2013

Strategic Management

Contents
1.

Introduction ........................................................................................................................ 2

2.

Amazons Main Strategies ................................................................................................. 2

2.1 Business Level Strategy ................................................................................................... 2
2.2 Corporate Level Strategy ................................................................................................. 4

3.

Strategic Position ............................................................................................................... 6

3.1.

3.1.1.

Political ................................................................................................................ 6

3.1.2.

Economic ............................................................................................................. 7

3.1.3.

Social.................................................................................................................... 7

3.1.4.

Technology .......................................................................................................... 8

3.1.5.

Environment ......................................................................................................... 9

3.1.6.

Legal .................................................................................................................... 9

3.2.

Strategic Capability Analysis .................................................................................... 10

3.2.1.

Resources ........................................................................................................... 10

3.2.2.

Competencies ..................................................................................................... 12

3.3.
4.

PESTEL Analysis ........................................................................................................ 6

Stakeholders Expectations......................................................................................... 13

Evaluation of Strategies ................................................................................................... 14

4.1.

Definition of Suitability ............................................................................................ 14

4.2.

Evaluation of Business Level Strategy...................................................................... 14

4.3.

Evaluation of Corporate Level Strategy .................................................................... 14

5.

Conclusion ....................................................................................................................... 15

6.

References ........................................................................................................................ 16

1. Introduction

Amazon.com prides itself as one of the key companies to have taken full advantage of the
online boom/World Wide Web and develop a global strategy that has turned it into a major
force in terms of technology and an increasing assortment of products and services, whilst
keeping in mind the worthy customer service they offer to their consumers they deserve. The
business strategies applied towards Amazon till date is in line with the external and internal
environment without which the specifications that need to be achieved for a successful
company base will not be possible. Since its humble beginning in 1995, Amazon has now
become one of the worlds leading retailers with its net sales amounting to $13.2 billion in
the first quarter of 2012, a 34% rise compared to previous years quarterly sales
(Shaughnessy, 2012).
The following report will describe Amazons main strategies by evaluating and assessing
their suitability. Generic Strategy Options, PESTEL and Strategic Capability Analysis will be
used as tools to analyse the organisation within the periods of economic recession and current
recovery i.e. 2008 2012/13, along with reference to its past to explain certain aspects of the
organisation in detail.

2. Amazons Main Strategies

Strategy is the direction and scope of an organisation over the long term, which achieves
advantage in a changing environment through its configuration of resources and competences
with the aim of fulfilling stakeholder expectations (Johnson, Scholes, & Whittington, 2008).
Amazon, since its formation in 1995, has had to deal with numerous changes in environment
with the Y2K bug problem in the digital world in 1999-2000, sudden plunge and rise within
the economic markets after the 9/11 attacks on the World Trade Centre in New York and
2008 economic crisis just to name a few. Despite these, Amazon sustained its competitive
advantage amongst its competitors and has just expanded its ever increasing empire into
India, opening its first online store in this booming economy (BBC, 2013).
Hence, in trying to achieve such advantage over its competitors, Amazon focusses on its
Business Level Strategy as well as its Corporate Level Strategy. The main emphasis of
Amazons main strategies lies within its customer-centric approach by serving its three
distinct groups of customers (Stockport, 2010):
1. Consumer customers: Amazon provides a wide range of merchandise, low prices and
convenience to its customers
2. Seller customers: Customers selling their products through Amazons fulfilment
facilities and
3. Developer customers: Amazons technology infrastructure enabled the users to create
any type of business.

2.1 Business Level Strategy

An integrated and coordinated set of commitments and actions the firm uses to gain a
competitive advantage by exploiting core competencies in specific product markets (Kean
University). According to Porter (2004), this competitive advantage can be gained through
three generic strategies: Cost Leadership, Differentiation and Focus as shown in Figure 11.

