An analysis of Amazon.com
Introduction
Amazon.com, Inc. is one of the largest electronic commerce companies in the world. It is an American based company with its headquarters in Settle, Washington, United States. Although it started as an online book store, the company has grown and diversified into the sale of other goods such as electronics, furniture, toys, and jewellery. The company also produces consumer electronics and also provides cloud computing services. Amazon.com belongs in the Internet Retail Industry. The economy of the United States is both advantageous and disadvantageous to online retailers. There is less expenditure due to the credit squeeze as a result of the recent economic crisis. However, more people now prefer online purchasing as it helps them save on travel expenses while visiting stores. It also helps consumers compare prices easily hence know where to buy cheaply. The industry is also slowed down by constantly changing strict government regulations. These regulations slow down the industry as companies need to be aware of them to avoid charges. However, with the rapid rise in the use of the internet, companies in this industry have an expanding market that they can take advantage of.
Amazon has various strengths that make it more competitive in the industry. It has a competitive over other online retailers in that it is the world’s leading online retailer, which makes it more popular among consumers. Amazon.com also has a high record of consumer satisfaction. This, too, gives it an edge over its competitors. Amazon sells its goods at very low prices. They are the providers of the most low-cost good in the industry. In addition to this, Amazon.com has efficient distribution strategies hence are able to make fast deliveries to its consumers. Despite these strengths, the company is currently running at very low-profit margins while some of its competitors are operating at very high-profit margins. In terms of competition, Amazon’s competitors, like Wal-Mart, have a greater physical presence than Amazon, which leaves it at a disadvantage. Amazon could easily face security issues since it deals with online retailing, and this could be detrimental to the company.
Opportunities for Amazon.com include establishing a physical presence that will increase its general presence in the retail industry. Amazon could also increase the use of subscription fees for various services that enable it to retain customers. Outsourcing its payment systems is a threat to Amazon.com as it could subject them to security risks of data breaches. Diversification plans could also be a threat to the company as it may not be able to manage the logistics of expansion. This has negative impacts on both the company’s brand and the quality of services offered. As more consumers prefer the online platform to purchase goods, Amazon’s potential for growth increases. However, the online retail industry has been filled with competitors hence limiting the potential for growth. It is more important that Amazon to shift into offline retail as it stands to lose a lot if it fails to do so. It has to venture into the real world where people spend a lot of money buying things like household goods, groceries, and drinks.
Amazon Supply and Demand Analysis
Revision
Cutting costs is one of the best ways to ensure the continuity of a business with less money coming in. However, slashing spending while dealing with many suppliers can do more harm than good for a company in the long-run. Amazon has been able to overcome this by focusing on digital transformation (The Amazon Business Blog, 1-2). This is seen in the creation of Amazon Prime Air, a delivery program that will deliver packages up to the doorstep of the customer. Amazon Prime Air program allows the company to differentiate their products while still allowing them to reduce the cost of the product they sell, hence increasing the demand for their products. Reduced costs allow Amazon to compete better in the market due to increased profit margins. The reduction in costs is not on the price at which the company sells the goods itself but on the cost of delivering the goods to customers.
Through the reduction of the variable cost (Shipping cost), Amazon is able to reduce its total cost, which allows the company to increase the supply of goods. Compared to ground delivery, drone delivery reduces the cost of the same delivery to only $ 1 (Sudbury, 1-12). The prime program also allows customers to pay an annual fee and then have packages delivered for free. This way, Amazon will be able to save more money through reduced cost on their side. Because shipping costs often influences the decision of consumers to buy items online, this program is able to attract customers and have them buy more items. The online market in which Amazon operates in is very competitive, whereby any person with money and internet access may be able to enter. Therefore, every gain in a customer that Amazon makes is very important. Through reduced costs, the company is able to increase supply which decreases the price for the customer. This will, in turn, increase the quantity of goods demanded.
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When the price for the goods is lower, the demand curve shifts to the right, as shown in the graph above, indicating an increase in quantity demanded.
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Due to an increase in the quantity of products demanded, Amazon.com has the incentive to supply more of the products to meet the demand. The supply curve will then shift to the right, as shown in the above graph.
Reduced prices due to the new delivery technology also attract more customers to the company. As the company sells internationally; reducing the costs, might also expand their international product development, offering more product selection. Drone delivery technology also has the potential to attract new customers who are interested in the technology. The new technology allows the demand curve of the company to have e steeper slope, allowing Amazon greater flexibility in pricing.
Amazon’s pricing strategy is what has made most of the products of the company, such as Kindle Fire to be among the major sellers. Amazon always adopts a low pricing strategy for its products and is known for giving huge discounts in most of its products (Klement, 1-5). These discounts have made it hard for competitors to be able to gain Amazon’s market share. For instance, customers can rent eBooks from Amazon at huge discounts like free trial periods and cheap annual subscriptions. This makes the company the most desirable, increasing the quantity of products demanded by the consumers. Low priced products which play the same role as other products makes it possible to increase sales through an increase in quantity demanded to enable the products and the company at large to achieve growth. Amazon has also implemented a couple of clever seller-facing enhancements recently that help third-party sellers and also improve the buying experience (Klement, 1-5). These include the use of Amazon product placement, and the Amazon Suggested Products program.
