerce industry that Jeff Bezos visualised through Amazon in 1995 which will grow over the coming years. Despite ‘the online channel still accounts for just 8% of total retail sales in the U.S., the future growth is going to be healthy with Amazon leading the way…U.S. growth outlook certainly looks promising, international markets can offer even higher potential in the long term’. (Forbes, 2013). Ansoff Matrix is used to analyse this growth that Amazon entails its main focus on. Ansoff Matrix explicitly considers growth options. Growth is rarely a good end in itself. Public sector organisations are often accused of growing out-of-control bureaucracies; similarly, some private sector managers are accused of empire building at the expense of shareholders. Therefore, within the Ansoff Matrix, Consolidation acts as a fifth option which involves

2

Source: http://www.telco2.net/blog/images/Telco%202_NSN_Mktg_Forum_presentation_longform%20amazon%

4

protecting existing products and existing markets as we can see in Figure 3 (Johnson, Scholes, & Whittington, 2008, p. 258).

Products Existing

· Consolidation · Market Penetration

Existing

(e.g. IMDB, LoveFilm, audible.com, pets.com, fabric.com, zappos.com)

New

Product Development · With existing Capabilities · With new capabilities · Beyond current expectations E.g. (Kindle, Kindle Fire, Kindle Fire HD)

Markets Market Development · New segments · New territories · New uses · With new capabilities · Beyond current expectations

New

(E.g. expansion in countries mainly India. Plans of expansion in Sweden and Poland are ongoing)

Diversification · With existing capabilities · With new capabilities · Beyond current expectations (E.g. Amazon Web Services which includes Dropbox, Guardian, Netflix, etc)

Figure 3: Ansoff Matrix

Out of the 4 strategies in Figure 3, Amazon has managed to adopt all four strategies in lifetime. Within the last 4 years, Product Development has been a major part of Amazon’s strategy in the form of the e-book reader Kindle, along with the tablet, Kindle Fire, designed and manufactured by Amazon itself to rival other tablets in the markets, mainly the iPad of Apple. Here, Amazon created a new product and launched them into already existing markets, even though the e-book reader was a more niche market compared to the tablet market. Despite, the Kindle only being a product introduced within the last 4 years, the main concentration of Amazon has always been Innovation and being a ‘customer-centric’ company by providing ‘easy-to-use functionality, fast and reliable fulfilment, and timely customer service’ (Amazon.com, 2011). On a Corporate level, Amazon takes the Related Diversification approach in which strategy development takes place beyond current products and markets, but within the capabilities or value network of the organisation. Amazon, started off as an online book store in 1995 but today, retails anything and everything technological through its unique business model of giving the freedom to the sellers and ‘offer programs that enable sellers to sell their products on the Amazon websites and their own branded websites and to fulfil orders through Amazon’. (Amazon.com, 2011) It is through such Diversification that Amazon has established ‘long-term relationships’ with many important strategic partners, including America Online, Yahoo!, Excite, Netscape, GeoCities, AltaVista, @Home, and Prodigy (Amazon.com, 2011, p. 6). Another reason Amazon has been so successful in Diversification strategy is due to its effective application of Economies of Scope towards its resources. Amazon has a very strong online base which helps it to easily venture into a new markets through its innovative online software that Jeff Bezos created. For example, the film store has a very similar outline on the Amazon website in comparison to the book store. The same outline which includes

5

bestsellers, top 100 and other criterion can be found in in the Games section, toys section, clothing lines, video games and other retail and electronic sections. Amazon offers Market Development in terms of expanding in new geographies. Market development involves offering existing products into new markets and Amazon does this by expanding the website globally into countries where e-commerce is thriving and is on the rise. In 2010, Amazon operated websites in Canada, China, Japan, UK, Germany and France, and offers customers ordering from other countries the ability to pay for purchases in their own currencies. Such type of Market Development has been a major trend among Amazon’s competitors as well where companies such as Gap, the US clothing retailer, and Wal-Mart, the world’s largest retailer by sales, seek to use e-commerce sites and cross-border shipping to reach a wider audience. (Birchall, 2010). One of the major reasons for expanding globally is the recession that hit the Western Countries hard, and having such a major economies of scope within the company can only benefit the company in the longer run. Finally, to further stem their dominance within the global e-commerce business, their corporate strategy to expand in India will be seen as a major step towards becoming a market leader in global online retail shopping. ‘The company took its first steps into the Indian market in February 2012 when it launched Junglee.com, a site which allowed customers to compare prices online but not purchase items directly. It will initially only sell books, films and TV shows but plans to offer mobile phones and cameras within weeks’ (BBC, 2013). This slow push into the Indian market is a good strategy within the country where building relationships is paramount before conducting any kind of business.

