Amazon is a global online retailer and is credited to be the pioneer in the online retailing space. Amazon has become a household name and has earned itself a precious position in the business world as it has been topping the list of fortune 500 companies for several years in a row. Fast company magazine listed Amazon as one of the most innovative company in 2017 while Forbes ranked Amazon 3rd on its list of the most innovative companies in 2017. Amazon set of business and corporate level strategies have been at the center of this success and much more.
Business-Level Strategies
Amazon is considered as a cost leader and among the most customer centric companies in the world. Amazon business strategy is guided by cost leadership. The cost leadership is achieved by three main elements, price, convenience and range to give competitive advantage. Although Amazon is a huge global corporation, the company operates with a very thin profit margin, which is attributable to a combination of economies of scale, continuous innovation and relentless business diversification (Amazon, 2020). The business strategy is further guided by four principles of customer obsession as opposed to focusing on competitors, the drive for invention, discerning about the long term, as well as commitment to operative distinction.
The need to provide customers with cost effective products that are conveniently delivered is founded on creating convenience for customers. The modern customer has become very enlightened and informed about his rights. The twenty-first century marketplace has also become very competitive. The growth of the internet has led to a new breed of customers who demand quality products at low prices and with the most convenience. Amazon realized these socioeconomic shifts in the market place and stepped up to the retailer of choice that gives the utmost convenience for customers. Convenience in the digital age means that customers want goods delivered at their doorsteps, and the means of ordering such products is through the click of a button. When customers want to find products online, most probably they will visit Amazon.com to find if the product is available or not (Amazon, 2020). Walmart has successfully positioned itself as the retailer and seller who is only a button-click away.
The customer is at the center of Amazon’s cost leadership strategy. This is evidenced by the corporation’s mission and vision statement. The company’s vision is to be the earth’s most customer-centric business where individuals can find and realize whatever they might want to buy online. The vision statement speaks volumes about the Amazon’s emphasis on its customers not only in the short-run, but also in the long-run. There is a commonly held belief that during boardroom meetings, Amazon puts a chair to represent the customer as a reminder that the company needs to keep innovating on their behalf. Amazon’s mission is to provide goods and services for customers at the lowest possible prices with utmost convenience, and with the best available selection (Amazon, 2020). The mission statement demonstrates that Amazon strategy is about the customers and convenience.
Justification
In consideration of the above business-level strategies, I do not think that Amazon use of cost leadership strategy is the most important to the company’s long term success. One reason why cost leadership is not the most significant is because Amazon might be too obsessed with keeping prices low and fail to detect changes in customers’ needs. Using cost leadership might seem like an approach of ‘one size fits all,’ yet fail to understand the competitive levels of differentiation. Secondly, using cost leadership is a model that can be easily copied by competitors through their own unique strategic actions. Competitors are likely to follow what the business does and adopt the same in their business with a little modification, thereby weakening Amazon’s position in the market. Alternatively, major suppliers could turn to be possible competitors like what happened to Netflix. Walt Disney, Comcast, and AT&T used to be major suppliers of content for Netflix, but they have turned to be fierce competitors launching direct-to-consumer streaming services (Sherman, 2019).
Corporate-Level Strategies
While business level strategies are competitive strategies that firms take to compete in individual product markets, corporate-level strategy refers to companywide actions that a firm takes to gain competitive advantage by adopting and managing a group of different businesses in various product markets and industries. Amazon adopts a concentric diversification strategy that is founded on leveraging technological capabilities for Amazon in pursuant of the cost leadership strategy (Sadq, 2018). The concentric diversification strategy has paid off from the fact that Amazon is the largest online retailer in the world, as well as in the various market segments in which it operates. At the company level, Amazon adopts specific measures to pursue the diversification strategy such as the Amazon prime program whereby regular members are given huge discounts, timely and sometime express delivery of goods and waiving shipping charges.
Amazon has been very aggressive in harnessing mergers and acquisition. Amazon has closed more than 30 deals since 2016. The acquisition of Zoox was one of the Amazon’s biggest acquisition, wholefoods Inc., do.com, harvest.ai, Zappos among others to strengthen its core e-commerce operations. Acquisition of whole Foods was made at a cost of $13.7 billion, and is considered as a strategic move to counter competition by Walmart. Acquisition of Walmart whole Foods has opened a door of opportunities for Amazon by taking the sale of grocery to a whole new level (Amazon, 2020). Amazon has also expanded the acquisition drive internationally whereby it has acquired Souq.com, a middle-east based company to take advantage of the growing e-commerce in the region.
