Jeff Bezos and his first few employees packed books and took them to the post office themselves in those first days. So, we decided to analyze Amazon’s shareholder letters to better understand Bezos’ perspective and the drivers for Amazon’s growth. The change is expected to impact 250,000 of the company's employees, plus 100,000 seasonal workers. Amazon maintains the minimum stock level, and this makes it necessary to streamline the relationships with the suppliers to ensure timely deliveries. 16, no.1, pp.61-84. MorningStar 2018, Amazon.com Inc  AMZN. The last type of diversification is conglomerate diversification that involves venturing into an area that is not related to the current operations (Narasimhan & Kim 2002). Jeff Bezos and his wife MacKenzie open an online bookstore in Seattle because of the city's reputation as a tech hub and because Washington's small population meant that they wouldn't have to charge sales taxes to most of their customer base. Financial resources enable a business to withstand environmental challenges emanation from a changing environment. Bezos says he will pay $250 million of his own money for the financially struggling Washington Post. In some areas, the company makes free deliveries for products bought in its stores due to the ability to minimize distribution costs. Sources: Company press releases, The Everything Store by Brad Stone, the Seattle Times, Time Magazine Developing countries are growing fast leading to an increasing purchasing power thus creating a valuable opportunity for Amazon and other online sellers. Amazon pays $300 million for Audible, which comes with a library of 80,000 programs in the United States and Europe. PEST analysis is the best model for analysing the external forces facing the company. Analyzing Amazon’s internal environment reveals some strategic capabilities and weaknesses. & Walker, G., 2015. In a statement Amazon said "a number of state and local politicians have made it clear that they oppose our presence” in Long Island City. (Amazon.com Announces First Quarter Sales up 15% to $22.72 Billion, 2015) Current successes in media: Amazon's product Kindle is still very successful. Amazon Internal and External Analysis and Strategic Options Bezos has stayed ahead of the competition so far by utilizing the current technology and by constantly watching the industries trends. The company starts to generate extra income by licensing its platform to other e-commerce sites, like Borders.com and Target.com. Some of the strategic capabilities are under threat while others are immutable thus giving the company a sustainable competitive advantage. These threats are a treat to the company’s future as they can dilute the impacts of some strategic capabilities. Amazon is able to increase its sales in the recent quarter as is stated; Net sales increased 15% to $22.72 billion in the first quarter, compared with $19.74 billion in first quarter 2014". Enhancing Product Development– the goal of this strategic option is to ensure the company’s products are embraced in the market. The increasing internet connectivity in developing countries provides an opportunity for growing sales in these countries. Zhu, K. & Kraemer, K.L., 2005, ‘Post-adoption variations in usage and value of e-business by organizations: cross-country evidence from the retail industry.’ Information systems research, vol. The tastes and preferences of online shoppers keep changing necessitating online retailers to monitor these changes closely. Even after the company had built warehouses to store inventory, making it a business with real revenue and real assets, plenty of investors wrote Amazon off as another dot-com fever dream, destined to be gobbled up or wiped out by Borders and Barnes & Noble. The bargaining power of the suppliers has far-reaching impacts on the ability of a retailer to offer competitive prices. Amazon.com has strengths that have continued to help them out throughout the hard times in the economy and in the industry. Barriers to entry in the online retail sector are not substantial leading to many new entrants. Amazon founder Jeff Bezos will step down from his role as chief executive later this year and transition to the role of executive chair. FBA gives sellers a 30-50% increase in sales. The success of an online retail sector is determined by the firm’s ability to establish reliable distribution networks that ensure the products reach customers on time. Still, Amazon is showing tremendous growth from 2016, when it started the year with 200,000 customers. It has since started to integrate the two companies' distribution networks and offer discounts to Prime members. McGraw Hill. (source)Taxes are important. The declining profit margin can dent the company’s strong financial position. The strategies listed below shows the specific competitive advantage that is going to be realized after their implementation. Shankar, V. & Bolton, R.N., 2004, ‘An empirical analysis of determinants of retailer pricing strategy.’ Marketing Science, vol.23, no.1, pp.28-49. Another swot weakness of Amazon is investment and acquisition of different companies which is a kind of hurdle in the company growth. The Echo is the platform for Alexa, Amazon's virtual personal assistant, and therefore the key to a wealth of consumer data and purchasing decisions. More than a year after it first announced its competition for its second headquarters, Amazon finally chooses New York's Long Island City and Virginia's Arlington to split the duties as its HQ2. Amazon isn't the biggest company or the most valuable. In the US Walmart remains Amazon’s main threat as the company’s outlets are distributed across the country. On the other hand, the company’s activities in India faced serious challenges leading to losses. Amazon.com Inc.’s 2013 AWS Summit in New York City. This trend has been influenced by a consistent investment by governments and the private sector in establishing information communication technology infrastructure (Hawk 2004). According to Pehrsson,  2009, the nature of entry barriers determines the significance of new entrants. The city raises height limits to accommodate larger buildings. Expanding outside of traditional retail and consumer markets is where Amazon will find the greatest opportunities for rapid growth in the next several years. The company’s decision was met with cheers by some and jabs from politicians frustrated by the company's decision to walk away. Bezos has been Amazon's CEO since its founding in 1995. The increasing purchasing power in developed countries presents an opportunity to the company since it portrays market growth potential. Amazon Growth Strategy Recommendations. Strategy formulation by online retailers must put into consideration the threat of substitutes to ensure customers do not turn to the substitutes.  Amazon's AWS segment generated net sales of $45.4 billion and operating income of $13.5 billion in FY 2020. In the past Amazon has been focusing on serving developed markets that are characterized with high purchasing power. What are the tradeoffs (pros and cons) between internal and external growth strategy? For instance, the company’s performance in China was good despite the domination of Alibaba. Madsen, T.L. Most online retailers form strategic alliances with logistics companies who deliver the products to customers at a fee(Zhu & Kraemer 2005). Enrolling in FBA is shown to both increase the … The elements that are considered when analysing an industry include competitors, distributors, suppliers, customers, new entrants, and substitutes. As of 2018, it only had 0.7% of online sales, trailing far behind Alibaba's 58.2%, according to eMarketer. Diversification– The goal of diversification is to protect the company from over-relying on the online retail. As large and ubiquitous as Amazon is today, it's difficult to remember that it started in a garage. The company has formed strategic alliances with logistics companies that have streamlined its logistics system. During an earnings call, Bezos announces a $79-a-year loyalty program that includes free two-day shipping on any order. On the other hand, the strengthening economies in America and Europe provide an opportunity for Amazon to grow. dont wait for it, … Delays in supplies compromise the ability of an online supplier to meet customer demands. One of the strengths that are noticeable is the fact that they are the first mover in the industry and has established many repeat customers. ... Economic uptick and increase in customer spending, after years of recession and slow growth rate in the industry, is an opportunity for Amazon.com to capture new customers and increase its market share. Organic growth is also known as internal growth. As a result, Amazon has managed to exploit the economies of scale, and this has allowed lowering of distribution costs (Madsen & Walker 2015). I write top quality articles, essays, dissertations, and thesis. It will later roll out the service nationwide. As demand increases, Amazon opens a second distribution center in New Castle, Delaware, in order to serve customers on the East Coast. On the other hand, the risk can lead to the company holding an obsolete stock that would lead to huge losses. It will account for nearly half of online retail sales in 2018, according to eMarketer, and is laying the groundwork for a physical retail business — equipped with labor-saving technologies like cashier-free checkout that has legacy grocery and convenience chains scrambling to catch up. Horizontal diversification is one of the four types, and it involves introducing a new variety of product to the company’s products (Narasimhan & Kim 2002). It involves engaging in other activities to avoid overreliance on a particular activity. Amazon operates in the online retail sector that has many participants. The company has in the recent past tried to introduce new products such as fire phone that were a big flop. The company has been utilizing information communication technology to improve the CRM. Improving the service quality