3. Strategic Position 3.1.

PESTEL Analysis

A PESTEL analysis is a framework or tool used by marketers to analyse and monitor the macro-environmental factors that have an impact on an organisation. The results are used to identify threats and weaknesses which are used in a SWOT analysis which will be discussed after this analysis (Professional Academy , 2013). These microenvironment forces not only affect the organisation but also other players in the microenvironment. 3.1.1. Political Political environment can affect a multi-billion dollar e-commerce business through legislations, regulations, tariffs, standards, policies and other laws which can affect the company pricing, profitability and further development of the industry especially when the company is a market leader in the chosen market. 3.1.1.1. EU (European Union) The EU has established an E-Commerce directive which has provided a number of regulations that the member states have to abide by. The rules are easy to interpret by the organisations and the member states alike. The E-Commerce Directive prevents firms from abusing their market dominance, controls the acquisitions and mergers that help a firm’s growth and prevents firms from colluding by price fixing, cartels and other collaborative activities (Jobber, 2007, p. 79). Following is an extract from the EU E-Commerce Directive: ‘The Electronic Commerce Directive, adopted in 2000, sets up an Internal Market framework for electronic commerce, which provides legal certainty for business and consumers alike. It establishes harmonised rules on issues such as the transparency and information requirements

6

for online service providers, commercial communications, electronic contracts and limitations of liability of intermediary service providers’ – European Commission (2013). 3.1.1.2. WTO (World Trade Organisation) In 1998, WTO adopted an E-commerce directive in which the following issues are considered: ‘Classification of the content of certain electronic transmissions; developmentrelated issues; fiscal implications of e-commerce; relationship (and possible substitution effects) between e-commerce and traditional forms of commerce; imposition of customs duties on electronic transmissions; competition; jurisdiction and applicable law/other legal issues’ (WTO, 2013). WTO have been working towards ‘Trade-Facilitation’ which are ‘efforts to simplify and harmonize international trade procedures’ (WTO, 2013) since the adoption of E-Commerce directive in 1998. Trade regulations are necessary as the major players within the Ecommerce are only based in certain countries with international shipping required in other countries. Hence, for the free flowing of trade for such instances, various types of regional trade agreements are put in place by the WTO (Radebaugh, Sullivan, & Daniels, 2013, p. 339). 3.1.2. Economic The economic environment can have a critical impact on the success of companies through its effect on supply and demand. Companies must choose those economic influences that are relevant to their business and monitor them. The general state of both national and international economies can have a profound effect on a company’s prosperity (Jobber, 2007, p. 81). Due to the economic crisis and the recession that hit the world in 2008, most of the family incomes declined or stopped all together due to increasing redundancies across the financial markets. Also, the disposable income that most of the e-commerce businesses rely on decreased due to people becoming tight on spending as there was no job security. Internet retailing is growing at an unprecedented rate in Asia Pacific, growing by 188% between 2007 and 2012, which was the largest increase globally during that time. Asia Pacific’s internet retailing market is second only to North America. In highly populated countries such as China and India, consumers are increasingly gaining access to broadband internet, which is driving up the previously underdeveloped retailing segment. Asia Pacific’s internet retailing market is expected to overtake North America due to its large population size, rising incomes and growing familiarity with technology (Euromonitor International, 2013). This growth aided Amazon incredibly. 3.1.3. Social 3.1.3.1. Social Networking With Facebook and Twitter leading the way within social networking, the E-Commerce businesses now have one of the best ways to expand their customer base using advertising and marketing strategies that these two social network websites have to offer. Millions of users can be reached through correct use of these social networking giants and loyalty can be kept intact without losing customers, at the same time gaining new customers through creative advertisements that Facebook in particular has to offer.

