Thediscovery of the internet affected nearly all aspects of human life,including the way people carry out business transactions. Theinternet brought new opportunities and an equal share of challengesto the retail industry. Amazon.com, Inc. is a U.S.-based retailcompany that took advantage of the internet to take the retailbusiness online. The company was started in established in 1994 andits headquarters are located in Seattle, Washington, DC (Amazon.com,2016). The company offers a wide range of internet-based services,including online shopping, content distribution, and web hosting. Theaim of this paper is to discuss Amazon’s strategic managementprocess.
Thereare two major technology trends that have a direct impact on theAmazon. The first trend is an increase in the rate of the internetpenetration. It is estimated that the number of people who can accessthe internet increased to 3.5 billion in 2016 from 2.21 billion in2015 (Silverman, 2016). Amazon relies on the internet in order tointeract and make sales to its customers. Therefore, an exponentialincrease in the penetration of the internet is an opportunity forcompany’s future growth. The second technology trend is theincrease in the use of mobile devices worldwide. Studies have shownthat about 31 % of the world’s population has mobile devices thatcan access the internet (Adikari, 2013). These devices make it easyfor customers to review products on Amazon’s websites and makepurchases at their convenience.
Theretail company sells goods in small quantities, which implies that anincrease in the population size will expand its customer base. Inaddition, trends indicate that many countries are reporting anincrease in the rate of population aging, which suggests that most ofthe future customers will be above 40 years. This demographic trendfavors Amazon, since studies have shown that customers aged above 40years are more loyal and spend more money on the company than theyoung people (Smith, 2015).
Thecurrent economic trends will affect Amazon in different ways. First,the depreciation of the U.S. dollar will increase the profit marginfor locally sourced inventory while reducing gains for importedbrands. This is likely to boost domestic sales while discouraginginternational transactions (Adikari, 2013). It is also estimated thatthe rate of unemployment in the U.S. is likely to remain relativelystable within the next one year (Adikari, 2013). This suggests thatthe risk of losing more potential customers in the domestic marketdue to employment will reduce, but this may not be the case withforeign markets. Other economic trends indicate that household wealthis on the rise, which indicates that the amount of disposable incomewill increase (Adikari, 2013). This will favor the retail industrysince there will be more potential customers.
Thereare several governments that develop policies that tend to discourageonline retail trade. For example, censorship policies practiced inChina have limited the capacity of the American and European onlineretail companies to penetrate its large market (Adamkasi, 2015). Inaddition, governments have not demonstrated adequate collaboration intrying to reduce incidents of cybercrime that have increased the riskof losing money when trading online. In addition, the use of theinternet and online trade are regulated in different countries usingdissimilar laws. For an instant, countries have different tax lawsthat complicate online retail trade that is supposed to bridge thegap created by boundaries. This limits Amazon’s capacity topenetrate easily in the international market.
Althoughit is evident that the use of mobile devices and the internet hasbeen growing exponentially, there is no guarantee that people willturn into online buying since this is not part of their culture.There are many factors (such as safety, habit, and uncertainty) thathave been entrenched in people’s culture, thus reducing theirtendency to engage in online trade. For example, many people fearthat they might lose money to cyber criminals or fail to receive thequality or the type of goods that they ordered online (Adamkasi,2015). The fact that many people feel uncomfortable with onlinetransactions suggests that the expansion of the customer base willnot be commensurate with the increase in the internet penetration.
Thereare two key global trends that will have a direct impact on theAmazon. First, there is an exponential increase in the number ofonline payment options (Adamkasi, 2015). The increase ininterdependence across the globe has made it possible for onlinepayment to be made from any part of the world, which favors onlineretail companies. The second trend is the increase in the popularityof the concept of personalization. Personalization has enabled onlineretail firms to analyze behavior data and determine what is needed indifferent market segments across the globe.