Source: http://www.coursework4you.co.uk/essays-and-dissertations/images/porter-generic-fig1.jpg

Figure 1: Generic Strategic Options

Amazon.com operates using a Hybrid Business Strategy which combines two of the above
three strategies depending on the Business sectors it is operating within. According to
common belief, all three strategies cant be combined especially cost leadership and
differentiation as differentiation is usually costly...conversely; cost leadership often requires
a firm to forego some differentiation by standardising the product, reducing marketing
overhead, and the like (Porter, 2004, p. 18).
Within the period of 2009-2012, the one market that Amazon tapped into and turned itself
into a global leader was the e-book reader market. The Hybrid strategy used towards this was
the Cost Leadership and Focus Strategy where Amazon.com created its very own e-book
reader called the Kindle of which an estimated 200 million units have been shipped
worldwide since 2009 and another 1 billion are predicted to ship over the next five years
(Forbes, 2013). In terms of Kindle, Amazon introduced a new product within an already
existing niche market, but made it small and innovative and advertised it through its already
existing large customer base giving it the competitive advantage and attractiveness it required
to shift units in bulk.
Kindle, a very recent innovation, has propelled Amazon to new heights within the ecommerce business. Despite the innovative Kindle receiving the Readers Choice award for
the best e-book reader 3 years in a row (Gottesman, 2013), Amazon has kept the cost of this
device affordable, hence sticking to their core emphasis of providing low-cost products to
their customers in trying to achieve customer satisfaction. Apart from Kindle, Amazon
innovates in other ways such as One-Click Ordering system, Vouchers and Amazon Prime
which includes one day delivery.
Regardless of Cost leadership and Differentiation strategies, within business circles, believed
to be not going hand in hand, Amazon has always found itself dealing with products within
niche markets and being sold at reasonable prices through sellers with huge access to
economies of scale. Amazon has discovered ways to reduce cost not only without hurting
their differentiation but by actually raising it, by using practices that are both efficient and
effective or by employing a different technology (Porter, 2004, p. 18). For example, Beats

Headphones are one of the most high-end Headphones available within the Music market but
whole-sale sellers can be found on Amazon selling them at much lower price compared to the
actual MRP.
Amazon, along with keeping the cost-down for the customers, also bases its warehouses in
rural areas where the land is much cheaper than industrial estates or urban areas where land
prices can be inflated. Amazon has tried to stress how many jobs it is creating across the
country at a time of economic malaise through these warehouses, with one of them situated
in Rugeley, Staffordshire. (Roberts, 2013)
Therefore, Amazon.com prides itself to be one of the major players in the world in providing
quality products through good service. Good service in Amazons case is the competitive
advantage for selling products. Amazon.com has built a four pillar strategy to guide and reach
Bezos vision. These pillars are Selection comprising of vast selection of retail products;
Price which is consistent and continuously offers products with no sacrifice to quality with a
guaranteed on-time delivery; Convenience, for example offering customers review and
feedback forms on all products (Stockport, 2010, p. 575) and finally; Technological
capabilities in terms of logistics of delivering goods according to customers preference,
innovation within the e-reader and tablet market, AWS (Amazon Web Services) which
include Cloud Computing and Digital content such as Amazon MP3 Music store (Stockport,
2010, pp. 577-578).

2.2 Corporate Level Strategy

Figure 2: Amazon's strategy

The above three customers: Consumers, Sellers

and Developers (& Enterprises according to the
recent Annual reports) are all focussed around the
vision of Growth, that the Founder/CEO of
Amazon, Jeff Bezos yearned from the beginning.
This strategy to grow through mainly focussing
on customer experience can be seen in Figure 22:

The customer focus is mainly based around ECommerce. It is this E-commerce industry that
Jeff Bezos visualised through Amazon in 1995
which will grow over the coming years. Despite
the online channel still accounts for just 8% of total retail sales in the U.S., the future growth
is going to be healthy with Amazon leading the wayU.S. growth outlook certainly looks
promising, international markets can offer even higher potential in the long term. (Forbes,
2013).
Ansoff Matrix is used to analyse this growth that Amazon entails its main focus on. Ansoff
Matrix explicitly considers growth options. Growth is rarely a good end in itself. Public
sector organisations are often accused of growing out-of-control bureaucracies; similarly,
some private sector managers are accused of empire building at the expense of shareholders.
Therefore, within the Ansoff Matrix, Consolidation acts as a fifth option which involves

Source:
http://www.telco2.net/blog/images/Telco%202_NSN_Mktg_Forum_presentation_longform%20amazon%

protecting existing products and existing markets as we can see in Figure 3 (Johnson,
Scholes, & Whittington, 2008, p. 258).