7

Due to Social Networking, the number of people accessing the Internet has increased at an alarming rate as we can see in Figure 43. Figure 54 shows the way internet was accessed, with the use of smartphones surpassing the use of work/institutions’ computers. This shows ECommerce need to focus more towards development of smartphone apps for their company as it can be accessed on the go by customers. Finally, Figure 65 shows encouraging signs that E-Commerce is booming as more people have started to shop online within the comfort of their homes/workplaces.

Figure 4: Frequency of internet usage (Source: Mintel)

Figure 5: Way Internet was accessed ( Nov’11-Jan’12) (Source: Mintel)

Figure 6: Online shopping activities performed in the past three months, January 2012 (Source: Mintel)

As the population of the world goes up, the number of users of e-commerce will increase accordingly. The countries that a particular e-commerce business operates in have to deal with the demographic forces present within the country along with other cultural forces that drive a particular nation. Amazon caters to every age, gender and even location to gain maximum success within a nation. Also, international shipping proves to be quite profitable for Amazon. 3.1.4. Technology Technology is the most important factor which affects an E-Commerce business. According to Mintel (2013), in 2012, 86% of all UK households had a broadband connection, up from 80% in 2011. In April 2013, 67% of internet users personally owned a smartphone and 35% 3

Source: Mintel - http://academic.mintel.com/sinatra/oxygen_academic/image/id=630304&seq=10

4

Source: Mintel - http://academic.mintel.com/sinatra/oxygen_academic/image/id=630304&seq=12 Source: Mintel - http://academic.mintel.com/display/630304/#hit1

5

8

had a tablet in their household whereas some 29% of tablet owners and 20% of smartphone owners had shopped via the respective devices in the three months to April 2013. These statistics play in E-commerce’s favour as more users are able to access the Internet through other means, hence helping the E-commerce industry to grow accordingly. In 2012, 86% of UK households enjoyed a broadband connection, up from 80% in 2011. Among the big five West European economies, the UK leads in broadband penetration: in 2012, the comparable rates were 82% in Germany, 77% in France, 67% in Spain and 55% in Italy (Mintel, 2013). This can be directly proportional to E-Commerce businesses, especially Amazon who have subsidiaries setup in most of these countries. This can help Amazon form a good customer base within the Western Europe. 3.1.5. Environment In marketing context, Environment concerns the relationship between people and the physical environment. Environmentalists attempt to protect the physical environment from the costs associated with producing and marketing products. Five environmental issues that should be taken into consideration by the e-commerce business are: 1. 2. 3. 4. 5. 6.

Global Warming Pollution Control Conservation of energy and other scarce resources Use of environmentally friendly ingredients and components Use of recyclable and non-wasteful packaging Corporate Social Responsibility

Out of the above six, only points 3, 4,5 and 6 can be controlled by the businesses whereas points 1 and 2 cannot be applied to the E-Commerce businesses but their distributors can be directly linked with them as they are burning fossil fuels via travel, causing pollution, thus contributing towards global warming. 3.1.6. Legal Any online trading business within the UK, come under the influence of E-commerce regulations, which came into force in 2002. The Regulations, called the Electronic Commerce (EC Directive) Regulations 2002, implements the EU's Electronic Commerce Directive 2000 into UK law. The Directive was introduced to clarify and harmonise the rules of online business throughout Europe with the aim of boosting consumer confidence (OutLaw, 2013). Different E-commerce laws apply in China and India compared to UK and even USA which means trading can be difficult between these countries. But, due to E-Commerce laws within the new booming economies, it has become easier to regulate online businesses. For example, China passed a new legislation in 2004 which helps to regulate economic commerce and security of electronic transactions. In the wake of increased use of new electronic and IT in commerce, adoption of modern legal framework to regulate electronic commerce is particularly important for China’s economic reforms (Yan, Benson, & Faegre, 2004). Therefore, legislations such as these blur the trading boundaries between mainly the western countries and thriving economies such as India, Brazil and China. Due to these laws in the upcoming economies, it has become much easier for Amazon to set-up their websites in these countries.

9

3.2.

