“We want to be the world’s most customers Centric Company. . That we focus increasingly on trying to get the customer experience right. Within that we want to build a place where people can come and discover anything they might want to buy online.” (Mellahi & Johnson, 2000).
Amazon.com is an American electronic commerce company which has become as a symbol of internet business. It was first founded by Jeff Bezoz in 1995 when he began selling books online and to the date now, Amazon.com is the leading online market worldwide for its books and various other products. It was when the company aimed to be successfully the World’s most customer oriented company. Customers can discover various products they wish to buy at reasonable and affordable prices. The strategy used by Jeff drove him to become the online leader of market. The main strategy used was to orient the business towards customers and to be innovative with continuous improvement in online shopping skills. Initially, it was used to be online sale of books and with the use of strategy and innovative approaches the business was expanded its boundary with introduction of various other products like toys, CDs, DVDs, computer software, apparel, furniture and goods etc. Amazon offers a large selection of books and wide range of products thereby making itself distinct from its competitors.
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But there are also twists and turn in a business. Similarly, Amazon had a significant history of hard work with many downfalls in terms of debts and loss in income in the beginning. It was in 2001 when Amazon made its first profit. To the date, Amazon is biggest and one of the top convenience online business store. As mentioned earlier, to reach to such a successful status, Amazon has faced many problems and threats. But the credit lies in the name of the magnetic leader like Jeff Bezos who possessed the ability to frame up the strategies and moves in a way to establish a successful business in order to gain largest share in E-market. During the period between 1997 and 2006, Amazon build up partnerships with other business models by making use of strategies resulting in securing the number one position in online market. Therefore, it can be well said that the Amazon success was not the result of the matter of time but rather the result of its hard work for years and its willingness to put in its efforts, dedication, innovation, strategies and its partnerships with other business models thereby offering various products, technology and more importantly better customer experience. There are many threats in e-commerce industry and so it was a challenging task for Amazon to establish itself in highly competitive market. The existing competitors are Apple, Yahoo, Google and other online book stores. Therefore, the study will analyze and evaluate the ecommerce industry and its competitive strategies.
Amazon – Business Culture
The business culture of Amazon strives for innovation in every move and aspect as well focusing on its customer needs and demands rather than putting all its actions on competition. The real strategy lies in winning the customers and their satisfaction which reflects its insight and creativity. Amazon believes in moving ahead doing good and even making good things better.
Amazon is a customer oriented company which is revealed by the values of the company. The company believes in –
Customer’s passion – Focus on customers and fulfil their expectations
Innovation and creativity – Making innovative moves and creating more creativity in the products being offered to the customers
Planning and action – Making use of opportunities and counting action every minute
The business strategy of Amazon relies in intensive research and the use of strategies which aims to achieve a competitive position to promote their products and services in the online market. The company has made use of Integration strategy and forward integration with the aim to promote its products and services. The concept of forward vertical integration strategy helped Amazon to gain control over distribution and free shipping transportation for most of its products. However, the concept was changed and replaced with the backward vertical integration when Amazon’s product named Kindle was manufactured as eBook reader. The company made use of all the available resources in an efficient way to benefit its financial performance (Frey & Cook, 2004).
Amazon.com added a value to its name and fame by creating partnerships through joint alliances and penetrates other market segments. The partnerships were made with companies like Toy RU’s, Border Books, Office Depot and other music and software companies. Amazon set its focus on profit in the year 2001 which was the result of its opportunistic behavior and management skills of growth and making profit. Amazon’s future targets were achieved by implementing a restructuring plan that allows reducing its operating costs, employment staff and reinforcing its customer service operations. The quarterly report of Amazon.com for quarter ended 30th September, 2004 revealed that the operating costs have been subjected to a steep decline and thus the performance of the company was improved.
The success of Amazon relies in the sustainable management of its services and use of information technology. The business model of Amazon is reflected by its brand and the chain of customers with a large growing customer database, its distribution channels and user friendly internet store front.