Rivalryamong the existing firms
Thelevel of competition and rivalry between the online retail companiesis quite high. Amazon competes with other aggressive companies thatare located in different countries, including China. Some of themhave a whole range of brands that Amazon deals with while others sella percentage of them (Dudovskiy, 2016). For example, there arealternative companies that sell books, while others deal withvirtually any type of commodity. This has reduced the cost ofswitching between online retailers, which intensifying the level ofcompetition.
Thebuyer’s bargaining power varies depending on the type of services.For example, customers who rely on Amazon Web Services have a limitedbargaining power since there is a cost of switching to alternativeretailer. This cost is attributed to the fact that services offeredby the company on Amazon Web are unique and difficult to findelsewhere (Dudovskiy, 2016). Customers who buy different products onthe Amazon marketplace have a high bargaining power. These customersare highly sensitive and they have an opportunity to switch toalternative companies and products.
Thesupplier’s bargaining power for the online retail company isrelatively high. The sector in which Amazon operates is characterizedby the existence of a small number of suppliers, which gives them theability to bargain for better prices. A slight increase in the priceof commodities posted on Amazon’s website by one supplier caneasily affect the sales since customers can get the same productsfrom offline shops. However, forward integration has been shown toreduce the bargaining power of suppliers (Greenspan, 2016).
Thethreat caused by new entrants
Thistype of threat is quite high, given the ease with which individualsand companies are able to start the online retail businesses. It ispossible to start a company with the internet and a laptop sinceproducts are posted on the website by suppliers without the need topay for them. In other words, one may not need to keep a huge stockin order to get into the business (Greenspan, 2016). However,retaliation from existing corporations, coupled with the high cost ofbrand development reduces the ease of entry into the sector to someextent.
Thethreat of substituting the products offered by Amazon is extremelyhigh. This is attributed to the fact that there are many companiesthat sell the same products as Amazon using the online platforms.Customers can also substitute the type of platforms where they canchoose to buy the same products in offline stores (such as Wal-Mart),which is a threat to Amazon (Greenspan, 2016). The availability ofalternative brands and platforms in which retail trade can beconducted to reduce the switching cost, which increases the threat ofsubstitution.
Amazonfaces competition from online as well as offline retailers. Itsprimary online competitors include eBay, Alibaba, BesyBuy.com, andWalmart.com, among others. Its primary offline competitors includeBest Buy, Target, and Wal-Mart (Tuttle, 2016). These online andoffline stores subject Amazon to the stiff competition that limitsits capacity to recover its invested funds. Most importantly, therapid emergence of new online retailers suggests that the level ofcompetition is more likely to increase than reduce in the future.
Theprogress that has been made by Amazon in a highly competitive marketcan be attributed to three major strengths. First, the costleadership strategy has enabled Amazon to differentiate itself fromother players in the online retail sector. The cost leadership isachieved the establishment of strategic ties that lead to asuccessful reduction in prices (Hassan, Sistani & Raju, 2014).Secondly, the company has established an efficient delivery networkthat has increased its ability to gain the trust and loyalty of manycustomers. The efficiency is associated with the development of thestructured network that has reduced the cost as well as the timerequired to deliver products to customers (Hassan, Sistani &Raju, 2014). Third, customer centricity has enabled Amazon toincrease its sales. This trend is attributed to the company’sability to implement customer relationship management strategies.These CRM strategies allow Amazon to study customers’ behavior andbundle products according to their preferences.
Amazonhas numerous internal strengths that have facilitated its growth inthe past, but there are several weaknesses that will limit itsprogress in the future. The company has reported a shrink in itsmargins in several market segments. For example, it reported a lossof $ 359 crs in the financial year 2013-2014 in the Indian marketsegment (Bhasin, 2016). The decline in revenue is attributed todifferent factors, but the main one is stiff competition. Inaddition, penetration in developing economies has been a majorchallenge. The lack of capacity to make operations in developingeconomies has increased company’s debt. Moreover, products flop hasdamaged the company’s image. The launch of Kindle fire and firephone did not bring the expected returns, which increased theconsumers’ as well as investors’ doubt about the future of theAmazon.
