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The purpose of this report is to conduct a strategic review of Amazon. In this competitive era, an organization needs to implement a set of effective strategies in order to gain competitive advantages (Ward and Peppard 2016). Therefore, it is highly important to implement innovative strategies in order to be different from the competitors. A cohesive strategic review will help to understand the current strengths and weaknesses of the business. Therefore, it will further help to improve organizational strategies on an effective manner. This report will help Amazon to revise its strategic movements in order to get superiority in competitive market.
Amazon.com is an online retail organization established in 1994. Initially, the company deals as an online bookstore (Amazon.com.au 2016). After that, the company has diversified its business process and introduced a range of products like technological appliances. The business process of the company is both business-to-business and business-to-consumers. Nowadays, the online retail industry is the most competitive industry in global market. Many organizations are providing a range of products through online platforms.
Amazon.com is operating in global market and therefore, it depends on the macro environmental forces. The external forces such as political, economic, social and technological influences the business growth and sustainability of an online retail store. When it comes to global business environment, different country has different set of legislative framework. Therefore, an organization, which is operating in global market, needs to comply with those legislative frameworks in order to conduct sustainable business (Salam 2016). Apart from that, it is highly important to understand cultural needs and requirements of the targeted consumers. In online retail industry, understanding social background of the targeted location is highly important. Moreover, understanding the economic background of the targeted country helps to deal with the pricing strategy. The business model of online retail industry depends on technological aspects (Lewrick et al. 2015). The targeted population has to be technologically tech savvy in order to use the platform. Therefore, it is highly important to analyze the macro environment in order to conduct sustainable business in global market.
In this report, a range of theories and models has been applied in order to improve the current strategic movement of Amazon.com. In this report, time constrain is the major limitation, which prevents from gathering relevant information from authentic resources. Due to time constraint, it would not be possible to evaluate a range of theories and models relevant to the topic. However, in order to conduct the strategic review of Amazon, it is highly important to evaluate more concepts and theories.
In order to conduct the strategic review, a range of data sources have been assessed and analyzed. Secondary data collection process would be the most efficient method in which relevant information can be gathered. In order to understand current strategic movement of Amazon, data has been collected from annual report of the company. When it comes to the external market forces, a range of journal and press release has been assessed. The report is based on secondary sources such as business documents, journals, previous studies, previous survey results and interviews (Bryman and Bell 2015). Furthermore, data has been gathered from governmental database such as industry reports. Through this data source, it will be possible to improve authenticity of the study. In order to conduct depth analysis of the gathered information, a range of concepts, models and theories have been applied. In order to gather relevant information both internal and external data sources have been used (Hair 2015). In internal sources, balance sheet, sales figure, inventory record and profit loss statement has been assessed. On the other hand, in external sources, governmental database, internet sources, press release and relevant journals have been assessed.
PESTLE analysis
PESTEL analysis is a marketing tool, which helps to analyze the external forces that can affect a business. In last few years, competition is online retail industry has grown rapidly. Nowadays, the trend of business globalization tends the organizations to expand in international market. Therefore, many online retail organizations like e-Bay and Alibaba have expanded their business in global market. Now, PESTLE analysis would allow understanding the external forces that have impact on the online retail business. As organizations in this industry conduct business in global, it is highly important to understand the specific impacts of the external forces, PESTLE includes “political”, “economic”, “social”, “technological” and “environmental” factors (Atighechian et al. 2016). Following is the analysis of these factors in order to identify the two most significant factors, which influence customer demand and growth.
Political: Political factor has a wide impact on online retail industry. The political situation of a country includes the political instability, relevant laws, legislations, and business guideline. In order to conduct sustainable business, an online retail organization should comply with the governmental legislations (Chen, Mislove and Wilson 2016). Ethical business practices need to be followed in order to avoid uncertainty. On the other hand, an instable political situation would affect business process of an online retail organization negatively (Solis et al., 2016). Therefore, online retail organizations should evaluate the political factor before targeting a specific country.
Economical: Economical factor represents the economical conduction of the targeted country. A low economical background affects purchase power of the consumers negatively. On the other hand, online retail industry deals with a range of product in different price. Therefore, it is highly important to evaluate the economical background of the targeted country before taking the final decision (Zhang, Zhu and Wu 2016). For example, a country with low economical background would prevent an online retail organization from selling diversified products. People will search for substitute products at low cost in order to shorten their spending.
