Amazon’s business strategy

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1.Introduction

Amazon.com, Inc is an American international electronic commerce company with headquarters in Settle, Washington, United States. It is the world’s largest online retailer. Is was established in 1994 as an online bookstore, but then soon diversified with DVDs, VSHs, CDs, video and MP3, video games, electronics, food, toys…The founder of Amazon is Jeff Bezos, at first, he wanted a name for the company that began with A so that it would appear first in the alphabetic order, after looking up carefully in the dictionary, he settled on Amazon because it was a place that was exotic and different. And in 2000, Amazon’s logotype has featured a curved arrow leading from A to Z, representing that they can carry all products from A to Z with a shape like a smile.

  1. Mission statement and online value proportion

Amazon was founded with a mission: ‘ to be Earth’s most customers- centric company where customers can find anything they want to buy online and offer the customers with the lowest possible price”. Amazon sells products and service in all fields such as retail goods, customers electronics and digital content such as books, movies, music and games, digital downloads, electronic and computer, home and garden, toys, grocery, shoes and jewelry, health and beauty, sport and outdoor…Amazon’s value proportion is based on low cost price for a high selection of books ordered anytime, anywhere extremely convenient mechanism.

  • Business Strategy :

The company’s objective is to become the best place to buy, find and discover any products online, Amazon is on the way to enhance and broaden it brand, customer base and electronic commerce with the goal of creating customer’s preferred online shopping destination, in the United State and around the world.

  • com websites

The company believe that the sale of book, music and other products and service on the web can create benefits to its customers including some convenience like greater selection, ease- of- use, competitive pricing and personalization. On the website of Amazon, in addition to buy products online, customers also can conduct targeted searches, browse the highlighted selection, view the best sellers and other features, read and post comments, register for personalized services, check order status… The key components of Amazon’s offering include browsing, searching, review, recommendation and personalization, with I- click and secure credit card payment , the company’s website promote brand loyalty  and repeat purchase by providing an inviting experience that a customer can return frequently and interact with other customers.

  1. SWOT analysis
  • Strength

It is a brand well respected for price and customer convenience. Second, it is an online trading company that has come through the recession relatively well. Last but not least, accumulated technological expertise gather in retailing and customer management technology.

  • Weakness

First, Amazon’s net profit has been positive, but no better than many bricks and mortar retailers : 3.2.% in 2007, 3.4% in 2008, 3.7% in 2009 and 3.4% in 2010. The second weak point is that Amazon’s self- publishing facilities will change the publishing industry business model, but the beneficiary may not be Amazon.

  • Opportunities

The first opportunity for Amazon is that it is poised to exploit the shift to cloud and other third- party service. The second one is with Amazon’s Kindle. Which has made ebook respectable, has conquered only a small part of the publishing industry.

  • Threat

Amazon has improved the hardware and dropped the price, but many still regard the price and ebook expensive, cheaper readers may come from China and Korean, and ebook price may undercut with google. In addition, Amazonweb service face competition from established providers such as Dell, Microsoft and Google. And merchant services are in competition with a host of internet payment service providers around the world.

  1. Customers and competition

Amazon categorize its customer into 3 groups : set customer, seller customer, and developer customer. There are about 76 million customers account, but just 1.3 million active seller customers in its marketplaces and Amazon is seeking to increase this group. Amazon is unusual for a retailer in that it identities developer customers who use its Amazon web service, which provides access to technology infrastructure such as hosting that developers can use to develop their own service. Members are also encouraged to join a loyalty program.

In SEC 2005, Amazon describes the environment for their product and service as intensively competitive. Its main current and potential competitors are:

  • Physical- world retailers, catalog retailers, publishers, vendors, distributors and manufacturers of product, sales volume, customer base, mail order or direct marketing…
  • Other online E- commerce sites.
  • A number of indirect competitors, including media companies, web portals, comparison shopping…
  • Companies that provide e- commerce service, including website development, third- party fulfillment and customer service.

Amazon believe that main factors in market segments include: selection, price, availability, convenience, information, discovery, brand recognition, personalized service, accessibility, customer service, reliability, speed of fulfillment, ease of use, ability to adapt to changing condition, customer’s overall experience…

  1. Business model of Amazon
    • Line of business

Amazon’s line of business will be defined as follow: online retail, internet services, and Kindle ecosystem.

  • Online retailers

Amazon claims to have Earth’s Biggest Selection of products available through its family of websites sold at the lowest cost possible. The company first started as an online book seller, then music and movie seller and ultimately into electronics and household goods. However, Amazon does not stock every products it sell so one of its strategy is to serve as the channel for other retailers, it maintains its status as a destination website but does not have to maintain inventory on slower- selling products, this strategy has made Amazon long- tail retailer.

  • Internet service

Amazon’s internet service can not be easily discussed as a stand alone line of business because it is deeply intertwined with both its retail business and the Kindle ecosystem. Amazon has begun to provide service like Amazon Prime, which provide free two day shipping on the retail purchases, on- demand video streaming, and free access to the Kindle library, all for annual fee.

  • Kindle ecosystem

Amazon has expanded its business into manufacturing and distributing the family of Kindle tablets, which was originally designed as an electronic book reader, the Kindle has become a fully functional tablet and media device, with the Kindel, Amazon serves as manufacturer and traditional retailer.