Strategic Capability Analysis

Strategic capability can be defined as the resources and competencies of an organisation needed for it to survive (Johnson, Scholes, & Whittington, 2008, p. 95). Understanding Strategic capability of an organisation can help the organisation to analyse its strategic position better within the market. Following is the tool used to analyse the company’s capabilities and competencies – This concept can be better understood by looking at Table 1 below: Threshold Capabilities

Resources Threshold resources · Tangible · Intangible

Capabilities for competitive Unique Resources advantage · Tangible · Intangible

Competencies Threshold competencies

Core competencies

Table 1: Strategic capabilities and competitive advantage

3.2.1. Resources Threshold resources are needed to meet customer’s minimum requirements and therefore continue to exist, whereas Unique resources underpin competitive advantage and are difficult for competitors to imitate or obtain. They can be split into Tangible and Intangible resources: 3.2.1.1. Tangible Resources  Physical resources: Machines, building or the production capacity of an organisation. Table 2 gives the details of Amazon’s Physical Resources (Amazon.com, 2012): Description of Use Square Footage Location Lease Expiration Owned Office Space 1802 North America From 2013 through 2027 Leased Office space 3236 North America Leased Office Space 1660 International From 2013 through 2021 Subtotal: ---------------------Owned fulfilment, 6698 North America From 2013 datacentres, and others ---------------------through 2027 Leased fulfilment, 339 North America datacentres, and others Owned fulfilment, 35261 International From 2013 datacentres, and through 2031 others Leased fulfilment, 30761 International datacentres, and others ---------------------Subtotal 66383 ---------------------Total 73081 Table 2: Physical resources of Amazon

10

Amazon owns and leases their corporate headquarters in Seattle, Washington. Additionally, they own and lease corporate office, fulfilment and warehouse operations, data centre, customer service, and other facilities, principally in North America, Europe, and Asia. Amazon has separate retail websites for United States, Canada, United Kingdom, France, Germany, India, Italy, Spain, Brazil, Japan, and China, with international shipping to certain other countries for some of its products (Amazon.com Inc, 2013). Due to having such bases around the world with their leases not expiring for another 10-18 years, Amazon can carry on with their work  Financial Resources:

Figure 7: Operating Expenses (in millions) of Amazon (Amazon.com, 2012, p. 27)

Figure 8: Net Sales (in millions) through Amazon including Product and Service sales (Amazon.com, 2012, p. 24)

Figure 7 compares the Operating Expenses incurred by Amazon between 2010 and 2012 whereas Figure 8 shows us the Net Sales within North American operation and International Operation between year 2010 and 2012. There is a steady increase in

11

both cases from 2010 till 2012, giving a good idea that the Amazon’s strategy of growth instilled by Jeff Bezos is thriving and going in the right direction.  Human Resources: Amazon employed approximately 88,400 full-time and part-time employees in December 31, 2012. (Amazon.com, 2012) However, employment levels fluctuate due to seasonal factors affecting the business, mainly during Christmas and Easter when Amazon sees a hike in its sales and profits. 3.2.1.2. Intangible Resources Management of intangible asset such as the brand name of such proportion is a big responsibility and Jeff Bezos deals with it quite well. Amazon’s headquarters is still located in Seattle and the maintenance and the management of this empire happens here. Due to the base being in Seattle for so many years, it is much easier for Jeff Bezos to oversee the operations without moving from one headquarter to another which most companies, now-adays prefer, to split the work load. Patents on Kindle technology along with the brand name provides a good reputation among its competitors and customers alike, leading to a Goodwill value of good proportions. 3.2.2. Competencies …are the skills and abilities by which the resources are deployed effectively through an organisation’s activities and processes. Threshold competencies are activities and processes needed to meet the minimum requirements and therefore continue to exist whereas Core competencies underpin competitive advantage and are difficult for competitors to imitate or obtain. Amazon, a powerful brand, gains core competency through this unique resource and also by providing services and building relationships with its retailers, suppliers and acquisitions which no other competitor can imitate. The companies that belongs to Amazon are IMDB, LoveFilm, audible.com, pets.com, fabric.com, zappos.com, etc to name a few with Amazon’s web services driving companies such as Netflix, The Guardian, Unilever, Reddit, Ticketmaster, Uni Credit bank, Zynga, Schneider Electric, etc (Distinguin, 2011). ‘Amazon also built relationships with partners such as Simon &Schuster Inc., and Christian Publishers in 2008, making even more titles available’ for Kindle and ‘further fuelling interest in this revolutionary product’ (Stockport, 2010, p. 577). The design of Amazon can be said to be easily imitated by the competitors but the drive and the innovation that Jeff Bezos manages to achieve within the employees in the company is insurmountable. Another reason why the Amazon finds itself so far ahead from the competition is its constant diversification which in most cases is extremely unrelated to its core model and products, which in case of Amazon are books. For example, Amazon launched its own Motorcycle Store as a single shopping destination for motorcycle parts and accessories and protective gear. The store showcased a selection of more than 300000 products from 500 manufacturers including top brands such as Harley Davidson, Suzuki, Alpine Stars, Suzuki and Tour Master (Stockport, 2010, p. 579). Despite this unrelated diversification, Amazon is renowned for its Vertical Integration, which falls under related integration where the strategy creates a consistent as well as an appealing experience for the customers. For a vertical integration, companies may need to create their own product which in Amazon’s case is, the Kindle. Finally, in terms of recruiting, Amazon uses a very strategic approach which reflects the very shrewd nature of its owner, Jeff Bezos. As the headquarters is located in Seattle, there is a

