Amazon Strategic Decision Making

Amazon.com Inc. is an online retail company that was invented on May 28, 1996.  It has three segments of operation that include Amazon Web Services (AWS), International, and North America. Amazon’s began selling books online after identifying the demand for supplying books. The company does not focus on profit but in expanding their operations to other products such as electronic devices (“Amazon’s Retail Revolution Business Boomers BBC Full Documentary 2014”). Before the company was established, customers were forced to buy the books in retail shops, a process that was tiresome and inconvenient (Mohammed). Amazon’s target customers are internet users from the United States and other continents, who have access to financial payment tools such as PayPal, debit, and credit card. Its main competitors include Walmart, Microsoft, and Google among others.

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Amazon Decision-Making Presentation

PESTEL analysis model helps in identifying external factors that affect company’s operations. In Amazon’s Case, it can assist in identifying opportunities available, and threats that result from external factors of its macro-environment.

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Political. The external political factors that are important for Amazon include political stability, governmental support towards e-commerce, and cyber-security. The three are opportunities of increasing competitiveness of Amazon although e-commerce governmental support may also pose a threat.

Economic. The state of the economy highly determines Amazon’s online retail business performance. In Amazon’s critical economic external factors include financial stability of its markets, developing countries’ increase in disposable income, and China’s potential economic recession. Economic stability minimizes economic issues and risks to business expansion. On the other hand, the increase in disposable income may boost financial performance. Finally, the economic recession in China is a threat because Amazon has been hoping to penetrate the market.

Social. The sociocultural factors that Amazon should consider are the threat of increased wealth disparity, and its opportunity in increased consumerism among the developing countries, and the high trend in online buying habits.

Technological. Technological external factors that are essential in Amazon include rapid technical negligence, the increasing IT efficiency, and increasing cyber crime. The fast technological neglect is a threat to Amazon because of the pressure of developing technological assets, and it is also an opportunity because it helps in optimizing the business. IT efficiency is useful for Amazon in maximizing online retail productivity while minimizing operational costs. Increasing cybercrime is a threat to Amazon regarding the integrity of the business.

Environmental. Despite that Amazon focuses on online business, natural environment influences its operations. The three ecological opportunities that the company should consider include environmental program interests, business sustainability emphasis, and the popularity in low-carbon lifestyles.

Legal. The financial operations of Amazon must observe legal requirements. The significant legal external factors that are an opportunity to Amazon include an increase in product regulation, ease in regulations on import and exports, and a rise in environmental protection regulations.

The Five Forces Analysis model focuses on the external factors of business organizations. Amazon faces competition from other large and smaller firms, thus exposing it to different external forces. The company appreciates the competitors because it makes it better (“Amazon’s Retail Revolution Business Boomers BBC Full Documentary 2014”). The intensities of external factors that affect Amazon based on the model are as follows. Firstly, competition is a strong force whereby, the company has to address it by strengthening its competitive advantage. Secondly, customers bargaining power is also a strong force that should be handled by increasing the company’s focus on service quality. Thirdly, suppliers bargaining power is a moderate force which can also be controlled by service quality and counterfeit reduction. Fourthly, substitution is a strong force that can be addressed by making Amazon services more attractive. Finally, a new entry is a weak force for Amazon whereby, the company should continuously enhance its website usability to optimize its user’s experience.

The type of analysis has four essential diagnostic components that include future goals, new strategy, assumptions, and capabilities. The trends in consumer behavior enhance growth and profitability by helping in identifying future goals and motivation. Management assumes that Amazon is a versatile seller covering large consumer and industrial goods with a sharp difference from other related companies. For example, Amazon leads in selling books and electronic devices, unlike eBay that concentrates with electronics. Competitors change their preferences frequently in ebusiness which increase the need for strategic actions. Amazon can observe consumer’s behavior by focusing on areas such as gender, age, and demography to identify various business opportunities. Finally, Amazon has a capability in networking with suppliers and consumers which can enhance effective actions. The company is also well equipped financially to improve large-scale marketing initiatives which result in positive growth and profitability.