The term e-business reflects integration which is an important aspect of e-industry. Amazon in this case benchmarks the business-to-consumer strategy following up the integration concept and making a balance between purchasing and selling. In simple words, the rent is indeed the same as that in the physical world (retail stores, mail order, wholesalers). Another approach made by Amazon is the customer relation management which is basically a business strategy to select and manage the relationship with customers so as to optimize the value to an enterprise in long term. This business strategy requires a customer oriented business philosophy and culture to support and facilitate effective marketing processes across all direct and indirect customer distribution channels.
e-commerce Industry Analysis
“Ecommerce” is a term which is defined as the use of electronic and digital information technology in business transactions to build up relationships for creating a value among organizations and between individuals and organizations (Andam 2003, pg.6).
The web relationships between existing partners tend to run by a single company which seek to carrying out its business with a lower cost strategy keeping in mind its current suppliers and customers. The industry is distinguished in terms of business activities such as business to business (B2B), business to customers (B2C) or consumers to consumers (C2C). Amazon follows up business to customer model and believes in offering its customers the best service. The e-commerce came in action in early 1990 when it became possible to access internet for commercial use. The startup online retailers were the eBay and Amazon who exploited the power of internet and spread their business horizons. Amazon from the beginning itself relied on providing best services to its customers. The e-commerce industry is so far very successful and advantageous in a way that small business personalities sell their products without much investment and can get hold of large number of customers online (Marchewka & Towell,200). The industry proves successful with customer based products like books, electronic utilities, grocery etc. Furthermore, the industry allows spreading the business from national borders to international boundaries. Therefore, the market analysis shows that the e-retailers sale worldwide was approximately US $438 Billion in 2008. However, the largest economy i.e. the US contributed $133 Billion to this sale. Amazon in e-commerce industry is viewed as its background continuing to grow and expand its economy. The net sale of Amazon by the end of 2007 was US $14.385 Billion. At the same time, there is an increasing competition between existing companies such as eBay, Apple, Wall mart etc (E commerce Industry, n.d.).
Source: (Rainer & Turban, 2008)
There are five forces that analyze the e-commerce industry as described by Porter in 1985. It was argued that there is a high competition in the industry wherein the firms that wish to enter the market lacks economic factors and the risk of high competition from existing well established firms. However, lower price and product service delivery has become a trend of e-commerce in order to earn market share (See Appendix A for Comprehensive analysis).
Amazon.com – Firm Analysis
Amazon is the leading e-commerce firm in the world that strives to set its standards for online book store. The overwhelming success of Amazon is credited to Bezos who made smart use of technology and understood the concept of online business. With extensive market research, product investigation, customer needs and demands etc. Bezos found a competitive advantage in selling books due to the fact that it required low sum transaction and gaining huge market segment of low risk buyers who makes anxious buying of products online. Through outsized market share in books, integrated strategies, customer services, product delivery and better business acquisitions Amazon reaped the fruits of its hard work thereby standing as a brand icon in e-commerce industry.
The Blue Ocean created by Amazon is the result of its differentiated and innovated customer service delivery for its book business. Firstly, it had made easy for customers to search books online with millions of titles of books and also provided a secured payment method. Value innovation of Blue Ocean was supported by creating value to customer’s satisfaction by innovative ideas such as knowing their customers behaviors and data mining as an information advantage. In addition, it also enhances communication with its customers in the form of feedbacks when the customers shop online giving the feedback of their shopping experience. As the success from the beginning relies in customer focus, the strategy implied by Bezos always considered investing more in infrastructure and making use of integrated customer systems and service operations and of course the secure method of payment.
