AMAZON’S CORPORATE STRATEGY DIRECTIONS
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 .
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. 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.
