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Global Strategic Case Analysis:

Amazon
Group 6: Renee Habuda, Tsoler Terzian, Caitlin Hochschild

International Strategic Management


Spring 2017
MGMT 5560

Strategic Direction & History: Renee

Amazon is a Fortune 500 e-commerce company based in Seattle, Washington and is the
worlds largest online shopping retailer. Originally Amazon first launched in 1995 as a website
that only sold books, specifically to students. Jeff Bezos, CEO, and Founder ran the startup
company out of his garage alongside his wife. Over time they became a mega-retailer
diversifying into selling anything that can be sold online through which they have acquired
several other retailers such as Audible and Zappos. Amazon was not the company's originally
name. Bezos wanted to give the company the magical sounding name Cadabra but lawyers
convinced him against it saying it sounded too similar to Cadaver. He was also stuck on the
name Relentless so that web address also redirects you to Amazon. Finally, they agreed upon
the name Amazon, named after the largest river in the world. Bezos was named Time Magazines
Person of the Year in 1999 thanks to the companys success in popularizing online shopping.
As of 2017, his net worth is around $76 billion dollars making him the third-richest person in the
world just behind Bill Gates (Microsoft) and Amancio Ortega (Zara).
Each month, Amazon has over 130 million visitors, which makes naming it after the
largest river in the world quite fitting. They also serve a wide variety of industries including
internet (video), online retailing (Prime), and consumer electronics (Amazon Kindle, Fire, Echo).
The company considers themselves to be completely customer-centric, which makes the use of
their user-submitted reviews something that sets them apart. The review process allows potential
buyers to see real customer photos, opinions, and reviews. Amazon has historically prohibited
compensation for reviews but has previously allowed businesses to offer products to customers
in exchange for their honest reviews (as long as they disclosed so in their review). As of October
2016, Amazon made significant changes to its Community Guidelines by announcing the
elimination of any incentivized reviews, except for those within its own Amazon Vine program.
The reason for doing this was based off the increasing distrust shoppers had developed based off
reviews that they viewed to be biased. Amazon Vine is different in the sense that Amazon selects
who reviews the products based on reviewers who have written a number of reviews voted as
helpful by other customers and have some knowledge in a specific product category. Vendors
also have no contact with Vine reviewers, therefore there is no biased influence.
Amazon chooses to use its mission statement as a vision statement, in turn combining the
two to provide a statement of the companys purpose. Typically mission statements define the
companys business, objectives, and approach to reach those objectives, while a vision describes
the desired future position of the company. Their statement of purpose reads, To be Earths most
customer-centric company, where customers can find and discover anything they might want to
buy online, and endeavors to offer its customers the lowest possible prices. The statement has
been critiqued by some for providing little information for firms stakeholders of what is the
firms reason for being in the business. Amazon keeps their customers in the long-term because
they constantly focus on their customers. They try to make everything faster, cheaper and
convenient; everything customers are looking for. From day one, Bezos had a vision for the
companys explosive growth and e-commerce domination stating their success is due to at least
in part to their unwavering commitment to this mission and the daily execution of it.
Back in 2013, while being a few years ago it still holds relevant, Bezos wrote down the
company's strategy in three steps: 1. Premium products @ non-premium prices. 2. Make
money when people use our devices not when they buy our devices. 3. The overlap of customer
delight and the deep integration through the entire stack (hardware, OS, key apps, cloud, and
services). (Bishop) He stated that in that area of overlap is where some of the hardest and coolest
things happen. Step one is truly all about their goal to be a cost leader while still differentiating
their products without the differentiated level pricing. Step two is about continuing their
development of products such as the Kindle and Echo that sell content like books and movies.

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Step three is all about their customer obsession making sure there is customer delight deeply
integrated through every aspect of the business.