Amazon was the first online book store in 1995 and created its own market demand for cheaper and better service delivery. Initially there was no such competition by Amazon to any online book store until Barne & Noble entered in book market in 1997. To apply its competitive strategy, Amazon opened up the web service and Auction website (Z shop). Also, Amazon made an entry to the other online grocery stores and integrated horizontally to provide all possible products. Amazon started getting bigger and bigger every day. Among all these businesses, Amazon was fortunate in books market and Jeff changed its business model and concentrated in books market since then.
By making use of Hamel & Prahalad’s strategy of being distinguished Amazon created the web service and cloud computing where any business person can run its business. It has been analyzed that the revenue generated by the web service is beyond the ecommerce business.
The introduction of Amazon’s Kindle eBook reader in November 2007 was a smart innovation. Amazon has a secured and established place in the online market due to its lower prices, customer convenience, efficient delivery, strong marketing skills, web service and management. Last year, it was claimed by Amazon that they sold 500000 Kindle eBook readers believed that the associated books downloads and periodical subscription would yield hundreds of millions of dollars. At this place, Amazon takes position as red ocean strategy by beating existing competition because there were many eBook readers available before.
However, when it comes to the eBooks software, Blue Ocean strategy is considered which was successfully proved by its partnership with Apple which allows the customers to download eBooks through kindle applications. Being open to biggest competitor in eBooks market has competitively advantaged by making competition irrelevant. However, in a research analysis, it was found that there is a decline in the sales of Kindle eBooks due to the entry of Apple innovation as iPad in the market. But the actual use for reading eBook, has been increased (Appleinsider, 2010) (See Appendix B).
The dynamic nature of eBook industry gives rise to aggressive competition in market. But in case of Amazon possessing a strong leading position in online retail market, Amazon would continue its success with its innovation of Kindle eBooks market ( Hayward,2009). However, Amazon is going through some current difficulties in its eBooks market. The Apple innovation, iPad has more functionality and eBooks access, so eBooks readers market is divided in two areas – Kindle eBook reader customers and the other iPad customers.
The future growth of Amazon lies in its eBooks market, but at the same time there is an intense competition from Google and Sony’s partnership for public domain eBooks library through Sony’s eBook readers. In order to take competitive advantage Google will allow limitless downloads form variety of eBooks readers as opposed to Amazon’s service to only Kindle and Apple readers with the appropriate Kindle apps. Moreover, variety of formats for eBooks reader availability in Google’s huge electronic library can change the view of eBooks downloads market.
The first published eBooks in 1993 could not capture a big place in market. But some years later, eBooks reader by the name Rocket eBooks was launched in 1998 which again failed to attain a big place. So, Books on board came up with variety of book formats and caught big market growth. At the same time, Sony launched its first attractive eBooks reader and created its own eBooks demand. Now, as e-commerce industry is very attractive and entry barriers are very low, with the introduction of Amazon kindle, there are more than 30 eBooks readers are available in various forms.
The eBooks market has a fast growth and each firm has its market segment. The market analysts have predicted that the market share of Amazon eBooks will drop in next few years to 35% from 90% last year as a result of competition from Apple Inc and Google Inc (Weinman, 2010). As the digital industry will grow 20% by 2015, there will be more competitive pressure on Amazon. The cost of e Books on Kindle is $9.99 as compared to eBooks from other sources where publisher seeks $12.99 or more. So, with the introduction of iPad as an opponent to Kindle, publishers have more power to influence on their eBooks Bensinger, 2010).
At present, the market share of eBooks is largest but it does not mean that it will be the same in next few years. However, due to Kindle’s apparent success, eBooks and e-reader market space will be dominated by Amazon. In addition, having battle with Macmillan publishers, Amazon is highly reluctant to move to Agency pricing Model, which could benefit with 6 other publishers who believe in wholesale pricing model (Maher, 2010).
In a survey of 3,171 consumers by an Independent research boutique, it was found that the customers who are planning to buy an eBook reader in the next 90 days favors 40% Apple’s iPad and only 28% towards Amazon. The market preference for the iPad is may be due to its hype marketing and launch in the market. Therefore, it can be said that with no doubts Amazon face a market threat from Apple’s entry (Cramer, 2010). In such a case, Amazon’s next move should be well acknowledged.
