Strategic Mangement Analysis: Amazon.com as Specimen

1.0 Introduction
Amazon.com is one the most recognized and respected online merchants. The founder of the Amazon.com is Miguel Benzos. Beginning its operation in July of 1995, Amazon.com has steadily built its reputation and brand to become the first ranking online retailer (as ranked by Gomez.com). Amazon.com has expanded from its existing business of selling books to selling a wide variety of products. Amazon.com has not only held onto its market share domestically, but also set up four other stores internationally in the United Kingdom, Germany, France, and Japan. Amazon.com has broken many rules in its six-year existence, generated considerable controversy as to the viability of its business model, and yet emerged as the leading online retailer today (Exhibit 1). In my analysis of Amazon.com I have chosen to analyze its strengths, weaknesses, threats, challenges and opportunities. I will also look at where Amazon.com is today in terms of strategy and propose recommendations for its future strategies.

2.0 Suggestion Mission Statement for Amazon.com
By looking to current growth and potential of Amazon.com, I like to suggest Mission Statement for Amazon.com as below;

“We are the wonderful online shop to give tremendous conveniences for our customers to shopping great product by using remarkable e-commerce technology in incredible market share with fabulous public image for terrific survival and growth in order to give fantastic profit for our shareholders and marvelous career for our employees.”

3.0 Analysis of Strategies by Matrixes
After research and study regarding Amazon.com, here a few matrixes developed. Those matrixes are very important in order to setup good strategies for Amazon.com to growth well. A few factors were identified. Those factors are the most critical success factors in formulating, implementing and evaluating strategies.

3.1 Competitive Profile Matrix
Purpose of the Competitive Profile Matrix (CPM) is to give idea and information to the Amazon.com management about their competitors. The closer competitors of the Amazon.com are Broders.com, Barnes & Noble, eBay.com and Wal-Mart. The matrix shown is as below;


As a result, we can see that eBay.com is the top one competitor of the Amazon.com because its Total Weighted Score is 3.19. And the Total Weighted Score for Amazon.com is 3.44. Amazon.com should give heavy attention on eBay.com activities in order to make sure its will not threat Amazon.com.

3.2 External Factor Evaluation Matrix
External Factor Evaluation Matrix (EFE) can give close view on external opportunities and threats that can affect Amazon.com. There are a few factors on opportunities and threats for Amazon.com as Critical Success Factors. The matrix shown below;


The average total weighted score is 2.5. And the total weighted for Amazon.com is 2.87. It is far from the average. Thus, the result of this matrix shows us that Amazon.com strategies effectively take advantage of existing opportunities and minimize the potential adverse effect of external threats.

3.3 Internal Factor Evaluation Matrix
Internal Factor Evaluation Matrix (IFE) is a matrix to show the strengths and weakness of the Amazon.com. A few strengths and weakness was identified. The strengths and weakness factors become a Critical Success Factors for Amazon.com as show below;


The average total weighted score is 2.5. And the total weighted for Amazon.com is 3.31. It is vary far from the average. Thus, the result of this matrix shows us that Amazon.com strategies effectively take advantage of existing strengths and to reduce the firm weaknesses.

3.4 TOWS Matrix
TOWS Matrix is an important matching tool that helps Amazon.com management develop four strategies as in matrix below;



There are a few strategies detail in side TOWS Matrix. Not all of them necessary for management to run. Just choose some of them whereby can coop with.

3.5 SPACE Matrix
The goal of SPACE Matrix is to determine weather Amazon.com are conservative, aggressive, defensive or competitive firm. The matrix show below;



From graph above, we can see clearly that Amazon.com is a financially strong firm that has achieved major competitive advantages in a growing and stable industry.

3.6 QSPM Matrix
QSPM Matrix is use to get the best strategies for Amazon.com. For this matrix I choose 3 strategies from above. Those strategies are;
A) Continue expansion
B) Expansion into electronic
C) Exploring ways to leverage its e-Commerce platform to deliver unique value


From above QSPM Matrix, we can indicate that the best strategy that should be taking by Amazon.com is exploring ways to leverage its e-Commerce platform to deliver unique value. This is because this strategy give sum of Total Attractiveness Scores is 6.60 and it is higher than other two strategies. In order to achieve strategy, Amazon.com should enhance technological and e-commerce platform and increase number of customer.

4.0 Current Amazon.com’s Strategies
Amazon.com have their own strategy and implemented planning. Those its strategies and planning as below.