Products
Existing

Consolidation
Market Penetration

Existing

(e.g. IMDB, LoveFilm, audible.com, pets.com,

fabric.com, zappos.com)

New

Product Development
With existing Capabilities
With new capabilities
Beyond current expectations
E.g. (Kindle, Kindle Fire, Kindle Fire HD)

Markets
Market Development
New segments
New territories
New uses
With new capabilities
Beyond current expectations

New

(E.g. expansion in countries mainly India.

Plans of expansion in Sweden and Poland
are ongoing)

Diversification
With existing capabilities
With new capabilities
Beyond current expectations
(E.g. Amazon Web Services which includes
Dropbox, Guardian, Netflix, etc)

Figure 3: Ansoff Matrix

Out of the 4 strategies in Figure 3, Amazon has managed to adopt all four strategies in
lifetime. Within the last 4 years, Product Development has been a major part of Amazons
strategy in the form of the e-book reader Kindle, along with the tablet, Kindle Fire, designed
and manufactured by Amazon itself to rival other tablets in the markets, mainly the iPad of
Apple. Here, Amazon created a new product and launched them into already existing
markets, even though the e-book reader was a more niche market compared to the tablet
market. Despite, the Kindle only being a product introduced within the last 4 years, the main
concentration of Amazon has always been Innovation and being a customer-centric
company by providing easy-to-use functionality, fast and reliable fulfilment, and timely
customer service (Amazon.com, 2011).
On a Corporate level, Amazon takes the Related Diversification approach in which strategy
development takes place beyond current products and markets, but within the capabilities or
value network of the organisation. Amazon, started off as an online book store in 1995 but
today, retails anything and everything technological through its unique business model of
giving the freedom to the sellers and offer programs that enable sellers to sell their products
on the Amazon websites and their own branded websites and to fulfil orders through
Amazon. (Amazon.com, 2011) It is through such Diversification that Amazon has
established long-term relationships with many important strategic partners, including
America Online, Yahoo!, Excite, Netscape, GeoCities, AltaVista, @Home, and Prodigy
(Amazon.com, 2011, p. 6).
Another reason Amazon has been so successful in Diversification strategy is due to its
effective application of Economies of Scope towards its resources. Amazon has a very strong
online base which helps it to easily venture into a new markets through its innovative online
software that Jeff Bezos created. For example, the film store has a very similar outline on the
Amazon website in comparison to the book store. The same outline which includes

bestsellers, top 100 and other criterion can be found in in the Games section, toys section,
clothing lines, video games and other retail and electronic sections.
Amazon offers Market Development in terms of expanding in new geographies. Market
development involves offering existing products into new markets and Amazon does this by
expanding the website globally into countries where e-commerce is thriving and is on the
rise. In 2010, Amazon operated websites in Canada, China, Japan, UK, Germany and France,
and offers customers ordering from other countries the ability to pay for purchases in their
own currencies. Such type of Market Development has been a major trend among Amazons
competitors as well where companies such as Gap, the US clothing retailer, and Wal-Mart,
the worlds largest retailer by sales, seek to use e-commerce sites and cross-border shipping
to reach a wider audience. (Birchall, 2010). One of the major reasons for expanding globally
is the recession that hit the Western Countries hard, and having such a major economies of
scope within the company can only benefit the company in the longer run.
Finally, to further stem their dominance within the global e-commerce business, their
corporate strategy to expand in India will be seen as a major step towards becoming a market
leader in global online retail shopping. The company took its first steps into the Indian
market in February 2012 when it launched Junglee.com, a site which allowed customers to
compare prices online but not purchase items directly. It will initially only sell books, films
and TV shows but plans to offer mobile phones and cameras within weeks (BBC, 2013).
This slow push into the Indian market is a good strategy within the country where building
relationships is paramount before conducting any kind of business.

