Amazon Com Case Study Analysis Marketing Essay

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"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).

Executive Summary

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.

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

Planning and action - Making use of opportunities and counting action every minute

Business Strategy

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.

e-commerce Trends

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

Recommendations
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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Appendix A
SWOT analysis

STRENGTH

WEAKNESS

OPPORTUNITIES

THREATS

Brand Loyalty & Trust

One-click Buying

Best customer service approach

Reliable and secure payment service

Best Information technology and computer science and software use

Profitable business

Global Brand and variety of products sales at low prices

First successful business in e-commerce business

Largest book market segment

High customer satisfaction

Debt

Not stable inventory turnover

Did not make profit for first few years

Higher competition in concentrated book business

Highly focused on growth not on profit

Largest market share in book market and international market

Partnership strategy

Kindle as product as highest selling eBooks reader

Amazon Web service and cloud computing

Opportunities for

public sector collaboration

Profit making business

Low Entry barriers and therefore many competitors such as Barne & Noble, eBay, Yahoo, Google

Publishers
Continuous trend change in e-commerce retail business

Government policy

Weak economic performance in some countries

•
Porters's five competitive forces

Rivalry among existing firms

Electronic commerce is the intense competitive industry. There are many direct competitors in this industry
such as e-bay, Google Inc and yahoo inc. Some of the firms try to differentiate the products in terms of its
service delivery, or making easy to shop online. However, the products being sold in E-commerce industry
are not very differentiated.. I rated this competition as High because competitors lower the price and
customer benefits.

Threats of new entrants

The industry is very attractive and no strong barriers for any new entrants. From economy of scale point of
view online infrastructure will not cost high then setting up as physical store. So I rated it as Moderate

Bargaining power of buyers

Bargaining power of e-commerce industry is higher as intense competition and have more choices. There
is no loyalty of brand as customer may want cheap and better product. Many savvy businesses add value
to the valuable goods in terms of excellent and cheaper service at lower cost.

Bargaining power of supplier

Generally bargaining power is high because recently, publishers exert power over price and therefore they
can find other retailers for selling their products.

Threats of substitutes of products or service

It has become easy to sell any product online, so there is moderate threat for substitutive product or
service. For example, if someone wants to buy DVDs online from Amazon but customer is not happy with
its service or price then he can buy these DVDs from any retail store.

Porter's Five competitive Forces

Level of Threat

Low

Moderate

High

Threat of New Entrants

Bargaining power of suppliers

Bargaining power of Buyers

Intensity of Rivalry amongst competitors

Appendix B