12

large supply of IT talent which has helped to strengthen Amazon’s management considerably. An example of Mr Bezos’ ‘strategic recruitment is the appointment of Richard Dalzett, a former Wal-Mart Vice President’, as the company’s CIO (Chief Information Officer) which helped improve Amazon’s expertise in ‘merchandising, supply chain, commercial decision support and data mining systems’ (Stockport, 2010, p. 576).

3.3.

Stakeholders Expectations

Customer-Driven, customer-centric and customer-focussed are only a few of many terms used when describing Amazon’s objectives. Jeff Bezos, from the start has made it very clear that the customer is their main priority and anything that detracts or hinders their progress towards satiating their customers will not be considered or won’t be given as much importance. Hence, the Stakeholders that matter the most to Amazon and Jeff Bezos are its customers – ‘Customers are the folks who have the money. Our competitors are never going to send us money!’ – Jeff Bezos (Stockport, 2010, p. 576).

Level of Interest

Low

Low

A Minimum Effort Distribution

Recruitment

Power C Keep satisfied Customers Financial institutions High

High

B Keep Informed Customers Suppliers Employees Retailers

D Key players Governments Shareholders

Customers

Figure 9: Power/Interest Matrix to show Amazon’s stakeholders classification in relation to the power they hold

Therefore to meet the stakeholder’s expectations, Amazon ‘may make less per item, but by consistently earning trust, they will sell many more items. Therefore, Amazon offers low prices across their entire product range’ (Amazon.com, 2010). It is because of this policy, Amazon has become the leader within the E-commerce business and has been able to expand into ventures that are either within their capabilities or value network of the organisation or sometimes, poles apart. Stakeholder mapping identifies stakeholder expectations and power and helps in understanding political priorities. It describes the context within which a strategy might be pursued by classifying stakeholders in relation to the power they hold and the extent to which they are likely to show interest in supporting or opposing a particular strategy (Johnson, Scholes, & Whittington, 2008, p. 156). Figure 9 shows how stakeholder’s expectations are managed in terms of Amazon.com.

13

4. Evaluation of Strategies The strategies selected above need to be evaluated for the given organisation to see if they help with the smooth running of the organisation. Strategy Evaluation is significant because it throws light on the efficiency and effectiveness of the comprehensive plans in achieving the desired results. The managers can also assess the appropriateness of the current strategy in today’s dynamic world with socio-economic, political and technological innovations, which has been done above in the form of PESTEL analysis. Strategic Evaluation is the final phase of Strategic Management (Management Study Guide, 2013).

4.1.

Definition of Suitability

Suitability is concerned with whether a strategy addresses the key issues that have been identified in understanding the strategic position of an organisation (Johnson, Scholes, & Whittington, 2008, p. 366). For this understanding, PESTEL analysis, Strategic capability analysis and Stakeholders expectations have been used to assess the suitability of Amazon’s strategy. After in-depth analysis of companies’ competencies, Stakeholder management and the external environment, it has been found that the Amazon’s strategies are suitable.

4.2.