3. Strategic Position
3.1.

PESTEL Analysis

A PESTEL analysis is a framework or tool used by marketers to analyse and monitor the
macro-environmental factors that have an impact on an organisation. The results are used to
identify threats and weaknesses which are used in a SWOT analysis which will be discussed
after this analysis (Professional Academy , 2013). These microenvironment forces not only
affect the organisation but also other players in the microenvironment.
3.1.1. Political
Political environment can affect a multi-billion dollar e-commerce business through
legislations, regulations, tariffs, standards, policies and other laws which can affect the
company pricing, profitability and further development of the industry especially when the
company is a market leader in the chosen market.
3.1.1.1.
EU (European Union)
The EU has established an E-Commerce directive which has provided a number of
regulations that the member states have to abide by. The rules are easy to interpret by the
organisations and the member states alike. The E-Commerce Directive prevents firms from
abusing their market dominance, controls the acquisitions and mergers that help a firms
growth and prevents firms from colluding by price fixing, cartels and other collaborative
activities (Jobber, 2007, p. 79). Following is an extract from the EU E-Commerce Directive:
The Electronic Commerce Directive, adopted in 2000, sets up an Internal Market framework
for electronic commerce, which provides legal certainty for business and consumers alike. It
establishes harmonised rules on issues such as the transparency and information requirements

for online service providers, commercial communications, electronic contracts and

limitations of liability of intermediary service providers European Commission (2013).
3.1.1.2.
WTO (World Trade Organisation)
In 1998, WTO adopted an E-commerce directive in which the following issues are
considered: Classification of the content of certain electronic transmissions; developmentrelated issues; fiscal implications of e-commerce; relationship (and possible substitution
effects) between e-commerce and traditional forms of commerce; imposition of customs
duties on electronic transmissions; competition; jurisdiction and applicable law/other legal
issues (WTO, 2013).
WTO have been working towards Trade-Facilitation which are efforts to simplify and
harmonize international trade procedures (WTO, 2013) since the adoption of E-Commerce
directive in 1998. Trade regulations are necessary as the major players within the Ecommerce are only based in certain countries with international shipping required in other
countries. Hence, for the free flowing of trade for such instances, various types of regional
trade agreements are put in place by the WTO (Radebaugh, Sullivan, & Daniels, 2013, p.
339).
3.1.2. Economic
The economic environment can have a critical impact on the success of companies through its
effect on supply and demand. Companies must choose those economic influences that are
relevant to their business and monitor them. The general state of both national and
international economies can have a profound effect on a companys prosperity (Jobber, 2007,
p. 81).
Due to the economic crisis and the recession that hit the world in 2008, most of the family
incomes declined or stopped all together due to increasing redundancies across the financial
markets. Also, the disposable income that most of the e-commerce businesses rely on
decreased due to people becoming tight on spending as there was no job security.
Internet retailing is growing at an unprecedented rate in Asia Pacific, growing by 188%
between 2007 and 2012, which was the largest increase globally during that time. Asia
Pacifics internet retailing market is second only to North America. In highly populated
countries such as China and India, consumers are increasingly gaining access to broadband
internet, which is driving up the previously underdeveloped retailing segment. Asia Pacifics
internet retailing market is expected to overtake North America due to its large population
size, rising incomes and growing familiarity with technology (Euromonitor International,
2013). This growth aided Amazon incredibly.
3.1.3. Social
3.1.3.1.
Social Networking
With Facebook and Twitter leading the way within social networking, the E-Commerce
businesses now have one of the best ways to expand their customer base using advertising
and marketing strategies that these two social network websites have to offer. Millions of
users can be reached through correct use of these social networking giants and loyalty can be
kept intact without losing customers, at the same time gaining new customers through
creative advertisements that Facebook in particular has to offer.

Due to Social Networking, the number of people accessing the Internet has increased at an
alarming rate as we can see in Figure 43. Figure 54 shows the way internet was accessed, with
the use of smartphones surpassing the use of work/institutions computers. This shows ECommerce need to focus more towards development of smartphone apps for their company
as it can be accessed on the go by customers. Finally, Figure 65 shows encouraging signs that
E-Commerce is booming as more people have started to shop online within the comfort of
their homes/workplaces.