External Analysis: Caitlin

Competitive Environment
Amazons core business is e-commerce, but through e-commerce, it operates in different
industry segments. Comparing Amazon to its competitors 4 quarter 2016, its total revenue
increased 22.37% year on year, while its competitors averaged revenue growth of only 4.42%. It
did report lower profitability than its competitors with a growth of only 1.71%. Amazon did see a
modest revenue growth of 0.74% but failed to increase sales with the same pace as its
competitors ("Amazon Com Inc's.", 2017).
Amazon describes its current and potential competitors as 1) physical-world retailers,
publishers, vendors, distributors, manufacturers, and producers of their products; 2) other online
e-commerce and mobile e-commerce sites; 3) media companies, web portals, comparison
shopping websites, and web search engines either directly or in collaboration with other retailers;
4) companies that provide e-commerce services, including website development, payment
services, customer service, and fulfillment, 5) companies that provide information storage or
computing services or products; 6) companies that design, manufacture, market, or sell consumer
electronics. Their competitive factors are the selection, price, and convenience of its products,
and the quality, speed, and reliability of its services and tools. Many of its current competitors
have greater resources, have been established for a long time, more customers, and greater brand
recognition. These competitors may try and overcome Amazons dominance in the market by
securing better terms from suppliers, adopting more aggressive pricing, devoting more time and
money to technology, infrastructure, fulfillment, and marketing, or enter alliances. Amazon Inc.
operates and competes in a few different divisions. Its main industry divisions include media and
electronics, other general merchandise, and other ("Amazon Com Inc's.", 2017).
Under the media sector, Amazons main competitors are Apple, eBay, Netflix, and Time
Warner, Amazon dominates the media sector with its 29.76% market share compared to Apples
12.93%, EBays 9.35%, Netflixs 9.79%, and Time Warners 2.81% (Q4 2016 data).
Others: Barnes and Noble and Walmart.com ("Amazon Com Inc's.", 2017).
Amazon has several competitors in the electronics and other general merchandise sector.
Its biggest competitors include Wal-Mart, Target, Best Buy, Sears, and Staples. Walmart is the
dominant competitor in this sector with its 32.91% market share compared to Amazons 4.89%.
The only other competitor that comes close to Walmart and Amazon is Target with a 4.81%
market share. Its revenue growth of 27.15% improved Amazons market share by 43.53%
("Amazon Com Inc's.", 2017).
In Amazons other ventures, it holds a smaller market share compared to its
competitors. These other services include outsourcing, networking cloud, subscriptions and
support, and global technology services. Its biggest competitors are IBM, Accenture, Salesforce
Com, Alphabet, and Microsoft. IBM holds the largest market share at 14.18%, followed by

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Microsoft with 8.14%, Accenture with 6.54%, Salesforce Com at 2.85%, Oracle with 1.54%, and
then finally Amazon at 0.44%. Its revenue fell 81.98% and lost 1.31% of its market share
("Amazon Com Inc's.", 2017).

Macro Environment
Political
Amazon benefits from the political stability that supports its form of its business. This
stability allows Amazon to expand or diversify its e-commerce business into developed countries
and potentially penetrate developing countries markets. Stability also presents the opportunity
for Amazon to expand its brick and mortar stores in the United States. However, governmental
support and stability does create the threat of increased competition because other companies see
the support and encouragement for e commerce business, so they try and expand and enter the
same markets. Many Chinese online retailers, such as Alibaba, have already expanded their
operations into the same or similar markets as Amazon. Supportive governments improve
business conditions for Amazon through efforts in curbing cybercrime. Increasing governmental
efforts for cyber security, governmental support for e-commerce, and political stability of
developed countries all present opportunities for Amazon to exploit to sustain its competitive
advantage (Greenspan, PESTLE, 2017).
Economic
Amazons economic performance is affected by the situation of the economies in which it
conducts business. These global economies are affected by the economic stability of developed
markets, increased disposable income in developing countries, and the potential economic
recession of China. The more economically stable a country is, the less risky doing business in
that country will be, and the more success Amazon is likely to see. Increased disposable income
in developing countries will lead to better financial success for Amazon because consumers will
be able to buy more. China is one of the biggest markets in the world, so the possibility of a
recession could result in less growth and revenue for Amazon. This recession could also slow
down an aggressive Chinese market penetration strategy from Amazon (Greenspan,PESTLE,
2017).
Social
Social factors influence Amazons business strategy by forcing Amazon to adapt to them.
Current social factors that Amazon must adapt to are the increasing wealth disparity in many
countries, increasing consumerism in developing countries, and increasing online buying habits
of consumers. The increasing wealth gap between the rich and the poor puts Amazon in a tricky
place because it must decide which market to target, the higher end or the lower end. It does
operate on a low-cost structure strategy, but there is market growth potential for higher end
products. By targeting the lower end of the market, it may have to give up some quality control.
By targeting the upper end, Amazon may lose business to lower-priced competitors. For
example, Amazon Prime is not attainable to every consumer due to its additional membership
cost, so if competitors begin offering the same benefits that a prime member gets, then it presents
a threat to Amazons business strategy. Developing nations often have little or no access to the