would give customers value for money that would avert price cutting. Just as the holiday shopping season is about kick into full gear, Amazon unveils its Kindle. Called 1-Click, the technology gives the company an early advantage by prompting customers to buy more and allowing the company to collect their data. https://www.cnn.com/interactive/2018/10/business/amazon-history-timeline Amazon said its sales grew 37% compared to the same period last year, to $96.1 billion, and profit increased 197% to $6.3 billion. The substitute for online retail is the brick and mortar retail outlets. The company should employ other competitive strategies to supplement price strategies. In addition, the company announced a new hub in Nashville that will employ 5,000 people. According to Shankar & Bolton 2004, a company can only offer competitive prices when costs are minimized as no business is willing to make losses. Exploiting these markets would save the company from the risk associated with over reliance on developed markets. An outstanding customer relationships management system is one of the company’s main strategic capabilities. For instance, Amazon can venture into the real estate sector, and this would amount to conglomerate diversification. The political environment provides both opportunities and threats to the company. Pushing the boundaries of its growth in Seattle, Amazon sets off a race between scores of cities across the United States and Canada to host its second headquarters. Instead, Borders filed for bankruptcy protection in 2011 and has since closed hundreds of stores. The attempt to serve the Asian markets has registered mixed outcomes. There are four types of diversification, and they are all relevant to Amazon. Product development starts with a careful analysis of the market needs with the aim of ensuring that the new products meet the specific market needs (Lilien, Morrison, Searls, Sonnack,&  Hippel 2002). Concentric and conglomerate diversification would help the company to realize this goal. This intervention should involve companywide commitment where every department is involved in determining the fitness of new product. Amazon buys online shoe retailer Zappos in an all-stock deal worth nearly $900 million. Lilien, G.L., Morrison, P.D., Searls, K., Sonnack, M. &  Hippel, E.V., 2002, ‘Performance assessment of the lead user idea-generation process for new product development.’ Management science, vol.48,no.8, pp.1042-1059. Gupta, A., 2013, ‘Environmental and pest analysis: An approach to external business environment.’ Merit Research Journal of Art, Social Science and Humanities, vol.2, no1, pp.13-17. Modern competitive strategy. Amazon buys Kiva Systems, a Massachusetts-based maker of warehouse robots, for $775 million. After struggling for years in the intensely competitive grocery delivery business, Amazon ups the ante and purchases Whole Foods' 471 stores for $13.7 billion. Conglomerate diversification should involve venturing into the financial and construction sector to cover the company from uncertainties associated with the retail sector. Why? Bids include lavish tax incentives and real estate for the campus, among other goodies. After unveiling its first smart speaker in 2014 to select customers, Amazon puts the Echo in 3,000 stores nationwide just in time for the holiday season. Retrieved from http://financials.morningstar.com/income-statement/is.html?t=AMZN®ion=usa. Grenci, R.T. & Watts, C.A., 2007,  ‘Maximizing customer value via mass customized e-consumer services.’ Business Horizons, vol.50,no.2, pp.123-132. The deal allows Amazon to amp up automation at its fulfillment centers, delivering products faster and with less need for human staff. The dynamics in technology increases the risk of technological obsolescence, and this presents both opportunities and threats to Amazon. Amazon has now moved far beyond books, with offerings that include electronics, toys, kitchenware, and even magazine subscriptions. The fact that the company has in the recent past made losses in some markets is a clear indication that Amazon’s cost structure is not strong enough to support competitive pricing. Online retailers engage different types of suppliers with varying bargaining powers. *After adjusting for three subsequent stock splits, the closing price of Amazon's shares on their first day of trading was $1.96. After being blamed for the decline of independent bookstores across the country, Amazon opens its own physical retail location in Seattle. A literature review on the antecedents of online trust.’ Computers in human behavior, vol.26, no.5, pp.857-869. In a decision that will transform Seattle's real estate market, Amazon makes a deal with the city and a developer to consolidate its scattered workforce into 1.6 million square feet in a gritty industrial neighborhood north of downtown. Both locations will receive a $2.5 billion investment from Amazon, and each will employ more than 25,000 workers over time. For instance, introducing new types of phones and tablets whose characteristics vary from the existing products would amount to horizontal diversification. This intervention would give the company a competitive edge in the hardware market by ensuring the products offered are in line with market needs. Amazon will grow fast if the economic conditions are positive in the areas where it is operating. Amazon may finally be able to break into the grocery industry by purchasing Whole Foods for $13.7 billion. Pehrsson, A., 2009, ‘Barriers to entry and market strategy: a literature review and a proposed model.’ European Business Review, vol.21,no.1, pp.64-77. Industrial analysis helps to identify the external environment factors that are close to an organization. Amazon’s 4 pillars are designed to keep your focus where it belongs: on the foundational principles that spur growth and profits. Bezos finances the company with $10,000 from his own pocket. Revenue from Amazon Web Services, the company's cloud computing business and largest profit driver, grew 29%, while its advertising business grew 51%. The company’s future depends on how best the Amazon’s management implements measures aimed at fully exploiting the strategic capabilities and at the same time ensuring the weaknesses do not prevent the company from realizing its goals. Taxes redistribute money in such a way that all citizens can receive the services they need (such as education and healthcare), addressing issues like poverty and income inequality by making sure our most vulnerable are able to have their needs met for free. But the partnership hasn't been without headaches: President Donald Trump has claimed the move was an attempt by Bezos to buy influence in Washington, D.C. Amazon begins delivering packages through the US Postal Service seven days a week in Los Angeles and New York. Stock prices adjusted for stock splits The music section launched with 125,000 titles — far more than the average physical music store — and allowed shoppers to listen to song clips as well as view recommendations matched to their mood. The Bentonville, Arkansas-based company sells groceries from some 4,750 brick-and-mortar stores. started at the bottom with an Amazon FC, got promoted to T3/L3 within a year into a DC. Amazon has noted that Walmart, the biggest retailer, dwarfs it in scale and geographic reach. Amazon senior management decided to adopt a proactive, rather than reactive approach towards external economic factor of cost of labour. Retailing is a medium how producers offer their products and services to consumers. Fifteen years later, Amazon Web Services dominates cloud hosting and is one of the company's biggest revenue drivers. The fact that attempts to introduce new versions of phones failed is a clear indication that Amazon’s hardware business segment is under threat. Substitutes form an important element of an industrial structure. But no other has changed our lives so profoundly. New entrants disturb the status quo in an industry. Which approach is best as an international strategy? Beldad, A., De Jong, M. & Steehouder, M., 2010, ‘How shall I trust the faceless and the intangible? Amazon has effective customer relationships management systems that can be used to gather essential information about the desired product features. It's the second company to pass that threshold, after Apple reached it earlier in the year, and analysts quickly started to predict $2 trillion won't be too far off in the future. In case you are interested in our services, kindly reach me through, Understanding How KRA Zero rated VAT Works, International Business Environment Adidas Case Study, The Role of Emotional Intelligence (E I) in Management. Shin, H.S., 2009, ‘ Reflections on Northern Rock: The bank run that heralded the global financial crisis.’ Journal of economic perspectives, vol.23, no.1, pp.101-19. Net sales grew 29.5% while operating income rose 47.1% compared to FY 2019. Amazon pays $75 million to buy Joyo, the largest online seller of books and electronics in the growing Chinese market. Analysing Amazon’s internal environment reveals that cost leadership is a strategic capability. With Amazon on track to become the first trillion-dollar company in the world, attention is being paid to the factors responsible for its success in driving growth through innovation. The subsequent return on that investment is impressive. Its stock peaked at nearly $106 a share at the end of 1999, before taking a long slide, pummeled by negative analyst reports. All key success factors that has added to the top e-commerce platforms successful journey from being an online book seller to its current diversification, all the while accomplishing its vision of being customer centric. (Photo: Public Domain) Amazon.com, Inc.’s ability to satisfy stakeholders supports organizational growth in the e-commerce industry. Regarding the threat, promotion of e-commerce may trigger the establishment of more online retailers, and this would pose a threat to the company‘s market share. 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