Figure 4: Frequency of internet usage (Source: Mintel)

Figure 5: Way Internet was accessed ( Nov11-Jan12)

(Source: Mintel)

Figure 6: Online shopping activities performed in the past three months, January 2012 (Source: Mintel)

As the population of the world goes up, the number of users of e-commerce will increase
accordingly. The countries that a particular e-commerce business operates in have to deal
with the demographic forces present within the country along with other cultural forces that
drive a particular nation. Amazon caters to every age, gender and even location to gain
maximum success within a nation. Also, international shipping proves to be quite profitable
for Amazon.
3.1.4. Technology
Technology is the most important factor which affects an E-Commerce business. According
to Mintel (2013), in 2012, 86% of all UK households had a broadband connection, up from
80% in 2011. In April 2013, 67% of internet users personally owned a smartphone and 35%
3

Source: Mintel - http://academic.mintel.com/sinatra/oxygen_academic/image/id=630304&seq=10

Source: Mintel - http://academic.mintel.com/sinatra/oxygen_academic/image/id=630304&seq=12

Source: Mintel - http://academic.mintel.com/display/630304/#hit1

had a tablet in their household whereas some 29% of tablet owners and 20% of smartphone
owners had shopped via the respective devices in the three months to April 2013. These
statistics play in E-commerces favour as more users are able to access the Internet through
other means, hence helping the E-commerce industry to grow accordingly.
In 2012, 86% of UK households enjoyed a broadband connection, up from 80% in 2011.
Among the big five West European economies, the UK leads in broadband penetration: in
2012, the comparable rates were 82% in Germany, 77% in France, 67% in Spain and 55% in
Italy (Mintel, 2013). This can be directly proportional to E-Commerce businesses, especially
Amazon who have subsidiaries setup in most of these countries. This can help Amazon form
a good customer base within the Western Europe.
3.1.5. Environment
In marketing context, Environment concerns the relationship between people and the physical
environment. Environmentalists attempt to protect the physical environment from the costs
associated with producing and marketing products. Five environmental issues that should be
taken into consideration by the e-commerce business are:
1.
2.
3.
4.
5.
6.

Global Warming
Pollution Control
Conservation of energy and other scarce resources
Use of environmentally friendly ingredients and components
Use of recyclable and non-wasteful packaging
Corporate Social Responsibility

Out of the above six, only points 3, 4,5 and 6 can be controlled by the businesses whereas
points 1 and 2 cannot be applied to the E-Commerce businesses but their distributors can be
directly linked with them as they are burning fossil fuels via travel, causing pollution, thus
contributing towards global warming.
3.1.6. Legal
Any online trading business within the UK, come under the influence of E-commerce
regulations, which came into force in 2002. The Regulations, called the Electronic
Commerce (EC Directive) Regulations 2002, implements the EU's Electronic Commerce
Directive 2000 into UK law. The Directive was introduced to clarify and harmonise the rules
of online business throughout Europe with the aim of boosting consumer confidence (OutLaw, 2013).
Different E-commerce laws apply in China and India compared to UK and even USA which
means trading can be difficult between these countries. But, due to E-Commerce laws within
the new booming economies, it has become easier to regulate online businesses. For example,
China passed a new legislation in 2004 which helps to regulate economic commerce and
security of electronic transactions. In the wake of increased use of new electronic and IT in
commerce, adoption of modern legal framework to regulate electronic commerce is
particularly important for Chinas economic reforms (Yan, Benson, & Faegre, 2004).
Therefore, legislations such as these blur the trading boundaries between mainly the western
countries and thriving economies such as India, Brazil and China. Due to these laws in the
upcoming economies, it has become much easier for Amazon to set-up their websites in these
countries.

3.2.

Strategic Capability Analysis

Strategic capability can be defined as the resources and competencies of an organisation

needed for it to survive (Johnson, Scholes, & Whittington, 2008, p. 95). Understanding
Strategic capability of an organisation can help the organisation to analyse its strategic
position better within the market. Following is the tool used to analyse the companys
capabilities and competencies
This concept can be better understood by looking at Table 1 below:
Threshold Capabilities