4.1 E-Commerce Platform Strategy
Amazon has worked hard to create the technologically best and most easy-to-use e-Commerce platform in the world. This web of core web-site technologies, inventory management systems, warehouses and knowledgeable employees, make up Amazon’s e-Commerce platform. There was a large up-front cost for developing the core technologies and systems. However, Amazon can now re-use these technologies at little additional cost to roll out new stores of its own, or to outsource the online operations of other large retailers.

4.2 Brand Recognition & First Mover Strategy
According to Interbrand, Amazon has the 48th most recognized brand in the world. Its brand is estimated to be worth $4.5 billion, a 233% appreciation in value from its 1999 worth of $1.4 billion. Amazon was not the first online bookstore, but it was the first online bookstore with a winning strategy. It’s website went live in July 1995, way before Barnes & Noble, Borders and Powells. Of course, Amazon is no longer exclusively a bookstore, but the First-Mover Advantage remains, with regard to being a pioneer among the online merchants (Exhibit 2).

4.3 Enlarge Customer Strategy
Amazon grew its customer base in 2000 to 20 million, up 6 million from 14 million in 1999 (Exhibit 3). The size of the customer base is significant, since for its American operations/customers, Amazon is now focusing on getting its existing customers to buy more, and more often.

Amazon already has a high-rate of repeat customers, and is trying to drive that figure up but encouraging customers who shop at one of their stores to shop at multiple stores.

4.4 Technology Strategy
Since its inception, Amazon has been a leader in innovations for online shopping technologies that assist in making its site more easy to use. Many other companies, however, are also working to employ emerging technologies to their advantage. In order to be successful, Amazon has to identify the trends in technological improvements and assess how those improvements can help it make the shopping experience for its customers better.

4.5 Costs Strategy
Amazon expanded rapidly into four international markets and into many new product categories. It has worked on reducing costs by outsourcing some of its customer service operations to India. Such measures are well advised, as long as Amazon finds that the qualities of the outsourced operations are adequate.

4.6 Competition Strategy
The Internet Retailing sector is a highly competitive one, with many smaller players crashing and burning over the last year. Amazon has been the standout, in that it is the largest player and is still standing. Amazon raised a little more than a billion in credit (junk bonds) financing, when the capital markets were more favorable. Amazon's cash position has dwindled to roughly $700 million in the first quarter of 2001, down from $1.1 billion in Q4, 2000.

One of the major challenges for Amazon will be conserving cash, while it moves from outrageous growth to a more fiscally conservative and profit-oriented business model. In order to maintain the confidence of investors, it has to trim costs and refocus its business on attaining profits by Q4 of 2001.

4.7 Industry Consolidation Strategy
Many Internet businesses are being acquired or are merging with each other (Exhibit 4). Amazon could be a potential takeover target for a company such as Wal-mart. Thus, Amazon has to please investors in order to preserve its market capitalization and ward off potential vultures.

4.8 Inventory Strategy
While accepting that Amazon still has a lot to learn in terms of inventory management, Bezos maintains his confidence in the efficiency of the centralized, warehouse inventory model. For businesses such as its electronics business, where inventory depreciates very rapidly, turning inventory over fast is critical. This is because, if Amazon holds onto electronics inventory for too long, it loses value, forcing it to sell it at a lower price than it paid.

4.9 Alliances Strategy
Amazon has to constantly be on the lookout for the right partners. Amazon has to know what its core competencies are, and partner with companies to outsource operations or develop systems together, when it proves unfeasible or less profitable to go it alone (Exhibit 5).

4.10 Growth and Fiscal responsibility Strategy
Amazon has positioned itself to be the leading online destination for shoppers. It expanded considerably from its original book business into many other different product categories (Exhibit 6). It has also expanded internationally into the United Kingdom, Germany, France and Japan.

Since Amazon is continuing to make losses, it has to be careful about not overextending itself by growing too fast.

5.0 Strategic Recommendations for Amazon.com
After I studied all the threats, opportunities, strengths and weaknesses of the Amazon.com form all matrixes above, I would like to give my suggestions to Amazon.com. Those are as below.

5.1 Exploring Ways to Leverage Its e-Commerce Platform to Deliver Unique Value
From the matrixes above, this strategy can become number one strategy that Amazon.com should proceed. Amazon's system of core-technologies and back-end systems when combined together are very hard to emulate. Today, Amazon offers a wide variety of products from a single location. Each product category is powered by the same core-technology. For another company to emulate all of Amazon's self-reinforcing systems would be very hard. Amazon should continue its strategy of use its web of systems to deliver unique value to customers.