The very first step is to acknowledge and recognize few facts –
Threat from iPad is not better selling than the Kindle but rather its eBook business model which is depressing the retail market share of Amazon’s eBooks.
Despite of the fact that Amazon has invested a heavy capital in the market and made an outstanding achievement in launching the Kindle eBook but still Amazon is not an electronic company.
Kindle is Amazon’s very fine devices as an eBook reader which will become a serious threat to Amazon’s business of selling books online. If the competition would unable Kindle to technically compete with the iPad or any other high tech new market entry, it would affect Amazon in long run because there is a restriction in the number of devices that can read eBooks sold on its website.
Kindle’s potential to unlock the innovation – There is a straight competition to Amazon from Apple on technological innovation which is why Amazon stands little chance to beat Apple. Therefore, to unlock the potential of the Kindle, Amazon needs to follow up strategic moves that Apple cannot follow thereby creating an open innovation.
Open Innovation would enable Amazon to organize and co-ordinate a network of lead-user enthusiasts, suppliers of electronic items keen to win new business. By this, Amazon needs to retain its capability to connect and integrate the input from this channel and tap into an innovation that Apple could not match.
Open source – An essential and fundamental step for Amazon. Amazon would end up in building a competition for the Kindle if it allows the marketers to adopt its eBook standard but at the same time Amazon would have two major advantages from such a competition.
The dramatic growth of Amazon’s offer of eBook readers would bring the prices down thereby making a network of new customers which would further facilitate the overall growth of the eBook technology. The net result would be Kindle’s share in the market.
Amazon with its technical innovation in the Kindle would be able to knock its competitors for further improvements thereby keeping up the pack without any downfall.
Even if the situation turns worse, the open innovated eBook reader would outclass Kindle’s competition making Amazon’s eBook retailing business not threatened rather boosted.
Furthermore, the market of eBooks is highly advanced and a technological innovation. The concept of eBook follows up the Blue ocean strategy which has created a competition in eBooks market. The competition between Amazon and Apple is continuing in terms of innovative service delivery and targeting big eBook market making it easily accessible. But, now the time has come to change this view to sustain their competitive advantage by creating Blue Ocean strategy. The ongoing struggle between Macmillan and Amazon remains questionable. While following the Blue Ocean strategy, Amazon can use the strategy to attract the customers as well as non customers for value innovation to make competition irrelevant.
In order to survive this competition, Amazon has to take step forward and adopt a Blue Ocean strategy approach. This could be done by differentiation in product and low cost. So, product differentiation can be in terms of customer service delivery or using well technology to expand their infrastructure. In addition to that, they have to consider customer Buying Hierarchy, their habits and behavior and function innovation. Before making decision to purchase product customers go through various functions such as reliability, convenience, price and function. In Book business there is very few selection for product differentiation except in which format these are available. As compared to Sony eBook reader, Amazon does not have any ePub format which can be read internationally. Moreover, its proprietary approach restricts the eBooks reading in other devices other than Kindle and iPad (Warren, 2009).
Reliability is also an issue for low end users who are actual users of eBook reader. Whilst, Amazon has 90% market share in its Books business, it is very important to concentrate this customer satisfaction aspect. Therefore, if Amazon is willing to open its physical store especially for eBook reader, so customers can feel its Kindle device and buy it. In doing so, it attracts non customer also who always stay outside this market because they hesitate to buy without trying.
Amazon is in better position right now even though its toughest rival Apple has introduced iPad to compete on eBooks. It was expected that for eBooks Apple’s iPad will not be a danger device instead making eBooks’ available in all other device would cannibalize the kindle sales with eBooks’ selling (Frean, 2010). So, using blue ocean strategy, they make competition irrelevant in eBooks selling. They have created value to their eBooks by making it available in any devices at cheaper price. They also reduce its cost by sticking to wholesale price model rather than giving rights to publishers to control its price.