Resources
Threshold resources
Tangible
Intangible

Capabilities for competitive Unique Resources

advantage
Tangible
Intangible

Competencies
Threshold competencies

Core competencies

Table 1: Strategic capabilities and competitive advantage

3.2.1. Resources
Threshold resources are needed to meet customers minimum requirements and therefore
continue to exist, whereas Unique resources underpin competitive advantage and are difficult
for competitors to imitate or obtain. They can be split into Tangible and Intangible resources:
3.2.1.1. Tangible Resources
Physical resources: Machines, building or the production capacity of an organisation.
Table 2 gives the details of Amazons Physical Resources (Amazon.com, 2012):
Description of Use
Square Footage
Location
Lease
Expiration
Owned Office Space
1802
North America
From 2013
through 2027
Leased Office space
3236
North America
Leased Office Space
1660
International
From 2013
through 2021
Subtotal:
---------------------Owned fulfilment,
6698
North America
From 2013
datacentres, and
others
---------------------through 2027
Leased fulfilment,
339
North America
datacentres, and
others
Owned fulfilment,
35261
International
From 2013
datacentres, and
through 2031
others
Leased fulfilment,
30761
International
datacentres, and
others
---------------------Subtotal
66383
---------------------Total
73081
Table 2: Physical resources of Amazon

10

Amazon owns and leases their corporate headquarters in Seattle, Washington.

Additionally, they own and lease corporate office, fulfilment and warehouse
operations, data centre, customer service, and other facilities, principally in North
America, Europe, and Asia. Amazon has separate retail websites for United States,
Canada, United Kingdom, France, Germany, India, Italy, Spain, Brazil, Japan, and
China, with international shipping to certain other countries for some of its products
(Amazon.com Inc, 2013). Due to having such bases around the world with their leases
not expiring for another 10-18 years, Amazon can carry on with their work
Financial Resources:

Figure 7: Operating Expenses (in millions) of Amazon (Amazon.com, 2012, p. 27)

Figure 8: Net Sales (in millions) through Amazon including Product and Service sales
(Amazon.com, 2012, p. 24)

Figure 7 compares the Operating Expenses incurred by Amazon between 2010 and
2012 whereas Figure 8 shows us the Net Sales within North American operation and
International Operation between year 2010 and 2012. There is a steady increase in

11

both cases from 2010 till 2012, giving a good idea that the Amazons strategy of
growth instilled by Jeff Bezos is thriving and going in the right direction.
Human Resources: Amazon employed approximately 88,400 full-time and part-time
employees in December 31, 2012. (Amazon.com, 2012) However, employment levels
fluctuate due to seasonal factors affecting the business, mainly during Christmas and
Easter when Amazon sees a hike in its sales and profits.
3.2.1.2. Intangible Resources
Management of intangible asset such as the brand name of such proportion is a big
responsibility and Jeff Bezos deals with it quite well. Amazons headquarters is still located
in Seattle and the maintenance and the management of this empire happens here. Due to the
base being in Seattle for so many years, it is much easier for Jeff Bezos to oversee the
operations without moving from one headquarter to another which most companies, now-adays prefer, to split the work load. Patents on Kindle technology along with the brand name
provides a good reputation among its competitors and customers alike, leading to a Goodwill
value of good proportions.
3.2.2. Competencies
are the skills and abilities by which the resources are deployed effectively through an
organisations activities and processes. Threshold competencies are activities and processes
needed to meet the minimum requirements and therefore continue to exist whereas Core
competencies underpin competitive advantage and are difficult for competitors to imitate or
obtain.
Amazon, a powerful brand, gains core competency through this unique resource and also by
providing services and building relationships with its retailers, suppliers and acquisitions
which no other competitor can imitate. The companies that belongs to Amazon are IMDB,
LoveFilm, audible.com, pets.com, fabric.com, zappos.com, etc to name a few with Amazons
web services driving companies such as Netflix, The Guardian, Unilever, Reddit,
Ticketmaster, Uni Credit bank, Zynga, Schneider Electric, etc (Distinguin, 2011). Amazon
also built relationships with partners such as Simon &Schuster Inc., and Christian Publishers
in 2008, making even more titles available for Kindle and further fuelling interest in this
revolutionary product (Stockport, 2010, p. 577).
The design of Amazon can be said to be easily imitated by the competitors but the drive and
the innovation that Jeff Bezos manages to achieve within the employees in the company is
insurmountable. Another reason why the Amazon finds itself so far ahead from the
competition is its constant diversification which in most cases is extremely unrelated to its
core model and products, which in case of Amazon are books. For example, Amazon
launched its own Motorcycle Store as a single shopping destination for motorcycle parts and
accessories and protective gear. The store showcased a selection of more than 300000
products from 500 manufacturers including top brands such as Harley Davidson, Suzuki,
Alpine Stars, Suzuki and Tour Master (Stockport, 2010, p. 579).
Despite this unrelated diversification, Amazon is renowned for its Vertical Integration, which
falls under related integration where the strategy creates a consistent as well as an appealing
experience for the customers. For a vertical integration, companies may need to create their
own product which in Amazons case is, the Kindle.
Finally, in terms of recruiting, Amazon uses a very strategic approach which reflects the very
shrewd nature of its owner, Jeff Bezos. As the headquarters is located in Seattle, there is a