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Internet, so it would be difficult for Amazon to expand its e-commerce into those markets.
Increased consumerism shows market growth in developing countries, thus an opportunity for
Amazon to expand its global online retail operations. Consumers are moving away from
shopping in brick and mortar stores, and moving towards online buying. Increased online
consumption puts the pressure on Amazon to offer more products, at the best or lowest price, and
delivering it the fastest. To keep up with high demand, more distribution centers may need to be
built. Increased online consumption also increases the threat of new entrants. Consumers are
moving away from cable TV and towards streaming services to watch or rent movies and TV
shows. This consumer trend puts Amazon in the position to compete with major media streaming
companies, such as Netflix and Hulu. Amazon must find a way to differentiate itself from these
companies (Greenspan,PESTLE, 2017).
Technological
Due to e-commerce being the centrality of Amazons business, technological
advancement directly affects its performance. Being able to adapt quickly to technological
changes is vital for Amazon to sustain its competitive advantage by beating its competitors with
the speed and efficiency in product delivery. Amazon needs to continue adapting, changing,
looking for, and attaining the best technology to decrease the threat of new entrants and
competitive rivalry. Rapid technological obsolescence, increasing IT efficiency, and increasing
cybercrime create threats and opportunities for Amazon. There is a lot of pressure for Amazon to
continuously adapt and improve its technological assets to meet customer needs. Adapting and
improving its technological assets should lead to IT efficiency, hopefully leading to a competitive
advantage by reducing manufacturing and operational costs. Significant investment in the proper
technology is critical for the long-term success of Amazon. Investing in the wrong technology
can cause the company to lose its competitive advantage, revenue to fall, and new entrants to
enter the market. Amazon needs to continue improving its technologies (Greenspan, PESTLE,
2017).
Environmental
Even though Amazons core business is e-commerce, its operations are influenced by
environmental conditions. A rising interest in low-carbon lifestyles by consumers puts pressure
on Amazon to not only make money, but to do so by leaving as small as a carbon footprint as
possible. By meeting higher sustainability requirements, Amazon increases its PR and company
image. Having a good corporate image is becoming enticing to consumers and incentivizing
them to use such business. Maintaining a sustainable competitive advantage is important because
it allows Amazon to give a return to its shareholders. Environmental programs that regulate and
enforce environmental standards affect what products Amazon sells, where the products are
produced, and where the products can be sold. It is important that Amazon improves its corporate
social responsibility strategy to meet growing environmental requirements and interests.
Legal
Amazons operations must adhere to legal requirements. Increased product regulations, as
a result of societal demands, requires Amazon to be more vigilant of its supply chain from
beginning to end. Import and export regulations also affect Amazons business because Amazon

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is more likely to conduct business in countries where tariffs are lower. Increasing tariffs may
force Amazon to withdraw and cutback business in that specific country. Rising environmental
protection regulations puts increased pressure on Amazon to adhere to even more requirements.
Regular compliance to legal requirements can ensure long-term success for Amazon
(Greenspan, PESTLE, 2017).

Porters 5 Forces
The threat of new entrants is weak. Amazon and its main competitors have created
barriers to entry for new entrants through their achievements of economies of scale and high
brand recognition. It would cost new entrants a lot of money and a lot of time to develop their
brand to the extent that Amazon, Walmart, Sears, Apple, etc. have (Greenspan, Porters Model,
2017).
Competitive rivalry amongst Amazon and its competitors is strong. Amazon competes
against strong competitors in its industries and these competitors are highly aggressive with their
pursuit to gain market share. Many competitors are expanding their e-commerce operations
much like Amazon is. High competitive rivalry is also attributed to the high availability of
substitutes and the low switching costs for consumers. Amazon must become and maintain its
presence as a priority to consumers to ensure long term success (Greenspan, Porters Model,
2017).
The bargaining power of buyers is strong due to the access to high quality of information,
low switching costs, and the high availability of substitutes. Access to quality information allows
consumers to compare Amazons products and services to other retailers. Consumers can
potentially find better alternatives by having access to this information. Amazons vision and
mission are all about fulfilling the needs of its customers, so the power is in the hands of its
buyers (Greenspan, Porters Model, 2017).
The bargaining power of suppliers is moderate. Suppliers do control the availability of
supplies Amazon needs for its business, however, moderate forward integration from Amazon
limits their control of the sales of their products (Greenspan, Porters Model, 2017).
The threat of substitutes is strong due to low switching costs, the high availability of
substitutes, and the low-cost of substitutes. It costs consumers little to nothing to switch to
industry competitors if Amazon cannot fulfill their needs. Amazon offers commodity products
that can easily be found elsewhere (Greenspan, Porters Model, 2017).