As some Authors are not willing to publish their books as eBooks, it will be beneficial to Amazon to follow its traditional wholesale model. Because doing so, publishers will not have control over their books price to protect their hardcopy of books and Amazon can keep its largest eBooks market segment under control with low price eBooks download. In addition to that, publishers have to pay less to authors and thereby reducing cost. And doing so, Amazon can challenge the Apple’s price and its sale (Kane, 2010). Amazon has followed Digital Right Management for eBook application format and created proprietary format AZW. Whereas Apple has created eBooks for DRM free on iTunes. Having walled garden strategy, Amazon could lose its market share in next few years. So, Amazon might have to be open to its intellectual property and encourage innovation and efficiency with collaborative partners.
Amazon has continually achieved success due to the constantly reviewing its business model built around a market changing customer value proposition. It quickly expanded beyond books to include all sorts of easily shippable consumer goods, growing from its core into near adjacencies. Now, its time to innovate its business model in eBook business as Amazon is facing competition in this area (Malhotra, 2000). In order to deal with this, firstly they have to adopt open source strategies and followed up with its principles. Opening up its IP to everyone will benefit creating an innovative idea from peering and sharing its knowledge with other partners.
Secondly, they have to examine their business model and put some efforts in research and development program. Amazon is not technological company and therefore being open to other well established technological company, may contribute to develop good device. Amazon may have to concentrate on profit proposition, value proposition and people propositions align with its firms activities. In addition they have to pay attention to customer relation management to lock their customers. Making standard universal file format which can be used globally can be beneficial for Amazon. They should improve their distributional channels by making shipping cheaper mainly targeting in developing countries.
To improve customer relationship management, it has been suggested to listen to your customer voice and follow up what they like or dislike and this will accumulate financial success and customer loyalty. As a reward you can get innovative ideas of product or service as well as its likely to motivate your employees and innovative ideas how Amazon Company can be operated efficiently (Kelley, n.d.).
Business Innovation Model
Being a competitive market and expenses being high, offering free shipping of books and other products might affect the future financial position of the company. So Amazon.com should charge for shipping at a discounted rate.
Pitfalls – the main drawback of this recommendation is the existing free service of shipping from other online retailers. So if Amazon put this strategy in place then they are vulnerable to loss consumers.
Currently, Amazon operate all over the world, however, there are still several undeveloped markets in parts of Asia, and Africa. By operating in this areas with largest population will benefit by creating jobs for local people, helping to set up infrastructure, strengthening the brand name, as well as generating more revenue.
Pitfalls – by expanding this business in these countries can be a difficult because it will cost to set up industry, marketing and to make it accessible for everyone. Moreover, they might face culture shock and inability to integrate in this culture can result in loss of market as well as brand name.
Third recommendation is the about outsourcing. Amazon will be able to outsource a lot of functions that it conducts in house currently, the fact that Amazon is a virtually based business gives it many added advantages in its abilities to outsource to different countries. Sending its coding problems to someone in India or its customer service hotlines to some company based in the Philippians. There are numerous opportunities for them to outsource their services and numerous benefits to do so as well. Effectively outsourcing lower level positions in the company could affectively cut cost for Amazon, which would allow them to concentrate on the innovative aspects of its business practices.
Pitfalls: On the downside, as current recession in U.S market, it could be possible to get refusal from U.S market for this activity and it may damage Amazon.com Band name by creating media issue.
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Brand Loyalty & Trust
Best customer service approach
Reliable and secure payment service
Best Information technology and computer science and software use
Global Brand and variety of products sales at low prices
First successful business in e-commerce business
Largest book market segment
High customer satisfaction
Not stable inventory turnover
Did not make profit for first few years
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