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Through its different pricing strategies, Amazon.com always finds a way to increase the demand for its products while still maintaining its equilibrium price. While the price for its products may be lower than that of competitors, the company finds ways to influence demand and supply hence increasing revenues, without altering the prices that it has set for its products.
One of Amazon’s latest products to be introduced into business is the Amazon Web Service (AWS). The product, launched in 2006, has reported increasing profit growth and high margins over the past three years (Page, 2019). There is a very high demand for the product form businesses, academic institutions, and government agencies. Though it was little known during its launch, AWS is now one of the biggest generators of revenue for Amazon, with over $ 7.3 billion in operating profit in the year 2018 (Page, 2019). One of the reasons AWS has been so successful is that it is scalable and adaptable to meet the prices that can be affordable by different consumers hence increasing its demand. The cost of AWS is modified based on the usage of the customer. Small businesses can, therefore, afford the service and use it for their computing needs.
The strengths of AWS are that it controls more than a third of the cloud market and has a lot of maturity in cloud computing services since it has been doing it for the longest compared to competitors. AWS has the most data centres than any other LaaS provider hence the most robust and comprehensive global coverage. The maturity of AWA has, however, been considered as a weakness as it is so comprehensive to the extent that it is overwhelming to use. Setting it up requires more work than the competitor’s services. It also does not have a specific hybrid solution and focuses on the public cloud (Wittig, 2016). In order to improve its competitiveness and increase its efficiency, Amazon is using a migration readiness assessment strategy to gain insight into how far the organization has come since introducing AWS. The assessment programs help understand current strengths and weaknesses and build action plans to close identifiable gaps.
Amazon.com uses porter’s value chain theory to identify ways in which it can improve organizational effectiveness through the improvement of its internal activities. By applying this theory, the company is able to identify where competitive advantage arises in the business and take advantage of it so as to get closer to the consumer. As the company uses a customer-centric approach, the key aspect of value creation for the company is order fulfilment. Order fulfilment is actually ensuring the customer receives their order. Order fulfilment is greatly connected to the supply chain and is supported by inbound and outbound logistics. In order to reduce cost, the company orders from distributors hence optimizing the process of the stock management. Distributors bring the products to them hence saving on transportation. The outbound logistics include picking, sorting, packing, and delivery (Masid, 15-16). The use of technology helps reduce the costs incurred in inbound logistics. The technological improvements also ensure that products are delivered faster and help provide a wider range of products. To increase efficiency, the company uses a combination of online stores and physical stores as well as third-party sellers, all of which have contributed greatly towards increased revenues.
To distinguish itself from competitors, Amazon uses traditional forms of advertising in its value chain. These include such methods as internet banners, television, and print. Advertising on such engines like Google and Yahoo also comes as a great promotional advantage for the company. Amazon’s associate program allows smaller sites on the internet to generate traffic for Amazon (Sastry, 186). When Amazon’s products are posted on third party sites, they are seen across millions of websites. This gives a competitive advantage to Amazon’s value chain. The use of this strategy has seen the company steadily grow its customer base for the past ten years; hence, it will continue being used for the next few years.
Amazon’s potential for growth is in its belief that innovation is essential in becoming the most client-centric company in the world. Advancement in technology and new innovations have been its have been and will continue to be the core of its ventures, helping it achieve growth. This is seen in the development of products and programs such as AI, machine learning, drone deliveries, as well as cloud computing. The improvements in technology will enable increase transaction speed and reduce the cost of operations leading to improved customer experience. With over one million customers, AWS is already a leader in cloud computing, and there are plans to expand its availability in more zones and regions.
Conclusion
Amazon has a great strategy in increasing its market share and competitiveness while maintaining positive revenue. However, the online retail industry is filled with companies that are a big threat to Amazon, despite the company having a fast mover advantage. To address the issue of competition and other threats, Amazon uses a consumer-centric approach to maintain market dominance. This includes the application of the theories of supply and demand to influence the consumption and sale of its products. To keep ahead of competitors, Amazon.com uses porter’s value chain theory to identify ways in which it can improve organizational effectiveness through the improvement of its internal activities.
Work Cited
Klement, Kai. The Secret Amazon Pricing Strategy to Crush the Competition. Retrieved from https://www.bigcommerce.com/blog/amazon-pricing-strategy/#3-steps-to-selling-successfully-on-amazon
Masid, Saptarshi. Amazon: A corporate Strategic Analysis. 2020, https://www.academia.edu/16022676/Amazon_A_Corporate_Strategic_Analysis. Accessed 25 Apr 2020.
Page, Vanessa. “What Is Amazon Web Services And Why Is It So Successful?”. Investopedia, 2019, https://www.investopedia.com/articles/investing/011316/what-amazon-web-services-and-why-it-so-successful.asp.
Sastry, V. V. L. N., Shailesh Katvi, and Prakash Tourani. “AMAZON’S STRATEGIC ANALYSIS AND IT’S ENTERPRISE STRATEGY FOR THE CLOUD.” Advance and Innovative Research (2019): 186.
Sudbury, Adrienne Welch, and E. Bruce Hutchinson. “A cost analysis of amazon prime air (drone delivery).” Journal for Economic Educators 16.1 (2016): 1-12.
The Amazon Business Blog. “3 Ways to reshape procurement now and for the future” Retrieved from https://business.amazon.com/en/discover-more/blog.
Wittig, Michael, Andreas Wittig, and Ben Whaley. Amazon web services in action. Manning, 2016.