5.2 Continue Expansion
Amazon has recently begun selling software and E-Books online, and offers free music downloads too. It should continue its expansion into the digital product arena, since it can achieve higher profit margins on such sales. It should research the best partners for setting up a digital music store, such as Liquid Audio and Preview Systems.

5.3 Expansion into Electronics
Electronics is the second largest product segment of Amazon behind its Book, Music and Video (BMV) product lines. Selling electronics has several compelling advantages: higher gross margins per product, and the ability for Amazon to differentiate itself from traditional electronics stores by offering harder to find items. Electronics are comparatively cheap to store, process and ship to consumers, while commanding a high price, thus making them a valuable product segment to expand into.

5.4 Aggressively Pursuing to Outsource
It is can be done with the online operations of large-established firms. Amazon has worked hard to create the best e-commerce platform in existence and has unused warehouse capacity that can be plugged into this platform. Thus, outsourcing would definitely make sense since it would leverage its existing e-commerce platform while, making use of unused warehouse capacity.

5.5 Increasing the Average Spending per Customer
It is can be done by targeting the best (and potentially best) customers. In an interview (April 2, 2001), Jeff Bezos mentioned that in analyzing its customer base, Amazon has identified nine segments of customers. Segment 7 customers form Amazon's "sweet spot." They are a small percentage of customers who account for a large percentage of Amazon's revenue. What Amazon tries to do then, is to not only get segment 7 customers to buy more, but also to get segment 6 customers to move up to segment 7. Thus, Amazon should continue to target its customer base through personalized opt-in emails, and through recommendations, in order to encourage its best current and potential customers to buy more.

5.6 Refocusing the Company on Being Cost Conscious.
Amazon has successfully outsourced some of its customer service operations to India, whereby email queries are answered by personnel in India rather than those in Seattle. Amazon should continue to look for opportunities to outsource non-critical operations to other companies, in order to trim costs. Additionally, it should look for better ways to perform existing activities, to be more cost effective. It should analyze its inventory management system and look for ways to optimize it. It should streamline its product lines and liquidate goods that do not sell at all through its outlet store. If possible, it should try all of the above before lying off employees, which could cause great disruption and employee dissatisfaction.

5.7 Patch-up Relations With Employees
Amazon should look for ways to improve its relations with its employees. It should strive to understand their concerns, and address their problems. It should communicate to all employees that cost-cutting measures are critical to the company's continued success and that it lays off workers only when absolutely necessary.

6.0 Conclusion
Amazon.com is a pioneer and leader in the online retailing space. It is revolutionary because of the rate at which it has grown, the popularity it has achieved and the challenges it has surmounted. It is also controversial because of the large losses it has accrued to date. Critics question the viability of its business model and wonder when it will reach profitability.

In my strategic analysis of Amazon.com, I have looked at its strengths, weaknesses, opportunities, threats and challenges. Amazon.com's chief strengths are: a great executive team, the excellent technological and physical infrastructure it has developed and put in place, and the service attitude and open work environment around which the company is built. Its chief challenges are moving from being a start-up to a grown-up, resolving its labor problems, and improving its financial position. Despite these weaknesses, however, immense opportunities await Amazon.com. Expanding rapidly into selling digital products could be immensely profitable for Amazon.com. Similarly, opportunities to outsource the online operations for large companies such as Wal-mart would drive Amazon.com's revenue and profits, while making use of unused inventory space. The challenges that remain for Amazon.com as it plots its strategies are: finally turning a profit, reducing costs, succeeding in the super-competitive online retailing industry and managing its people effectively.

After having analyzed Amazon.com's current strategic positioning relative to that of the other industry players, I proposed several recommendations for its future strategies. I proposed that it continue its expansion into digital products and electronics, look for new opportunities to be an e-Commerce outsourcer for major old economy businesses, that it increases average spending per customer, and become more cost-conscious. If Amazon.com continues to suffer losses, it runs the risk of losing the goodwill of its investors and employees. However, if Amazon.com reaches profitability by its stated goal of the fourth quarter of 2001, it will prove its many critics wrong and force them to accept the legitimacy of its business model. As the bellwether of the online retailers, Amazon.com has grown tremendously from its roots as a fledgling online book retailer. Succeeding in its transition from start-up to grown-up will establish it not only as a leader among the dot-coms, but secure for it a place of respect among the top global companies.

Author
g-mie
www.asd2u.biz.tc