Evaluation of Business Level Strategy

Within the business level, Amazon’s focus on innovative technology, along with keeping the costs low plays a vital role in keeping itself a step ahead of its competitors. The combination of low-cost leadership and innovation has increased the efficiency throughout its supply chain whilst giving it a systematic approach. Amazon is able to achieve competitive advantage through this low cost strategy which is able to thrive in current economic environment where disposable income is extremely hard to come by, hence customers are always looking for the cheapest option – which Amazon is able to offer. Amazon is also able to offer differentiation through innovative products whilst keeping the cost down of products such as Kindle which has helped Amazon to stem its authority among its competitors even further. Other than providing low costs, Amazon has been able to understand its customers well through the customer review system it offers over each product and seller, which helps to keep Amazon ‘on their toes’ and make amendments accordingly for customer satisfaction.

4.3.

Evaluation of Corporate Level Strategy

Amazon abides by all the PESTEL factors mentioned above. The political factors that affect the E-commerce business affect the way Amazon is run. But Jeff Bezos being the astute businessman he is, based the European headquarters of the subsidiary in Luxembourg where Amazon does not have to pay millions of dollars in the form of corporate taxes. This helped Amazon propel towards a huge profit margin year after year. During the economic crisis, Amazon was still able to make profits to the envy of all the MNCs around the world, thus giving an idea on how good of a business model it possesses. Amazon has taken social media to its heart and people who follow them either on Facebook or Twitter are able to get constant updates on new products or any new policies the company will be adopting. Technology has always been at the forefront of all the Amazon’s factors whereas in terms of Environment, Amazon has always respected the Mother Nature. In terms of legal proceedings, despite the tax dispute in 2012-13, Amazon has maintained its reputation as the number one E-Commerce business on the planet and continues to generate profits.

14

The main focus within Amazon on a corporate level is growth. With the market development strategy, Amazon is expanding itself into thriving markets such as India and China along with static, slowly recovering markets from the economic crisis such as Poland and Sweden to further refine its already successful strategy of growth. Product development, especially the development of Kindle has been one of the biggest success stories within M (media)Commerce during the recession period of 2008-2012. This success can also be linked with the diversification of AWS (Amazon Web Services) which provides its Strengths Weaknesses services to products such as Dropbox, Low - Cost leadership strategy Netflix, etc to perform Superior quality services and products Related/Non-Related Acquisitions well and using the No physical presence Efficient Supply Chain Low profit margins & cash flows Economies of scope capabilities that Unclear/time-consuming returns policy Economies of scale Amazon has to offer. Globally recognised brand Customer-Centric Approach This helps both the Strategic locations (e.g. closer to airports) Diverse products products as well as Adept and skilled employees Amazon in generating the desired revenue. Finally, Market Opportunities Threats penetration through products such as IMDB, Production of brands similar to Kindle LoveFilm, audible.com, Patent infringement Economies of Scope Dependent of suppliers Open more online stores in Africa pets.com within the Strategic Alliances between competitors Physical presence Regional retailers products’ markets is a Sponsoring sports events Rules and Regulations against tax avoidance Further acquisitioned expansion tactic that Jeff Bezos Online security (hacking) M-Commerce growth has adopted for Amazon to infiltrate into markets through products that Figure 10: SWOT analysis for further evaluation are leading players, thus helping the products to dominate their stance even further and also, growing the product structure of Amazon. The SWOT diagram in Figure 10 is to further evaluate capabilities that were carried out initially through Strategic Capability Analysis tool.

5. Conclusion The main strategies of Amazon analysed in this report are its use of low-cost strategy and effective innovativeness to gain competitive advantage against its competitors. Jeff Bezos, the organisation’s shrewd CEO knows Amazon inside out and knows ‘every trick in the book’ to gain customer satisfaction, thus creating loyalty and guaranteeing returning customers, along with new customers due to the exciting nature of the brand. The tools used in this report suggest that Amazon’s established strategies are suitable. This suitability of strategies is one of many reasons which makes Amazon as a brand and business, a dominant force within the E-Commerce business despite its extremely diversified nature.