12

large supply of IT talent which has helped to strengthen Amazons management

considerably. An example of Mr Bezos strategic recruitment is the appointment of Richard
Dalzett, a former Wal-Mart Vice President, as the companys CIO (Chief Information
Officer) which helped improve Amazons expertise in merchandising, supply chain,
commercial decision support and data mining systems (Stockport, 2010, p. 576).

3.3.

Stakeholders Expectations

Customer-Driven, customer-centric and customer-focussed are only a few of many terms

used when describing Amazons objectives. Jeff Bezos, from the start has made it very clear
that the customer is their main priority and anything that detracts or hinders their progress
towards satiating their customers will not be considered or wont be given as much
importance. Hence, the Stakeholders that matter the most to Amazon and Jeff Bezos are its
customers Customers are the folks who have the money. Our competitors are never going
to send us money! Jeff Bezos (Stockport, 2010, p. 576).

Level of Interest

Low

Low

A
Minimum Effort
Distribution

Recruitment

Power
C
Keep satisfied
Customers
Financial institutions
High

High

B
Keep Informed
Customers
Suppliers
Employees
Retailers

D
Key players
Governments
Shareholders

Customers

Figure 9: Power/Interest Matrix to show Amazons stakeholders classification in relation to the power they hold

Therefore to meet the stakeholders expectations, Amazon may make less per item, but by
consistently earning trust, they will sell many more items. Therefore, Amazon offers low
prices across their entire product range (Amazon.com, 2010). It is because of this policy,
Amazon has become the leader within the E-commerce business and has been able to expand
into ventures that are either within their capabilities or value network of the organisation or
sometimes, poles apart.
Stakeholder mapping identifies stakeholder expectations and power and helps in
understanding political priorities. It describes the context within which a strategy might be
pursued by classifying stakeholders in relation to the power they hold and the extent to which
they are likely to show interest in supporting or opposing a particular strategy (Johnson,
Scholes, & Whittington, 2008, p. 156). Figure 9 shows how stakeholders expectations are
managed in terms of Amazon.com.

13

4. Evaluation of Strategies
The strategies selected above need to be evaluated for the given organisation to see if they
help with the smooth running of the organisation. Strategy Evaluation is significant because it
throws light on the efficiency and effectiveness of the comprehensive plans in achieving the
desired results. The managers can also assess the appropriateness of the current strategy in
todays dynamic world with socio-economic, political and technological innovations, which
has been done above in the form of PESTEL analysis. Strategic Evaluation is the final phase
of Strategic Management (Management Study Guide, 2013).

4.1.

Definition of Suitability

Suitability is concerned with whether a strategy addresses the key issues that have been
identified in understanding the strategic position of an organisation (Johnson, Scholes, &
Whittington, 2008, p. 366). For this understanding, PESTEL analysis, Strategic capability
analysis and Stakeholders expectations have been used to assess the suitability of Amazons
strategy.
After in-depth analysis of companies competencies, Stakeholder management and the
external environment, it has been found that the Amazons strategies are suitable.

4.2.