There has been stiff competition between Amazon and other related businesses. Despite that consumers were not conversant with online businesses; Amazon overcame the situation by introducing a thirty-day return for its products in e-commerce (Mohammed). Customers had already begun buying books using postal services which also made it more appropriate for Amazon’s idea to sell books. The company has gained a sustainable competitive advantage by creating new brands of products. The company has also worked on distinctive products which have increased dominance in the market niche. Amazon has also engaged in various activities that increase the value of the products and enhanced low prices. The events have raised the uniqueness of Amazon resulting in a sustainable competitive advantage. Amazon also personalized its sales before any other e-commerce company by allowing customers to rate their books. The strategy helped the company to understand needs, wants, and preferences for their customers hence increasing their competitive advantage.

The strengths, weaknesses, opportunities, and threats of a company are analyzed using SWOT analysis. The first strength that supports the ongoing success and growth in Amazon is its strong brand that leads to its rapid growth. The second strength is high industrial revenue that enhances new product development and investing in new businesses. Finally, an extensive product mix is also a strength that eases the ability of customers to find their concerns on the website. The most significant weaknesses of Amazon are its limited presence in the developing markets, and the unavailability of brick-and-mortar for attracting customers. Amazon has various opportunities that are strategic in business growth. They include an ability to penetrate developing markets, expanding brick-and-motor operations, and boosting strategies of reducing counterfeit sales.  The ability to penetrate and expand brick-and-mortar stores can enhance a substantial competitive advantage. Customer’s product evaluation can also help mitigate fake products sold by increasing the need for the company to adhere to organizational policies on quality (Silbert). Threats associated with Amazon are cybercrime, imitation, and competition with other retail firms such as Walmart. The analysis is useful for Amazon to determine where to concentrate on to make the business more attractive.

VCA is an analytical tool for identifying activities that increase value and enhance the competitive advantage of a company. Amazon adopts logistic, product returns, and customer service responsibilities that increase customer value proportion (Dudovskiy). It also uses logistics in serving its marketplace and offering services to others. Amazon operational segments have also continuously increased sales. However, the international division has experienced some losses due to technology expenditure, marketing, and variation in currency exchange rates. Amazon’s commitment to financial investment is a strategy of gaining independence in its logistics facilitation. The outbound logistics comprises fulfillment centers, digital delivery, and physical stores among others. Amazon has an exceptional service to its customers which enhance value creation in the cloud computing company, and e-commerce (Dudovskiy).  It has a customer account which helps in quick and efficient access to services. Therefore, efficient logistics is one of its competitive advantages that determine Amazon’s cost structure and customer value proportion.

Strategic analysis has indicated that Amazon has a competitive advantage over other online selling companies. Despite having close competitors, the company’s strengths and opportunities have made it outstanding and more competitive. The continuous rise of online related companies may pose threats to Amazon such as cybercrime and imitation. The company managers should make critical decisions on how to improve its security networks, find strategies to curb imitation and strengthen its competitiveness. Such choices may include creating innovative products and putting more resources on its security networks. The future managerial, strategic moves should also focus on minimizing weaknesses such as absence in developing countries and lack of incentives of attracting customers (Silbert). The managers should ensure that their operations penetrate the developing countries and also strengthen consumer incentives.   It is essential for Amazon to maintain its competitive advantage in both online and offline services to overcome the weaknesses.

References

*”Amazon’s Retail Revolution Business Boomers BBC Full Documentary 2014″. Youtube.

*Dudovskiy, John. “Amazon Value Chain Analysis.” Research-Methodology, 2018, research-methodology.net/amazon-value-chain-analysis/. Accessed 5 Apr 2019.

*Mohammed, Shah. How Did Amazon Build Its ‘Sustainable Competitive Advantage’? -The Key Success Factors. 2018.

*Thompson. (2018). Crafting & Executing Strategy: The Quest for Competitive Advantage 21st Ed. McGraw-Hill ISBN: 9781259732782.

*Silbert, Jen Hetzel. “Soaring From SWOT: Four Lessons Every Strategic Plan Must Know.” Atlantic.Edu.

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Daniel Fortune

Daniel Fortune is a successful business professional, entrepreneur, father, and lover of travel.

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