Social: Social factor represent the lifestyle of the targeted consumers. Nowadays, people are very much associated with the world of internet. However, many people avoid online buying selling process due to trust issues (Tolstoy, Jonsson and Sharma 2016). People with orthodox mentality prefer traditional process of buying and selling. Therefore, it is highly important for an online retail organization to evaluate the cultural background of the targeted people before expanding in international market.
Technological: In this technological era, it is important for an online retail organization to adopt technological advancement. It helps the organizations to gain superiority in competitive market. However, people with low technological knowledge will face difficulties due to rapid technological improvement (Celik 2016). An online retail organization should evaluate the technological aspects of the targeted country in order to ensure sustainability. Therefore, it can be said that technological factor is the most significant aspect, which influences consumers’ demand of online retail industry.
Environmental: In order to conduct sustainable business in global market, an online retail organization needs to maintain good environmental practice like other industries. Nowadays, every organization is paying close attention to the environmental quality in order to ensure growth. Online retail organizations need to promote environment friendly products in order to attract consumers in global market (Mangiaracina et al. 2016). In case of online retail industry, it is not difficult for the organizations to comply with the environmental policies and therefore, it does not have any significant impact on the business growth. However, the company needs to avoid bad environmental practices in order to avoid uncertainty.
Legal: Legal factor has huge impact on business growth of online retail organizations. Different countries have different legal procedures in order to maintain ethical business practice. It is difficult for the online retail organizations to comply with all the legal frameworks. Avoiding the legal procedures may cause financial loss of the company (de Leeuw et al. 2016). Therefore, it can be said that legal factor is the most significant factor, which can influence business growth and product demand in online retail industry.
Porter’s five forces is a framework, which helps to evaluate the extent in which the market is competitive. It helps to evaluate potential threats and opportunity of a business process. In online retail industry, evaluation of Porter’s five forces helps to understand the potential threats from different aspects (Hu et al. 2016). In this theoretical framework, there are five forces such as market rivalry, power of buyers, suppliers’ power, threat of substitute and threat of new entrance. Following is the evaluation of Porter’s five forces in order to describe two key forces that have impact on the online retail industry.
Market rivalry (High): In online retail industry, many organizations are providing similar products at competitive pricing. Therefore, it is difficult for an online retail organization to retail existing and new consumers. Due to high market competition, online retail organizations need to provide high discounts, which may have impact on organizational profitability (Krush et al. 2016). Competitors may implement unethical strategies for with an online retail organization may lose customers. Therefore, it can be said that threat of market rivalry is very high in this industry.
Power of buyers (High): In this competitive era, many online retail organizations are offering same products. Consumers are free to choose sellers as per their convenient (Wagner and Eggert 2016). As the market is competitive, online retail organizations have adopted competitive pricing strategy. It allows the consumers to negotiate pricing while taking final purchase decision.
Suppliers’ power (Low): In online retail industry, sellers are the major suppliers. There are different sellers are offering same products. The high market competition tends the suppliers to maintain a realistic product price in order to attract the consumers (Grönroos and Grönroos 2016). Therefore, it can be said that bargaining power of suppliers is comparatively low in this industry.
Threat of substitute (High): Due to high bargaining power of buyers, consumers can choose substitute products according to their convenience (Rao-Nicholson and Khan 2016). There is lot of product options in online retail industry. Therefore, threat of substitute products is also very high.
Threat of new entrance (Low): Startup cost of online retail business is very high and therefore, it is difficult for the new organizations to enter in this industry. As the market competition is high, market leaders dominate the new organizations with efficient strategic movement (Funk, Alexandris and McDonald 2016). Therefore, it can be said that the threat of new entrance is low in this industry.
In online retail industry, the three most critical success factors are cost, after-sales service and delivery reliability. In case of Amazon.com, two rival organizations are e-Bay and Alibaba. In order to enter in international market, Amazon needs to consider the three critical success factors (Varela et al. 2016). When it comes to the pricing strategy, the company should adopt competitive pricing strategy. In order to be market leader, the product price should be low and reasonable for the consumers.
In case of Amazon, the company has adopted competitive pricing strategy, which makes the company different from the competitors.
On the other hand, online retail organizations should provide quality after-sales service in order to retain consumers. Here, Amazon and Alibaba are successfully providing feasible return and replacement policies in order to ensure that buyers will never face issues due to defective products (Jaafar et al. 2016). On the other hand, e-Bay’s return and replacement policies are not beneficial for the consumers. Therefore, it can be said that Amazon and Alibaba are holding superior position in this aspect.