Business Challenges
Even though Amazon retains a large portion of market share in its industries, it still faces
challenges for maintaining its competitive advantage for future success. To remain competitive,
Amazon must be able to maintain and sustain the low-cost strategy that has given it its
competitive advantage. Other online retailers, and even some brick and mortar stores, are trying
to beat out Amazon for its low-cost strategy. It will always be faced with the challenge of intense
competitive rivalry. Even though consumers are buying more online, Amazon still faces intense
competition from brick and mortar giants such as Walmart and Sears, because consumers can get

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what they want that instant. Instant fulfillment from brick and mortar stores puts pressure on
Amazon to deliver its products and services as quickly as possible through supply chain
development. However, its rivalry is the strongest among other giant online retailers, but with
Amazons excellent customer service, wide array of products, and speedy delivery system, it
differentiates itself from competitors, but these features are not impossible to imitate for
competitors (Greenspan, Porters Model, 2017).
Amazon will need to continuously monitor the technological environment to innovate
and adapt to growing technologies. Technology is at the core of its e-commerce, so failure to do
could result in rivals taking over. Ensuring that its technology can deliver its products in the most
efficient, least cost-effective way, is a long-term challenge for Amazon.
When Amazon expands internationally, it will have to be able to adapt to different
cultures and meet their government requirements. This will require research and development
and proper market entry strategies and business strategies. A little less than half of Amazons
earnings come from international sales, so it is important to maintain its success in global
markets. To successfully expand internationally, Amazon is already doing several things. It is
actively investing in fulfillment and distribution centers in countries with the capacity to build on
existing demand with the hopes of meeting that demand with an exceptional experience. It is also
investing and developing markets in India and China (D'Onfro, 2015).
Expanding its product lines and product categories is another challenge Amazon faces for
future success. A great way for Amazon to see long term success is for it to be a one-stop shop
for consumers. In order for it to become a one-stop shop, it needs to sell as many different
products as it can. Recently, it has expanded into fashion retail and apparel, showing a step
towards diversifying its product portfolio.
It also faces increased product and environmental regulations that it is required to meet.
These increased regulations present both threats and opportunities. Meeting environmental
standards can increase its corporate image, thus attracting new consumers and maintaining
current ones. However, not meetings these increased standards, can hurt its image and result in
consumers switching to another competitor.
Amazon faces business challenges in the media industry. It needs to have strong
relationships with media companies that license movies and TV shows. It is competing with
media streaming giants such as Netflix, Hulu, and Amazon, yet it does not offer a service t really
differentiates itself from those rivals. Amazon has taken a step to try and differentiate itself
though by buying rights from the NFL to live stream football games this upcoming season.

Internal Analysis: Tsoler

Amazons Distinctive Competencies

Amazons most distinctive competency lies in the companys logistics operations. When
a customer clicks buy on Amazon, the process begins. Amazon uses robotic machinery like
Robo-Stow, a 6-ton robotic arm that lifts pallets of items 24 feet onto a second platform.

