Wednesday, April 22, 2015

Can You Say What Amazon's Strategy Is?



The article Can You Say What Your Strategy Is? laid out the three elements of a strategy. They are the company’s objective, the scope of the strategy, and the unique advantage that the company has. In this blog post, I am going to describe how these three elements relate to Amazon’s strategy.

Amazon’s objective is to, “sell more items at a lower cost, rather than fewer items at a higher cost, while at the same time trying to cut operating costs.” To keep with this objective, Amazon does not run any physical stores. This keeps its operating costs and prices down and allows Amazon to offer a wider array of products, since it does not have shelf space to worry about. This is also why Amazon instituted Amazon Prime. Prime is a way for dedicated Amazon customers to avoid paying shipping costs in exchange for a yearly fee. In addition, to further cut operating costs, Amazon attempted to start a drone delivery service, which would have saved on distribution costs.

Amazon’s scope consists of three elements: who the customer is, geographical location, and vertical integration. Amazon’s customer base is anyone with internet access. Amazon offers a wide range of products in many different categories. The company does not cater to one type of individual. Amazon also has strategically placed it warehouses all over the country so that it can adequately service every citizen in the country’s borders. Amazon is also vertically integrated. The company creates and distributes its Kindle tablet. Also, Amazon Studios creates content for its streaming service, Amazon Instant Video.

Finally, the last aspect of Amazon’s strategy is its competitive advantage, which is how the company’s unique composition of activities allows the company to deliver its value proposition. Amazon’s value proposition is low prices that can be accessed conveniently “no matter the product or service.” Although there are other online stores that promise low prices and convenience, Amazon’s activities give them an edge at competing for customers. The company has strategically placed its warehouses so that the shipping times are the same across the entire country. Furthermore. by being vertically integrated, Amazon is in direct contact with its consumers, which makes it easier to collect data about their preferences. This allows Amazon to further target specific customers for specific products. Therefore, this strategy strengthens the company’s objective because it lowers marketing costs by specifying who gets advertised what product. In addition, members of Prime not only receive free shipping for a seemingly endless catalogue of products, but they also get access to Amazon Instant Video. This is the only site that offers the unique mix of online retailer and streaming service for one price.

Sources:
http://www.digitalbusinessmodelguru.com/2013/07/analysis-of-amazon-business-model.html

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