When it comes to the delivery reliability, both Alibaba and e-Bay are not providing garneted delivery option to the consumers. On the other hand, Amazon has efficient logistic, which helps to deliver products on time. Therefore, it can be said that Amazon would be able to conduct sustainable business in international market in an efficient manner.
In this industry, technological innovation is one of the most important critical success factors, which influences the business growth in both domestic and international market. Online retail industry should upgrade the online platform in a frequent manner in order to improve consumers’ shopping experience. The application based shopping platform needs to be modified as per changing technological framework. In this competitive era, online retail companies would improve the technological platform in order to retain new and existing consumers.
Figure 1: Strategy Canvas of Amazon
(Source: Created by author)
VRIO analysis
VRIO is a management framework, which helps to analyze organizational resources. It further helps to analyze capabilities of an organization in an effective manner. Following is the VRIO analysis of Amazon in order to evaluate whether the organizational resources are sufficient to gain competitive advantages or not.
Value: In case of Amazon, the company has adopted competitive pricing strategy, which helps the company to increase product value (Gilbride et al. 2016). Apart from that, quality after-sales service helps the company to satisfy the consumers in an effective manner. Amazon ensures on time delivery policy, which increase value of the overall service.
Rarity: Amazon is planning for the future delivery system called prime air. This will confirm 30 minutes’ delivery of products (Amazon.com.au 2016). Here, the company will deliver products using small drones. This would be the rarest capability of Amazon, which will be completely different from the competitors’ capabilities.
Inimitability: Amazon focuses on feasibility between product price and quality. Therefore, it can be said this capability is not costly for the competitors (Bernon, Cullen and Gorst 2016). However, competitors may face difficulties while adopting these capabilities. When it comes to the prime air service, it will cost a lot for the competitors in global market.
Organizational support: Initially, Amazon was dealing with online bookstores. However, the company has diversified its product range and now conducting sustainable business in global market (Tolstoy, Jonsson and Sharma 2016). Therefore, it can be said that the company is organizing the capabilities successfully.
| Strengths | Weaknesses |
| · The company has a good brand image in global market · The product range of Amazon is diversified · The company offers a free home delivery service · Amazon maintains good business relationship with its sellers · The company has more than 304 million active account in global market · Since Amazon is the oldest e-commerce platform, it has sufficient experience in this industry · As of 2015, Net sales of Amazon is 107 billion US dollars | · Amazon works with low profit margin · User interface of Amazon is not attractive · Lack of substitute products |
| Threats | Opportunity |
| · Online presence is not strong enough in international market · Security threat of customers is a major challenge for the company · Local retailers may provide products at low cost · High market competition | · Amazon can buildup business relationship with small businesses in global market · Amazon can open physical stores in order increase consumers’ reliability level · Amazon can increase the product range in global market |
Table 1: SWOT analysis
(Source: Segarra et al. 2016)
From the above analysis, it can be assumed that Amazon has sufficient resources that would help the company to avoid potential market threats. As per the VRIO analysis, the company is going to launce prime air service through which they will be able to deliver products within 30 minutes. It means the company would be able to retain consumers in global market in an efficient manner. The opportunities stated in the SWOT analysis section shows that the company has sufficient resources to achieve the overall organizational goal. In case of Amazon, the company has a good brand image, which helps the company to maintain stability in business. This strengths factor can be rated as five in a one to five rating scale. Apart from that, product diversity helps the company to influence consumers’ buying behavior in an efficient manner. The rate for this strength would be four a one to five rating scale. In this industry, supply chain management is the most important business operation. Amazon’s supply chain process can be rated as four in a one to five rating scale.
In order to evaluate the organizational culture, cultural web has been evaluated. This management framework helps to align organizational culture and the strategies adopted by an organization. The strategies should be relevant with the organizational culture. Otherwise, it is highly important to frame the strategies accordingly with the cultural background (Braun 2016). Following is the evaluation of cultural web in order to align culture and strategies of Amazon.
According to the business process of Amazon, the relevant elements of cultural web are “routines and rituals”, “stories”, “organizational structure” and “control system”. In case of Amazon, the company has implemented a good working culture. Amazon encourages a healthy and communicative working culture that is difficult to change. When it comes to the stories, Amazon was previously a bookseller. With efficient strategic movement, the company has diversified its product range and becomes the market leader in online retain industry. Moreover, the company maintains a good quality control process, which ensures that products are satisfactory for the consumers (Orji 2016). Apart from that, the company ensures that employee performance is being monitored. The company conducts annual gathering and participates in special events, which is the common rituals. On the other hand, the organizational structure of Amazon is hierarchical through which management takes decision and conveys the final decision in top-down approach.