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Amazons flat Kiva robots weigh 700 pounds and lift up to 3,000 pounds. These robots find the
right shelves and deliver products to the employee filling the order. They move on fields of QR
codes and have motion sensors to avoid running into each other. An employee packs the product
and sends the package to the SLAM (scan, label, apply, manifest). Mailing addresses get added
to the packages in this point of the process. Packing boxes into the truck is like a game of Tetris;
Amazon employees pack it to the brim to avoid any spaces of air for maximum efficiency.
As a way to expand its logistics business, Amazon has started offering services such as
sorting, labeling, and tracking shipments that are typically handled by global freight companies.
Though the company does not own or operate ships, it acts as a third-party logistics provider for
companies shipping goods to or from the U.S. Amazon intends to create a new revenue stream by
getting deeper into customers supply chains since it is aware of the skill the company has in that
area.
Amazons Supply Chain Optimization Technologies (SCOT) is one factor related to the
companys success. SCOT works towards getting customers the products they want at the right
place as soon as possible. They achieve this through data analysis of millions of customers. Big
data allows Amazon to create predictive models to discover what products customers will want,
develop intelligent systems to select the best suppliers for every product that Amazon carries,
pinpoint strategic locations of warehouses, and develop efficient layouts for these warehouses.
The company uses every computer science tool and every data science technique available while
also creating new ones. Amazon innovates to build things that dont exist every single day.
Amazon continues to innovate through technologies like Amazon Go. This new app is
aimed to make shopping faster and simpler for customers. Customers scan their phones upon
entrance in designated Amazon Go stores and begin to shop. Amazon Go uses computer vision,
deep learning algorithms, and sensor fusion to detect when a customer has picked up an item or
placed it back on the shelves. Amazon calls it Just Walk Out Technology. Once finished,
customers can just go. The purpose is to avoid waiting in the checkout line at the end. When the
customer leaves, the technology adds up the virtual cart and charges his or her Amazon account
and the receipt is sent straight to the app. The first Amazon Go store is located in Seattle and is
only open to Amazon employees to test the new concept. It should be going public sometime in
2017.
Ultimately, Amazon has a distinctive advantage in technology. While they are most
popular for their prices and shipping, their utilization of technology to streamline logistics
processes, analyze customer data, and also to develop new products such as Amazon Go is what
keeps the company thriving.

VRIO Framework for Amazon:

Valuable? Rare? Costly to Organized to


Imitate? Capture Value?

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Technology (SCOT, Amazon marketplace Technology is Ecosystem of
robots, data science) (third party vendors) costly to imitate users = shared
Cost effective (cheap Amazon ecosystem: value not only for
products) merchants, writers, customers, but for
Distribution and reviewers, publishers, all parties
fulfillment analysts, journalists
Quick shipping Opportunity for personal
(Prime/Prime Now) and professional
Good customer development (i.e. self-
service publishing to Amazon)
Amazon Echo Talented/innovative
Amazon Kindle employees

Amazon Value Chain:

Inbound Logistics:
Fulfillment by Amazon = cornerstone
Sellers can use FBA to sell their products which would qualify for Amazon Prime free two-day
shipping
If customer orders FBA item and Amazon-owned inventory, both are shipped together for
efficiency.

Operations:
Marketplace
Main source of Amazon revenue
Merchants from 100 countries connecting with customers in 185 nations
Marketplace maintains operations in the global scale.

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Prime
Company-owned retail
Relies on competitive pricing and fast shipping
Amazon Web Services (AWB)
Pay-as-you-go cloud storage, compute resources, networking and computing services
Mainly serves as a platform for building applications and businesses

Outbound Logistics:
Robotic technology used to manage receipt, stowing, picking, and shipment of products
15,000 robots used to support stowing and retrieval of products
Relies on UPS, FedEx, and TNT for overnight delivery business
Amazon bought trucks to aid logistics operations in the ground

Marketing and Sales:


Amazon promotes attractive prices, fast delivery, and superior customer services.

Service:
Amazons two customers: sellers and buyers from Amazon platform
For sellers: Amazon offers the Selling Coach program
Avoid going out-of-stock, add popular selection, sharpen prices for competition
In 2013, Amazon made the list of top 100 global companies across 7 different industries for best
customer service.

Results Analysis:
ROA ROI ROE RECEIV INVENT.
TURN TURN.

AMZN 3.38% 8.39% 13.87% 20.87 8.54

AAPL 14.31% 26.85% 34.94% 9.07 56.89

WMT 7.13% 15.74% 17.98% 89.81% 7.99

EBAY 34.62% 74.81% 96.47 14.69


http://csimarket.com/stocks/competitionNO6.php?code=AMZN

Inventory turnover and receivables turnover are efficiency ratios that measure how well the firm
manages its current assets. Amazon has a significant Receivables Turnover, which means the
company spends its receivables often. Return on assets, return on common equity, and return on
investment are all measures of investment returns. Compared to similar firms like Apple,
WalMart, and Ebay, Amazon does not have very high returns on investments. However, this does
not mean the company is not profitable, as
these ratios do not measure profitability.

