Strategic_Analysis_of_Amazon.Com

Strategic Analysis of Amazon.com Terry Skinner Columbia Southern University Strategic Analysis of Amazon.com Amazon.com has a simple yet bold mission statement, “Our vision is to be earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online” (Bezos, 2010). Amazon.com was founded by Jeff Bezos in 1994 and launched in July 1995. It began in the early stages of online retailing as a book store reporting sales revenue of 15.7 million and a customer base of 180,000 in 1996. Since that time Amazon has successfully expanded its business to become the largest online retailer today reporting sales revenue of 24.51 billion for 2009. Rivalry among competing firms. When performing a competitive analysis it’s difficult to find a directly competing firm. Since Amazon is so diversified not many, if any, firms are in direct competition. Some firms compete in segments such as companies in direct competition with Amazon’s e-reader the Kindle or firms that also compete in areas such as digital media. Competitors in these segments may have greater resources or longer histories, more customers or greater brand recognition in a particular segment. Potential entry of new competitors. With Amazon’s globalization comes an increased risk of new competitors. Local companies in foreign markets may have a substantial competitive advantage because of their understanding of local culture and customs as well as their established brand names. This, along with other difficulties of operating globally, dramatically increases the advantage of new competitors abroad. Competition in the potential development of substitute products. Amazon is primarily a retail distributor and the Kindle is the only product manufactured by Amazon. There are numerous competitors in this market. It’s important for Amazon to maintain any advantage they currently have. In 2009 Amazon almost doubled the amount of books in the Kindle store from 250,000 to 460,000. In addition they currently ship the kindle to 120 countries and provide content in six different languages. Bargaining power of suppliers. Amazon currently has numerous suppliers and maintains a very high inventory turnover rate. Having such high sales volumes allows them to be able to negotiate better term with their suppliers. Bargaining power of consumers. I believe this competitive force is the most critical to Amazon’s success. The internet gives the consumer a huge advantage when shopping for a product. They are able to compare prices of numerous stores with just a few clicks of the mouse. Consumers are always looking for the most value for their money. Amazon is able to keep prices lower than their competitors through lower operating costs. They are also able to keep returning customers by providing goods in a timely manner an exceptional customer support. As long as Amazon continues to provide value and convenience customers will continue to use their service. Amazon has an aggressive market penetration strategy. In 2009 Amazon added 21 new product categories worldwide. In addition they opened the Denim shop offering 100 brands and acquired Zappos, a leader in online apparel and shoes. Part of Amazon’s market development strategy in 2009 included opening product categories around the world such as Automotive in Japan, Babies in France and Shoes and Apparel in China. The final intensive strategy used by Amazon was product development. Amazon’s desire to improve the customer experience resulted in improvements such as the addition of 121,000 product descriptions and the upload of 2.2 million images to the website providing customers with a vivid shopping experience. Some of Amazon’s strengths are (1) they are an internet store therefore no overhead on retail properties. (2) Very broad customer base as Amazon continues to expand globally. (3) Variety of products and services offered which continues to increase daily. (4) Customer loyalty. (5) Large distribution network. Amazon has some weaknesses as well. For instance, (1) in an effort to keep prices low the profit margins are low as well. (2) Cannot easily expand to markets with reduced technology. (3) Many customers are not comfortable passing personal information over the internet. Even with these weaknesses Amazon has continued to flourish. In my opinion Amazon continues to head in the right direction. Always keeping customer satisfaction first, they should continue to expand to emerging markets around the globe while continuing to increase the quality and variety of products and services offered. Jeffery Bezos has the philosophy of “Start with customers, and work backwards. Listen to customers, but don’t just listen to customers – also invent on their behalf.” As proof, he attaches a copy of the 1997 Letter to Shareholders to all subsequent letters stating “Our approach remains the same, and it’s still Day 1.” (Bezos, 2010) I am a personally big fan of Amazon.com. As a returning customer, through the experiences I have personally had with them, I consider Amazon.com to be the standard in online retailing. Not just with prices but service as well. References Bezos, J. (2010, April 14). 2009 Letter to Shareholders. Retrieved from http://phx.corporate-ir.net/External.File'item=UGFyZW50SUQ9Mzc2NjQ0fENoaWxkSUQ9Mzc1Mjc5fFR5cGU9MQ==&t=1 Bezos, J. (2010, April 14). 2009 Annual Report. Retrieved from http://phx.corporate-ir.net/External.File'item=UGFyZW50SUQ9Mzc2NjQyfENoaWxkSUQ9Mzc1Mjc3fFR5cGU9MQ==&t=1