Strategic Management Case Study on Amazon

Strategic Management BSM999

Q1 – AMAZON.COM’S STRATEGY DURING 2007 TO EARLY 2010  Growth • To be the largest online retail  Long term market store and improve customer experience

leadership

One-stop shop Customer centric •

•

To have the largest market share and increased sales

Expanding (Market leadership)

To acquire companies to own products and technology or by alliances

Acquisition / Alliances

•

•

Diversified range and category of products

Kindle, cloud services, web • services and currency converter Product portfolio

Technology

DRM free MP3 and media

Digital contents

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QUESTION 1 CONTD.

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Q2 – VALUE CHAIN FOR AMAZON • Positive working capital, turnover period for receivables / payables (approx. 26 Days) • lower Reinvestment • Continued Investment – Improved efficiency, prices into business for continuous innovation • 19.16 billion but net profit margin is 3.4% • Kindle, Kindle 2, Cloud computing (AWS), AWS Premium • Virtual salesman concept Support , Pubic Data, Amazon EBS, etc. • Simple Storage Services • Office supply store products)Cloud • on Courier Service /ofFulfilment centres • Courier Service / Fulfilment centres • Digital Contents: $1 billion spent development • (+500,000 Elastic Computer • Online shopping from customers • Espanol Store (1.6• million Hispanic •points Transport between the Distribution points • Transport between Distribution technology, 187 the million on internal use software Simple Queue owned Service • Online registration for developer customer business in US) • Strategic Alliances • Strategic location of fulfilment centres and DB • Strategic location of fulfilment centres and • Simple (flexibility) • Classic(Fabric.com, Music blowout store +Payments Go Indie Music • Acquisitions Reflexive Entertainment, warehousing warehousing • Flexible Service • Transaction, Feedback, Complaints from Store independent music labels) AbeBooks) • 19.7 million sq feet of (30 property (warehousing) • 19.7 million sq feet of property (warehousing) • Web Services every sale •in Amazon (260% in Diamond, • Richard Dalzell, experienced ‘to ft meet • 600,000 HazletonJewellery and 500,000 in • 600,000 sq ft recruitment in Hazleton of and 500,000 in staff sq •/ Watches Currency Convertor between inbound and in Coloured Gems, 107% is sterling silver) 169% customer needs’ • Material handling Goodyear Goodyear • TextBuyIt outbound logistics • Motorcycle Store – products and 500 • Frustration Free Packaging • Frustration Free Packaging • 300,000 Bill me Later manufactures • DRM free MP3

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QUESTION 2 CONTD.



Analysing competitive positioning using VRIN approach

Valuable – Upgradation of existing technology and continuous innovation Rare – Brand name and virtual salesman concept Inimitable – Customer base and services Non-substitutable – Personnel and strategic alliances

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QUESTION 2 CONTD. Strategic Capability Resources Good turnover and good management of working capital Strategically located distribution centres, technology warehouses Product development, databases, internal softwares and public websites Brand, customer loyalty and reputation with suppliers Specific skills, commitment, key personnel

Competencies Financial

Managing cash flow, debtors and creditors

Physical

Storage and utilisation of information. Logistics

Technological

Reputation

Human

Leverage technology to make products accessible to customers and manage operations Long term strategic relationship, assistance in maintaining working capital Utilisation of the personnel and pro-active approach 6

Q3 – AMAZON’S DIVERSIFICATION STRATEGY Amazon has developed a vast technology resource over the years in order to achieve market leadership and did not hesitate to make bold investment decisions  Their study of the consumer buying behaviour enabled them to offer a large variety of products and services. They started out with Books and went on to provide clothing, electronics, accessories and even auto parts and stationery  Amazon had a very good financial position through which they were able to provide these products and services globally  Some of these products and services were sourced through strategic alliances and acquisitions 

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QUESTION 3 CONTD. Strengths  Brand name  Online global presence  Large revenues  Large customer base and customer confidence Weakness  Excessive investment in diversification lead to reduced net profit margin  Unhappy shareholders due to lack of dividends Focus should be on consolidation of the current product range and sub brands rather than further diversification

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Q4 – AMAZON’S STRATEGY GOING FORWARD Importance

Amazon’s relative strength

R1. Finance

7

6

R2. Technology

9

8

R3. Location

5

4

R4. Distribution

8

8

R5. Brand

9

8

Resources

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QUESTION 4 CONTD. Importance

Amazon’s relative strength

C1. Logistics

9

8

C2. Procurement

8

8

C3. Operations

9

6

C4. Marketing / Sales

8

5

C5. Services

5

7

C6. HR

6

7

C7. Technology development

6

8

C8. Firm infrastructure

8

7

Capabilities

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QUESTION 4 CONTD. Key Strengths

Relative strength

Superfluous Strengths C5

R2

C6

C7

C7

C1

R5

C2

R4

R2

R1 C8 C3 R3 C4

Zone of Irrelevance

Key Weaknesses

Strategic importance 11

QUESTION 4 CONTD. Strategy going forward  Consolidate the current business line •



Hold back on the heavy investment on new technology •



With the current economic downturn going on, investment needs to be curtailed as the customers are not spending as much as they did earlier

Improve efficiency of the business and thereby increasing the net income •



Amazon needs to exploit their current strengths and use them to overcome their weaknesses

Amazon has a very low net profit margin in comparison to its competitors and they need to increase it to be attractive to the shareholders

Improve sales & marketing of the brand •

The amazon website is does not highlight its sub-brands. They should create a co-branding and/or cross branding strategy to increase sales in the current economic downturn

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