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Liquidity ratios measure a companys ability to meet cash requirements. For Amazon, a company
with fast moving inventory, the current ratio is best to use to measure liquidity. Amazon has a
high ratio in between those of competitors (Walmart = .86; Apple = 1.35)

Percent Increase/Decrease in Stock Prices in Last 5 Days (Apple and Amazon):

http://quotes.wsj.com/AMZN/financials

Amazons 2016 net income growth was 297.82% crushing Apples -14.43%. Amazon sales
increased by 7% between 2015 and 2016 and their operating income (Gross Profit - Fixed Costs)
increased by $50 million. Though companies like Apple and WalMart are industry leaders,
Amazons steady incremental growth poses a substantial threat to competitors.

Sustainable Competitive Advantage Assessment:


Amazons most prominent sustainable competitive advantages are the prices and
Prime/free shipping. Though companies like Apple and WalMart are agile competitors, the
company distinguishes itself through its internal processes within fulfillment centers as their
delivery business is almost completely optimized. Amazon truly has distribution capabilities that
other companies have not been able to match.

Critical Business Challenges:


Amazons current and biggest business challenge is in international business. Amazon
faces the challenge of having to adapt to changing consumer tastes within different markets of
the world. For example, Amazon has recently expanded into Mexico; one specific issue they face
there is allowing Mexican customers different payment methods, as not all people are able to pay
with credit cards or even own credit cards. The same issue applies to India, where less than 12%
of the population have credit cards. Amazon is currently working on a new payment method
called Cash on Delivery which has not yet been made available everywhere.
Not only does Amazon has to adapt to different markets, but the company also faces
international competition. Alibaba, for example, is a leading e-commerce Chinese retail store.
Competition like this is slowing Amazons international growth.

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The biggest risk lies in brick and mortar stores like WalMart being able to catch up to
Amazons e-commerce and distribution capabilities. Amazon must continuously innovate to stay
ahead of the game.

SWOT Analysis: Renee

Helpful Harmful

Strengths: Weaknesses:
Strong/ global brand Easily imitable business model
Low-cost structure Limited penetration in developing
Internal Extensive product mix markets
Highest revenues in the industry Limited brick-and-mortar presence
Customer-centric vision

Opportunities: Threats:
Penetrate developing markets Cybercrime
Expand brick-and-mortar business Imitation
External Boost measures to reduce counterfeit Aggressive competition with large
sales retail firms
Dependent on vendors
http://panmore.com/amazon-com-inc-swot-analysis-recommendations

Strengths: characteristics of the business that give it an advantage over others


All improve the Amazon customer experience and drive more traffic to the site.
Strong/ global brand: Amazon is a huge global brand and its brand recognition is very high. A
recognizable brand helps to build its already large customer database through the positive
company image. Brand loyalty ensures longer tenure of customers and lower sensitivity to price.
Low-Cost structure: Amazon avoids incurring any cost related to running physical retail stores
by only selling online. Time and cost savings results in lower prices that are then passed onto
consumers.
Extensive product mix: According to Monsoon Commerce, Amazon sells around 339.7 million
of stock keeping units (SKUs) as compared to Walmart only offering 8 million SKUs in its
online shop. 2.35% of the number of products that Amazon sells. The wide variety of
merchandise makes it easier for customers to find what they need or want on the companys
website, fulfilling Amazons vision statement and mission statement.
Highest revenues: Amazon will become the 2nd largest retailer as measured by revenue in the
world, behind Wal-Mart by 2018. Growth is much faster than the entire U.S. e-commerce
market. In 2016, Amazon earned more than $90 billion dollars purely from online sales, more
than any other retailer in the world.
Customer-centric vision: Focusing the company from the perspective of its customers allows the
possibility to recognize and take advantage of opportunities for growth. Also, increased customer

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satisfaction increases the likelihood of repeat business and positivity spread through the word of
mouth.

Weaknesses: characteristics of the business that place the business at a disadvantage relative to
others
Easily imitable: Their business model of an online retail website that sells just about anything
can easily be imitated.
Limited penetration in developing markets: Most of Amazons revenue comes from developed
countries, such as the U.S.
Limited brick-and-mortar presence: Amazons limited brick-and-mortar presence limits
attractiveness for some product types that are more sellable in physical stores as compared to in
online stores.

Opportunities: elements in the environment that the business could exploit to its advantage
Penetrate developing markets: The future opportunity to establish Amazons presence before
other large online retail firms take root, first mover advantage.
Expand brick-and-mortar: Amazon has the ability to open more brick-and-mortar stores in order
to improve its competitiveness against large retailers with a significant physical presence such as
Walmart.
Reduce counterfeit: Through regulation and the use of technology, Amazon can address
counterfeit sales limiting the number of unsatisfied customers.