Word Limit: 5487

15

6. References Amazon.com. (2010). Annual Report. Seattle: Amazon.com. Amazon.com. (2011). Annual Report. Seattle: Amazon.com. Amazon.com. (2012). Annual Report. Seattle: Amazon. Amazon.com Inc. (2013). Securities and Exchange Commission. Seattle: Amazon.com Inc. BBC. (2013, June 5). Amazon launches first online shopping site in India. Retrieved July 28, 2013, from BBC: http://www.bbc.co.uk/news/business-22780571 BBC. (2013, June 05). Amazon launches first online shopping site in India. Retrieved August 11, 2013, from BBC: http://www.bbc.co.uk/news/business-22780571 Birchall, J. (2010, November 28). Amazon seeks to expand globally. Retrieved August 01, 2013, from Financial Times: http://www.ft.com/cms/s/0/730ce8d4-fb27-11df-b57600144feab49a.html#axzz2bi9MbthO Distinguin, S. (2011). Amazon.com: the Hidden Empire. faberNovel. Euromonitor International. (2013, July 23). Internet retailing posts unrivalled growth in Asia Pacific. Retrieved August 01, 2013, from Euromonitor International: http://blog.euromonitor.com/2013/07/internet-retailing-posts-unrivalled-growth-inasia-pacific.html European Commission. (2013, June 19). E-Commerce Directive. Retrieved August 09, 2013, from European Commission: http://ec.europa.eu/internal_market/ecommerce/directive/index_en.htm Forbes. (2013, May 05). How Amazon Plans On Driving Future Growth. Retrieved August 01, 2013, from Forbes: http://www.forbes.com/sites/greatspeculations/2013/05/15/how-amazon-plans-ondriving-future-growth/ Gottesman, B. (2013). Reader's Choice Award. Retrieved August 02, 2013, from pcmag.com: http://www.pcmag.com/article2/0,2817,2420895,00.asp Jobber, D. (2007). In Principles and practices of Marketing. Maidenhead: McGraw Hill Education. Johnson, G., Scholes, K., & Whittington, R. (2008). Strategy. In Exploring Corporate Strategy (p. 3). Harlow: Prentice Hall. Kean University. (n.d.). Business Level Strategy. Retrieved August 01, 2013, from Kean niversity: turbo.kean.edu/ jmcgill/BPS4.ppt Management Study Guide. (2013). Strategy Evaluation Process and its Significance. Retrieved August 02, 2013, from Management Study Guide: http://www.managementstudyguide.com/strategy-evaluation.htm Mintel. (2013). E-commerce. Mintel. Out-Law. (2013, August). The UK's E-Commerce Regulations. Retrieved August 10, 2013, from Out-Law: http://www.out-law.com/page-431

16

Porter, M. E. (2004). Competitive Advantage. New York: Free Press. Professional Academy . (2013). Marketing Theories – PESTEL Analysis. Retrieved August 09, 2013, from Professional Academy: http://www.professionalacademy.com/news/marketing-theories-pestel-analysis Radebaugh, L., Sullivan, D., & Daniels, J. (2013). WTO. In International Business: Environment and Business. Harlow: Pearson. Roberts, B. (2013). Amazon Unpacked. Retrieved August 01, 2013, from Ben Roberts Photography: http://benrobertsphotography.com/commissions/amazon-unpacked/ Shaughnessy, H. (2012, April 29). Why Amazon Succeeds. Retrieved July 30, 2013, from Forbes: http://www.forbes.com/sites.haydnshaugnessy/2012/04/29/why-amazonsucceeds/ Stockport, G. J. (2010). Amazon.com: 2007 - early 2009. Crawley. WTO. (2013). Electronic Commerce. Retrieved August 12, 2013, from WTO: http://www.wto.org/english/tratop_e/ecom_e/ecom_briefnote_e.htm Yan, W., Benson, & Faegre. (2004). The electronic signatures law: China's first national Ecommerce legislation. Retrieved August 09, 2013, from China Law and Practice: http://www.chinalawandpractice.com/Article/1692668/Channel/9937/The-ElectronicSignatures-Law-Chinas-First-National-E-CommerceLegislation.html?ArticleId=1692668 Cover page logo source: http://3.bp.blogspot.com/_pFTD3I8CXKM/TNhYiUg2kyI/AAAAAAAAG1s/Tb1k340DKg/s1600/amazon_logo.jpg

17