  • Amazon business model canvas

The chart below illustrates that Amazon keep something consistent. Its value proposition remains price and convenience no matter the product or service and low price can be sustained by ensuring customer relationship. The company is expected to expand into new area while continuing to focus on two building blocks.

  • Business to business model ( B2B)
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The B2B model involves electronics transactions for ordering, purchasing, as well as other administrative task between houses. It including trading goods such as business subscription, professional services, manufacturing, wholesale dealings. In the case of Amazon, the publisher have the opinion of either developing their own site or display the book on the Amazon site or both but they mainly choose to display on Amazon site because it gives them a larger audience. In order to do this, the publishers need to transact with Amazon, involving business houses on both the ends.

  • Business to customer model ( B2C)

The B2C model involves transaction between business organization and customers, it applies to any business organization that sells its products and service to customers over the Internet, this site display product information in an online catalog and store it in a database. The B2C model also includes service online banking, travel service, health information.

  • Online revenue model and market place

Amazon provides technology platform and tools for e- commerce, they have various revenue model, earning fee from owning payal, an online paying service system for users who buy online. They also gains sales from the service of listing customer’s product to be sold to other users as well as some advertisement fee. They also generate revenue from commission from suppliers when there is a sale of product. In the main website, there are few advertisement displays where customers browse though some items.

           

US $ (in million)

 

Percentage

REVENUE MODEL

Sales

    North America

       Media

       Electronic and Merchandise

       Other

 

    International

       Media

       Electronic and Merchandise

       Other

 

 

4,630

3,139

326

 

 

4,612

2,071

57

 

 

31.21%

21.16%

2.24%

 

 

31.09%

13.96%

0.04%

Total Revenue 14,835 100%

Table 1. Revenue model in North America and International

Source : Amazon.com

Amazon marketplace is Amazon.com ‘s fixed price online marketplace that allows sellers to offer their goods alongside Amazon’s offerings. Buyers can buy new and used items sold directly by a third party through Amazon.com using Amazon marketplace. This sale strategy has been beneficial for Amazon. They change a commission rate based on the sale price, a transaction fee, and a variable closing fee. Moreover, they also generate revenue by affiliate revenue model. Astore is an Amazon affiliate product which website owner can use to create online store.

  1. Marketing and promotion strategy

Amazon.com ‘s marketing strategy is designed to strengthen Amazon brand name, increase the number of customer to Amazon.com website, build customer loyalty, encourage purchase and develop incremental product and service revenue opportunities.

Amazon.com creatively applies technology to deliver personalized program and service, as well as flexible merchandising. The company employs a variety of media, business development and promotional method to achieve these goals. The company also benefits from public relations activities as well as online and traditional advertising, including radio, television and print media.

  • Associate program: the company extends its market presence through its Associate program, which enables associated website to make product available to their audience with order fulfillment by Amazon.com. Approximately 200,000 website have enrolled the associate program. Amazon associates include Yahoo, American online, Excite, Netscape communication corporation, Geocities, Microsoft Corporation…
  • Advantage for book and music: the advantage program is designed to increase the visibility and the sale of titles from independent publishers, authors, artists, and labels. This free program provides the tool and framework to ensure their book and music appear more often, more prominently, and with 24- hour availability throughout Amazon’s catalogs of books, music and other titles.

Those creative and comprehensive marketing and promotion strategy have helped Amazon in developing revenue and profit for the latest time.

The chart above show the revenue segments that Amazon reported, these are different industry in different stages of development and different market. Segmentation in general merchandise seems to increase revenue gradually, the most stable segment is NA Media. It is illustrated that Amazon is constantly creating new business lines, which means Amazon’s earnings are actually driven a mix of four overlapping factors such as: capex in new distribution, artificial low price, operating loss at new ventures, offsetting profit at established ventures.

  1. Additional factors that may affect future results of Amazon.

At present and in the future, Amazon is facing some risk from both internal and external factors. They have a limited operating history and an accumulated deficit and anticipate further losses. Due to this issues, they can not accurately forecast the future revenues, they base their current and future expense levels on their investment plans and estimate of future revenues. And they are not able to adjust their spending quickly if their revenues fall short of their expectation. Governmental and legal uncertainties is also another risk Amazon may face. Because the laws or regulations may impede the growth of Internet or other online service, this could, in turn, diminish the demand for their products and service and increase the cost of doing business. Unfavorable solution of these issues may harm the business.

Moreover, they may bear system interruption, customer’s access to their website directly affects the volume of the orders and thus affect their revenue. And they believe that they need to add additional software and upgrade their system and network to accommodate traffic on our website and increase sale volume. Without these upgrades, they may face interruption. So they may have difficulty managing their growth. Their current and planned personnel, systems, procedures and controls may not be adequate to support and effectively manage future operations. They may not be able to hire, train, retain, motivate and manage required personnel or to successfully identify, manage and exploit market opportunities, which may limit their growth. Moreover, they are highly leveraged and rely on a small number of suppliers. They purchase their product from only 3 major vendors but their vendors may selling merchandise to them on acceptable terms and they may not be able to acquire merchandise from other suppliers in a timely and efficient manner.

In addition, external risk of the company may be international expansion. Because the international online commerce market continues to grow, competition in this market will likely intensify, and government in foreign jurisdiction may regulate Internet or other online service in such areas such as content, privacy, network security, and distribution, this may affect their ability to conduct business internationally.

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