Evaluation of Business Level Strategy

Within the business level, Amazons focus on innovative technology, along with keeping the
costs low plays a vital role in keeping itself a step ahead of its competitors. The combination
of low-cost leadership and innovation has increased the efficiency throughout its supply chain
whilst giving it a systematic approach. Amazon is able to achieve competitive advantage
through this low cost strategy which is able to thrive in current economic environment where
disposable income is extremely hard to come by, hence customers are always looking for the
cheapest option which Amazon is able to offer.
Amazon is also able to offer differentiation through innovative products whilst keeping the
cost down of products such as Kindle which has helped Amazon to stem its authority among
its competitors even further. Other than providing low costs, Amazon has been able to
understand its customers well through the customer review system it offers over each product
and seller, which helps to keep Amazon on their toes and make amendments accordingly
for customer satisfaction.

4.3.

Evaluation of Corporate Level Strategy

Amazon abides by all the PESTEL factors mentioned above. The political factors that affect
the E-commerce business affect the way Amazon is run. But Jeff Bezos being the astute
businessman he is, based the European headquarters of the subsidiary in Luxembourg where
Amazon does not have to pay millions of dollars in the form of corporate taxes. This helped
Amazon propel towards a huge profit margin year after year.
During the economic crisis, Amazon was still able to make profits to the envy of all the
MNCs around the world, thus giving an idea on how good of a business model it possesses.
Amazon has taken social media to its heart and people who follow them either on Facebook
or Twitter are able to get constant updates on new products or any new policies the company
will be adopting. Technology has always been at the forefront of all the Amazons factors
whereas in terms of Environment, Amazon has always respected the Mother Nature. In terms
of legal proceedings, despite the tax dispute in 2012-13, Amazon has maintained its
reputation as the number one E-Commerce business on the planet and continues to generate
profits.

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The main focus within Amazon on a corporate level is growth. With the market development
strategy, Amazon is expanding itself into thriving markets such as India and China along with
static, slowly recovering markets from the economic crisis such as Poland and Sweden to
further refine its already successful strategy of growth. Product development, especially the
development of Kindle has been one of the biggest success stories within M (media)Commerce during the recession period of 2008-2012.
This success can also be linked with the diversification of AWS (Amazon Web Services)
which provides its
Strengths
Weaknesses
services to products
such as Dropbox,
Low - Cost leadership strategy
Netflix, etc to perform
Superior quality services and products
Related/Non-Related Acquisitions
well and using the
No physical presence
Efficient Supply Chain
Low profit margins & cash flows
Economies of scope
capabilities that
Unclear/time-consuming returns policy
Economies of scale
Amazon has to offer.
Globally recognised brand
Customer-Centric Approach
This helps both the
Strategic locations (e.g. closer to airports)
Diverse products
products as well as
Adept and skilled employees
Amazon in generating
the desired revenue.
Finally, Market
Opportunities
Threats
penetration through
products such as IMDB,
Production of brands similar to Kindle
LoveFilm, audible.com,
Patent infringement
Economies of Scope
Dependent of suppliers
Open more online stores in Africa
pets.com within the
Strategic Alliances between competitors
Physical presence
Regional retailers
products markets is a
Sponsoring sports events
Rules and Regulations against tax avoidance
Further acquisitioned expansion
tactic that Jeff Bezos
Online security (hacking)
M-Commerce growth
has adopted for Amazon
to infiltrate into markets
through products that
Figure 10: SWOT analysis for further evaluation
are leading players, thus
helping the products to dominate their stance even further and also, growing the product
structure of Amazon. The SWOT diagram in Figure 10 is to further evaluate capabilities that
were carried out initially through Strategic Capability Analysis tool.

5. Conclusion
The main strategies of Amazon analysed in this report are its use of low-cost strategy and
effective innovativeness to gain competitive advantage against its competitors. Jeff Bezos,
the organisations shrewd CEO knows Amazon inside out and knows every trick in the
book to gain customer satisfaction, thus creating loyalty and guaranteeing returning
customers, along with new customers due to the exciting nature of the brand. The tools used
in this report suggest that Amazons established strategies are suitable. This suitability of
strategies is one of many reasons which makes Amazon as a brand and business, a dominant
force within the E-Commerce business despite its extremely diversified nature.

Word Limit: 5487

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Cover page logo source:
http://3.bp.blogspot.com/_pFTD3I8CXKM/TNhYiUg2kyI/AAAAAAAAG1s/Tb1k340DKg/s1600/amazon_logo.jpg

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