Threats: elements in the environment that could cause trouble for the business
Cybercrime: Every online retail company has to be aware and alert to cyber threats. They must
keep stringent measures to counteract and prevent attacks.
Imitation: Amazons business model is easily imitable, which could threaten their market share
and competitive advantage.
Aggressive competition: Amazon is competing with large retail firms in physical and online
forms. They too threaten Amazons competitive advantage.
Dependent on vendors: Vendors are basically Amazons suppliers and becoming too dependent
on suppliers risks have the business strategy set by the suppliers rather than having them support
the strategy.

Current Strategy & Effectiveness: Renee


Amazon follows a cost leadership strategy with little product differentiation. CEO Bezos
described his company's strategy as There are two kinds of companies: Those that work to try to
charge more and those that work to charge less. We will be the second (The Two Business
Strategies). Amazon has a unique advantage by mainly selling online since they do not incur
huge costs related to running physical retail outlets. Online marketplaces also allow for selling
more units without any increase in marginal costs. In order to reduce fulfillment times and
shipping costs, Amazon constantly invests in both additional and existing fulfillment centers.

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Such time and cost savings result in lower prices that are then passed onto consumers.
Minimizing operational costs is key. Amazon benefits from process automation as well as
advanced computing and networking technologies for operation efficiency. Amazon heavily
invests in research and development (R&D) to optimize the performance of its IT resources as
well as pushes to minimize its price levels. The focus on cost reduction at the expense of product
differentiation means that its products are available on other portals as well and there is no
product line that is exclusive or unique to it. Amazons strategy is driven by its source of
competitive advantage as well as the convenience aspect wherein customers do not need to go to
a physical store or even wait extended periods of time for purchases to arrive.
The napkin sketch below outlines Amazons strategy demonstrating how A low-cost
structure leads to lower prices, which combined with a huge range of products, results in a better
customer experience. Satisfied customers invariably return to the Amazon websites, creating
ever-growing traffic, which subsequently attracts third-party party sellers to Amazons
marketplace. All of these factors lead to faster business growth for Amazon (Jurevicius). This
flywheel strategic framework borrowed from strategy guru Jim Collins explains how
effective Amazon has been at attracting more customer visits with their lower prices, which
caused the increase of sale volume and attracts more commission-paying third-party seller. In
turn, Amazon was able to get more out of their fixed costs like the fulfillment centers and servers
used to run the website, which then resulted in further reduction in prices. The reason it has the
name flywheel is that at a standstill it requires a substantial amount of effort to begin spinning,
but once it develops its own momentum it becomes increasingly easy to spin. This has been
proven by each improvement Amazon has made causing an increase in the speed of growth.
While technologies and services that Amazon provides might change over time, the core
principles such as low prices will continue to resonate with their customer, regardless of the
circumstance.

https://www.strategicmanagementinsight.com/swot-
analyses/amazon-swot-analysis.html
Market development is Amazons current primary intensive growth strategy. The main
objective is entry and growth in new markets, especially internationally where new countries can
be added to offer its services.

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Amazons core has always been straight e-commerce. Now Amazon Global Selling
allows retailers to expand their business internationally. Amazon operates in ten international
marketplaces: the United States, Canada, the U.K., Germany, France, Italy, Spain, China, Japan,
and India. The programs tools including product listing, communicating with customers in local
languages, converting currency, fulfilling international shipment, navigating customs and duties,
making this international marketplace a one-stop shop for global retail.

http://www.cpcstrategy.com/blog/2015/05/amazon-global-selling-international-marketplace/

Key features of Amazon Global Selling include:


1. Access to the top international retail markets
The markets reach not only the ten countries listed above, but also customers from 178
countries around the world. Expanding internationally increases the number of potential
customers from 100 million in the U.S. to 250 million worldwide. The business also
benefits from customers immediate trust and value in the Amazon brand.
2. Amazon European Marketplaces Account
Retailers already selling in one European marketplace can expand with ease without
having to set up individual accounts in each new country. One primary central account
makes handling daily operations much smoother.
3. Amazon Currency Converter for Sellers (ACCS)
The Amazon Currency Converter for Sellers (ACCS) tool allows global retail businesses
to receive payments in their local bank and local currency. This ultimately helps to
simplify the payment process.
4. Fulfillment by Amazon
Retailers selling with Amazon have the option of either fulfilling order on their own
(buyer order details, customs, duties, import taxes, all other fees, shipments, and returns)
or using Fulfillment by Amazon (FBA). The FBA program eliminates many of the