EnvironmentalOpportunities and Threats
Thereare several opportunities that Amazon can exploit in order toincrease its profitability as well as the level of competitiveness.The use of the acquisition strategy to penetrate the internationalmarkets can reduce the amount of money and time that Amazon has beentaking in the past (Bhasin, 2016). This strategy will allow Amazon toutilize its specialized capacity to realign its new acquisitions andcompete fairly with companies that are based in the foreign markets.In addition, opening some physical stores can help Amazon to enjoythe benefits of offline and online transactions at the same time(Bhasin, 2016). This strategy will enable Amazon to compete withonline as well as the offline retail companies, thus increasing itssales. Moreover, backward integration is an opportunity that Amazoncan exploit in order to develop its unique brands, instead of relyingon suppliers who have a strong bargaining power.
Theonline retail sector is characterized by low entry barriers, whichincrease the probability that new companies can join the marketunexpectedly. The low cost of starting an online retail firm comparedto an offline enterprise is one of the key benefits, but can beconsidered as a threat since it allows other investors to enter themarket (Bhasin, 2016). Additionally, the existence and emergence ofnew online retail firms in emerging markets (such as India and China)will limit the capacity of Amazon to diversify in the internationalmarket segments. The complex government regulations will limit theability of Amazon to penetrate foreign markets. This threat isattributed to the lack of clarity in the issue of foreign directinvestment in the multi-brand retail company that sells productsacross borders. Doubts about the level of safety of onlinetransactions will limit the number of potential customers who willingto buy from Amazon as compared to offline stores.
Amazoncan increase its profitability by diversifying its brand throughglobal expansion. The company can enter the emerging markets,especially in countries that do not have their own online retailfirms. This enables Amazon to enter the international markets with alimited level of competition (Hassan, Sistani & Raju, 2014).However, there is a high probability that new online retail firmswill emerge any time and subject Amazon to the risk of stiffcompetition.
Amazoncan adopt the backward integration strategy in order to startproducing in-house brands. The in-house brand will help Amazon totake control of the cost of running business and the price of theproducts posted on its website (Bhasin, 2016). However, backwardintegration could be an expensive strategy that will take long beforethe company recovers its initial investment.
Investmentin offline stores
Amazonhas invested in online retail trade, while ignoring the opportunitiesthat it could get by combining the offline and internet-basedtransactions. The adoption of this strategy will enable the companyto compete with large offline retail corporations (such as Wal-Mart)and other online companies (Bhasin, 2016). The ability to tap thebenefits of both platforms will increase sales and competitiveness.
Amazonhas several strategies that it can use to increase its revenuegenerating capacity and competitiveness, but the establishment ofoffline stores is the most viable approach that will guarantee thecompany’s growth in the future. One of the key benefits associatedwith offline stores is the ability of customers to interact with theproducts and review them properly before making purchases (Hassan,Sistani & Raju, 2014). In addition, the store will give Amazon anopportunity to sell to customers who fear trading online due to therisk of cybercrime. The implementation process will follow foursteps. First, the Amazon will study all market segments, with theobjective of identifying areas where offline stores can bring ahigher return on investment. The second step should involve thedetermination of whether leasing or constructing building will be thebest option. Third, Amazon should launch its offline stores in themost strategic locations. The last stage should involve monitoringand evaluation of the success of this investment strategy. Theevaluation will help Amazon weigh between online and offline sales inorder to determine which one of them are more profitable.
Amazonis the largest online retail company that took advantage of being apioneer of internet-based retailing to expand and penetrate theinternational market. However, the ease with which individual andcompanies can start the online retail business has resulted in theemergence of a large number competitor. The emergence of large andsmall internet-based retail firms have intensified Amazon’scompetition to an extent that the revenues generated by the companyannually has been declining. However, there are numerousopportunities (such as diversification in emerging markets,establishment of offline stores, and backward integration) that canenable Amazon to increase income generating capacity and the level ofcompetitiveness.
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