Wednesday, October 30, 2013

Amazon: A Strategic Player


 Jeff Bezos said, “I’m going to do this crazy thing. I’m going to start this company selling books online”. And then he revolutionized the retail industry.

History
Amazon started as Cadabra.com in 1994, an online book selling company.  After succeeding in the online book retail space, Amazon rapidly diversified into other product lines to become the world’s largest online retailer. [1]
To see Amazon’s complete history, visit http://amazongenius.com/timeline-history-amazon-com/

Amazon’s strategy incorporates the three principles of strategy mentioned in the “What is Strategy?” paper by Michael Porter.
1. Creation of a unique and valuable position:
Amazon achieves strategic advantages by performing activities that are different from its rival. Amazon’s has made major moves such as launching the Amazon Prime membership program and the Kindle Reader. These moves help it create a unique and valuable position. It launched the Kindle Reader to closely match the digital reading experience with the traditional experience, a move its competitors did not follow. To gain traction, it offers the Kindle at low prices and allows Amazon Prime members to download many eBooks for free.

2. Making Trade -Offs
In the last quarter, Amazon’s sales have grown by 22% but the net income fell by 45%. [2] The fall in income is because its Chief Executive Officer, Jeff Bezos, is investing significant capital into the delivery network, cloud-computing services and line of Kindle e-readers and tablets. These investments impact short-term profit but help achieve high growth. [3]
As we can see, Amazon is making a trade off. It is foregoing short term profits by investing heavily in research and selling goods at lower costs to create an amazing user experience and capture a significant market share respectively. By doing so, it also creates entry barriers for new entrants. Amazon sells a wide variety of products to counter customer power and eventually become the “to-go” store for shopping.


3. Creating a fit amongst company's activities:
Amazon fits its activities such that one activity’s value is enhanced by its other activities. All of its activities are aligned towards becoming a dominant online retailer. It does so by creating a “wow” customer experience and growing rapidly. Amazon’s easy return policy ensures customer satisfaction and return purchases. To make purchasing quick and easy, Amazon launched the one-click shopping feature. It launched Prime membership to allow members to get free delivery for many items, stream 41,000 movies and TV and borrow over 350,000 titles. Non-Prime members also get free shipping for orders worth over $25. [4]
It started expanding rapidly by launching new products such as Kindle and aggressively acquiring companies to provide a wider variety of products. Amazon is not only creating barriers to entry but is also reducing customer power by offering such a high number of products. Customers are likely to shop at Amazon because most products demanded by users are available at the online store. It is also appears formidable to rivals by its accelerated growth.

What Next?
Amazon has recently unveiled plans to launch Amazon coins – Users can purchase Amazon coins and spend them on Amazon.com. Users of Amazon coins get discounts when shopping Kindle Fire apps, games and in-app items. [5] Do you think Amazon Coins will be an effective component of Amazon’s strategy?


REFERENCES:

[1]  "Timeline History Amazon.com." AmazonGeniuscom. N.p., n.d. Web. 30 Oct. 2013. <http://amazongenius.com/timeline-history-amazon-com/>.

[2] Cooper, Charles. "Amazon Profit Falls by Almost Half, but Sales Rise 22 Percent."CNET News. CBS Interactive, 29 Jan. 2013. Web. 30 Oct. 2013. <http://news.cnet.com/8301-1023_3-57566473-93/amazon-profit-falls-by-almost-half-but-sales-rise-22-percent/>.

[3] Kucera, Danielle. "Amazon Sales Growing Ahead of Holiday Shopping Season."Bloomberg.com. Bloomberg, 25 Oct. 2013. Web. 30 Oct. 2013. <http://www.bloomberg.com/news/2013-10-24/amazon-revenue-tops-estimates-before-holiday-quarter.html>.

[4] "Amazon.com: Amazon Prime." Amazon.com: Amazon Prime. N.p., n.d. Web. 30 Oct. 2013. <http://www.amazon.com/Amazon-Services-LLC-Prime/dp/B00DBYBNEE>.

[5] Rao, Venkatesh. "Why Amazon Is The Best Strategic Player In Tech." Forbes. Forbes Magazine, 14 Dec. 2011. Web. 30 Oct. 2013. <http://www.forbes.com/sites/venkateshrao/2011/12/14/the-amazon-playbook/2/>.



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