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challenges and complexities with fulfilling in global retail but requires the inventory to be
stored in Amazons fulfillment centers.
5. Language and Customer Support
Amazon can provide customer support in local languages 24/7 which is included in the
Fulfillment by Amazon program and a requirement.
Amazons effectiveness in being a low price leader is deeply embedded in their
reputation, but is not necessarily backed in every case. On average Amazon is 12% cheaper than
Target and 16% cheaper than Toys R Us. (Shpanya) Amazon focuses on their biggest threats, in
their vertical and prices against their biggest competitors, not the entire market. Items that either
have a high customer (star) rating or are highly visible products tend to be cheaper at Amazon,
while electronic add-ons, household items, clothing, and shoes tend to have higher prices.
Amazon cannot beat Walmarts price on every product so these other products are items that
tend to be more needs than wants.They have built a powerful price perception and know which
competitors consumer are most likely to directly compare with and count on the fact that after a
few successful price checks your perception of them will be as a low-price leader. But in reality,
Amazon is on average 13% more expensive than other retailers across all its categories.
(Shpanya) This shows how impactful branding is especially when you keep your pricing strategy
focused.
Amazons business strategies have gone so far as to change the way consumers make
purchases by creating at least five ways to shop. 1) online shopping (Amazon Prime 2-day
shipping and one-hour delivery) 2) experiential shopping (physical brick and mortar stores) 3)
convenience shopping (all in one place) 4) replenishment shopping (DASH buttons) 5) DIY
shopping (customers create, sell, and distribute).

Strategy Recommendations:

Amazon may consider taking a step back from the development of new products
(Amazon Go, phone devices, etc.) to refocus on the main aspects in which they thrive -
operations and low-costs. Amazon should continue developing their Low-Cost Strategy and seek
ways to expand their delivery business to international companies.
Pursuing differentiation through their products may be detrimental as Amazon
competitors are agile and patents and first-mover advantages are limited in duration. However,
Amazon has established itself as a cost leader with the ability to charge lower prices and still
achieve superior profitability at the same price. Should Amazon decide to create higher value
than competitors in their products, one possible recommendation would be an integration of
differentiation as well as the maintenance of low-costs, AKA a blue ocean strategy. Some of the
enabling strategies that Amazon already possesses in order to pursue a blue ocean strategy are
the use of e-commerce to provide information to customers and reduce costs, using flexible
manufacturing cells in their warehouses to keep costs low while producing different products,
and standardizing parts of these new final products to achieve economies of scale.

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Amazon could also vertically integrate by going forward in distribution for more
proximity to the buying customers. One way Amazon can engage in this is by acquiring FedEx
or a similar company they partner with. Amazon would have greater control over the shipping
process and domestic transportation of products. This forward move would facilitate in
accomplishing their goals of providing the fastest delivery. It would also be cost effective as
Amazon would have control over transportation costs. Ultimately, forward integration would
maximize revenue moving closer to the end customer and perhaps increase the value of products
being delivered due to the extended time Amazon would spend with the product all the way from
the customer clicking buy to the customer receiving a package at their door. However, there
are some disadvantages associated with forward integration like having to catch up FedEx
employees with Amazons technology, the merging of two different organizational cultures, and
the inability to effectively manage another business.
Among the different types of global strategies, executing a localization strategy would be
most strategic for Amazon. Consumer preferences and tastes vary from country to country. If
Amazon were to continue expanding to serve customers in different nations, they would have to
adapt to the local tastes. While maintaining a low cost strategy, Amazon will have to customize
some of their product and service offerings. The company would face high local responsiveness
pressures but low cost reduction pressures. This way, they can stay competitive with their costs
versus other global competitors, but it would also be a challenge to adapt to local market
requirements as they would have to tap into distribution channels, understand host government
needs, and develop new infrastructure/practices.
Amazon would be able to overcome the challenge of opening new distribution channels.
After all, the company has been tremendously successful in its delivery business. Though the
company does not own or operate ships, it acts as a global freight forwarder, which means
Amazon has booked space on ocean vessels and truck goods between ports and warehouses.
Amazon is stepping towards serving as an intermediary for suppliers shipping goods in and out
of the U.S. If Amazon can deliver packages for other companies, then it will definitely be able to
do it for itself.

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