Amazon is the world’s largest online retailer and is indeed a pioneer in the online retailing space. Though it started as an online bookstore, its success in its venture spurred it to diversify into selling anything that can be sold online. Further, Amazon has also expanded globally and now operates around the world through a combination of localized portals and globalized delivery and logistics platforms.
The way in which Amazon has leveraged technology as a source of competitive advantage and reaped the benefits of the economies of scale in addition to leveraging the synergies between its internal resources and external drivers has spawned many rivals who aim to imitate and better its business model.
Apart from this, the key themes in this article are that the strategic alternatives that have been presented and recommended must follow the principle of them being complementary and supplementary to its core competencies. Finally, this article also suggests that Amazon must target the growing mobile commerce segment if it has to maintain its market leadership position.
Amazon’s generic corporate strategy can be described as concentric diversification. This strategy is based on leveraging technological capabilities for business success and following a cost leadership strategy aimed at offering the maximum value for its customers at the lowest price in addition to wrapping its business around the customers wherein they find Amazon to be the go-to portal for their online shopping needs.
Indeed, this strategy has paid off well as can be seen from the fact that it is the world’s largest online retailer and has consistently been the leader in the market segments in which it operates. Having said that, it must also be noted that cost leadership can follow the law of diminishing returns wherein firms following this strategy find that they are unable to sustain growth or increase profitability once the “low-hanging fruit” are plucked.
Continuing the discussion, the generic business strategy followed by Amazon can be explained using The Ansoff matrix as represented pictorially in the figure above. Amazon is placed in the Overall Cost Leadership quadrant and its relentless focus on costs is the key to understanding its overall strategy.
The specific measures taken by Amazon in pursuit of this strategy include steep discounts for is regular members through the Amazon Prime program, ensuring timely and even express delivery and at times, waiving off the shipping charges, passing on the benefits of avoiding state taxes to the customers thereby lowering the price even further, and an overall strategy based on making the customer experience as seamless and as smooth as possible.
Apart from this, Amazon’s strategy is driven by its sources of competitive advantage wherein it is focus on technology, actualizing the benefits of economies of scale, and leveraging the efficiencies from the synergies between its external drivers and internal resources have been the cornerstones of its business model. Further, Amazon uses Big Data Analytics as a tool to map consumer behavior. Indeed, Big Data has been embraced to such an extent by the company that it is now in a position to market this as another service offering.
Anyone who has shopped on Amazon encounters a list of recommended products that are picked according to the browsing history and the mapping of their purchases with that of likely purchases in the future. This has meant that Amazon can sense and intuit what consumers want and tailor its strategies accordingly. As mentioned throughout this article, Amazon uses technology to the fullest, which is not surprising considering it is after all an internet-based company.
However, Amazon’s overall cost leadership with little product differentiation means that its business model has been copied by “me-too” competitors in a cutthroat price war that has left everyone bruised. Further, its focus on cost reduction at the expense of product differentiation means that its products are available on other portals as well and there is no product line that is exclusive or unique to it.
Apart from this, Amazon does not stock products that appeal to the need for “instant gratification” wherein consumers make impulsive purchases and who are impatient and need quick fixes. For instance, except for its movies and other digital items, the other product lines are all not in the category of those that provide this gratification to the customers.
Having said that, it must be noted that Amazon’s current strategy is also built around the convenience aspect wherein customers need not go to a physical bookstore or even wait for their purchases to arrive after some time as it has introduced same day delivery in many countries and is even toying with the idea of using Drones for near instantaneous delivery. Apart from that, its focus on non-retail product lines such as cloud based services means that it is addressing the issue of differentiation as well as its overreliance on cost leadership.
Amazon has popularized “one-click” selling wherein customers can buy anything and everything that is for sale on its portal with just a click of the mouse. Going by the rate at it, which Amazon is growing, it is indeed the case that its business model is “clicking” with its customers. Having said that, the need of the hour for Amazon is to sustain its growth rates and maintain the momentum.
Further, a worrying factor for the company is that it has not made profits in many of the quarters over the last three years. A possible reason for this can be its excessive focus on cost leadership, which means that in the “race to the bottom” its bottom line is being impacted.
Finally, Amazon needs to adopt a Glocal approach in its international markets wherein it adapts its Global business model with that of its Local delivery and logistics supply chain. This would indeed create a globalized business value chain wherein anyone anywhere can buy products anytime and every time.
In conclusion, the future looks bright for Amazon and if it continues to focus on its core competencies and at the same time expands its global value chain, there is no reason why it cannot maintain its market leadership.