Figure 2: Cultural Web of Amazon
(Source: Created by author)
In case of Amazon, Porter’s Generic Competitive Strategy would be the most viable strategy. According to the external environment analysis, market competition is the most significant challenge in this industry. On the other hand, organizations need to conduct ethical business practices in order to maintain sustainability. Competitive strategies are developed for long-term profitability (Lee, Yoo and Kim 2016). Therefore, it is important to seek sustainable achievements rather than short-term achievements. Following is the implementation of the selected competitive strategy in relation with Amazon.
Figure 3: Porter’s Generic Competitive Strategy
(Source: Hernández-Perlines, Moreno-García and Yañez-Araque 2016)
According to this model, cost leadership and differentiation are essential to gain competitive advantages. When it comes to the focus strategy, it has two separate divisions such as cost focus and differentiation focus. Following are the strategies that Amazon needs to undertake in order to gain competitive advantages.
Cost leadership: the market is highly competitive and therefore, Amazon should adopt competitive pricing strategy. Through this pricing strategy, the company would be able to be the cost leader in this industry (Bayraktar et al. 2016). Here, the company needs to conduct efficient market research in order to understand the current pricing strategy of the competitors. In this manner, the company would be able to provide products at best possible price in market.
Differentiation: In online retail industry, consumers’ value can be increased by improving product quality and reducing delivery time (Amara, Halilem and Traoré 2016). Therefore, Amazon should pay close attention to the delivery time of products in order to gain superiority in competitive market.
Focus Cost: Through this strategy, Amazon would be able to satisfy a specific group of customer with low pricing strategy (Lee, Yoo and Kim 2016). Here, the company may provide effective promotional offers in order to achieve competitive advantages. This will be the most appropriate pricing strategy for the company. Through this strategy, the company would be able to modify product pricing as per requirements of the targeted consumer groups.
Focus Differentiation: Here, the company may design efficient services through which they can satisfy a specific targeted group. This strategy needs to be designed according to the special requirement of the targeted group (Hernández-Perlines, Moreno-García and Yañez-Araque 2016). Through this strategy, the company would be able to provide unique services to the consumers in specific target market. It will help the company to penetrate consumers and gain competitive advantages.
Mission
The mission of the company is to provide high quality products to the consumers at reasonable price. The company will also provide unique delivery service to the consumers in order to gain superiority in competitive market.
Vision
The vision of Amazon is to develop the prime air service within one year in order to reduce product delivery time.
Objectives
Following are the objectives of Amazon:
Scope
Amazon needs to introduce new products in order to attract consumers from the international market. The new vision of the company is to develop the prime air delivery system in order to shorten delivery cost and time. This strategic movement of the company would help to gain competitive advantages in an efficient manner. Moreover, the company has huge scope to expand business in international market with the prim air technology.
The current business strategy would help the company to be the cost leader in this industry. The vision statement of Amazon shows that, the company would be able to improve its delivery system, which is the critical success factor of this industry. The return and replacement policy of Amazon is efficient and it affects consumers’ reliability positively. Amazon has a wide product range with a strong supply chain management. As an online retail business, the company can dominate the competitors with its brand image.
Strategy statement
The company would adopt competitive pricing strategy through which the company would be able to be the cost leader in this industry. Improving delivery process would allow the company to increase market demand and overall profitability as well.
While concluding, it can be said that online retail industry is highly competitive and therefore, Amazon should implement innovative business strategies in order to attract consumers. According to the strategic capability analysis, the company has sufficient resources with which it is possible to avoid uncertainty in global market. When it comes to the cultural background and strategic movement of Amazon, it is the market leader in online retail industry. The company has developed its business with efficient strategies, which are relevant with the cultural background. While implementing competitive strategy, the company should adopt Porter’s Generic Competitive Strategy, which will allow the company to be the cost leader in this industry. Apart from that, it will also help the company to satisfy its consumers with unique services. The company should maintain low pricing strategy in order to gain supremacy in competitive market. Apart from that, new technologies need to be incorporated in order to improve the delivery system. Here, the company should focus on the prime air delivery system in order to provide good buying experience to the consumers.
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