Although Amazon was started as an online bookstore, its success has seen it diversify into selling anything that can be sold online. Amazon invests heavily in technologies like Amazon robotics for picking and packing process. It is possible for customers to walk in Amazon outlets without being served by a single employee. The Amazon Go services established in 2016 demonstrates the power of cost savings and technology that Amazon has adopted. There are no checkout points as payment may be automatically added to the cart as clients take products from the shelves. Once the purchase is complete, the payment automatically gets subtracted from the client’s account or the digital wallet. Amazon drones are used for same day delivery to ensure convenience for customers (Amazon, 2020).
Amazon deals with web services as part of related constrained diversification for cloud based computing. Acquisition of Zoox saw Amazon venture into the autonomous vehicles industry. Amazon is also present in the entertainment industry through Amazon prime video, Amazon studios, and prime music. Amazon is also present in the new and emerging businesses and emerging markets. Since 2016, Amazon has become a prominent player in the fintech segment and has lent out $1 billion in small loans, with most attention being focused on Indian markets, Brazil and the Middle East (Amazon, 2020).
Justification
The constrained diversification is the most important corporate-level strategy or the success of Amazon. Constrained diversification is in line with the old saying that one should not put all eggs in one basket. By diversifying in different industries and different product markets, Amazon ensures that its operations are shielded from shocks of relying on a single product market. For instance, the world is grappling with corona virus epidemic that has seen many governments issue movement restrictions. By investing in Amazon drones, Amazon has reaped big in the midst of crisis as people order for goods and have them delivered to their places safely without fears of contracting the deadly corona virus disease.
Competitive Environment
Amazon operates in a heavily competitive business environment. Related constrained diversification corporate-level strategy sees Amazon operate in different industries such as cloud computing, digital distribution, consumer goods, self- driving cars, retail industry among others. In the retail industry, Amazon competes with retailers like Costco, best buy, Walmart and target. Amazon competes with Netflix, Google and apple for subscription services while competitors in the web services are such as IBM, Microsoft and Oracle. From the many competitors that Amazon has to deal with, Walmart corporation is the most significant competitor (Izogo, 2015).
Walmart is a giant corporation and a global retailer known or its cost leadership strategy. In terms of the business level strategy, Walmart operates a cost leadership strategy, just like Amazon. Both companies are determined to provide goods and services at the lowest possible prices. Amazon is regarded as the Walmart of the internet, which implies that the two corporations are giants in their respective industries (Izogo, 2015). Just like Amazon, Walmart adopts a “one size fits all” approach by venturing in nearly every area. Walmart uses technological innovations as means of maintaining low cost such as use of RFID technology to monitor inventory movement, use of Endless Aisles to make customers order and pay for goods, even if the goods are out of stock to ensure that customers do not have to look or the out-of-stock product from the competitors. To create convenience or customers, Walmart has adopted Home Free, same day delivery and Pick up Today services similar to Amazon’s drone and express delivery services.
Walmart is determined to guard its market share from Amazon, and perhaps take some of Amazon’s business from the ecommerce channels. Walmart has been aggressive in acquiring ecommerce companies such as jet.com, Indian’s flip kart, shoes.com, Vudu, ModCloth among others for both related and unrelated diversification. On its part, Amazon acquired whole foods Inc.; a fierce competitor of Walmart in a bid to venture into Walmart’s market share. Competition between Walmart and Amazon is a battle of titans and every firm is determined to take the day. Although each company contends that its focus is on the customer, they seem to be making similar approaches with the intention of grabbing the market share of each other .
Amazon’s strategy of cost leadership at the business-level and constrained diversification at the corporate level is most likely to be successful in the long term. Diversification spreads risks because different industries are affected by the same economic shocks differently. For instance, Amazon robotics and drone delivery have added into Amazon’s competitive advantage in 2020 following the outbreak of coronavirus pandemic as people ordered for goods and had them delivered in accordance to government restrictions on movement (Amazon, 2020). If Amazon was relying on a single product market such as in the fintech segment that entails lending out small loans, Amazon could have been severely affected by the crisis. However, diversification has made Amazon resilient in the difficult economic times brought about by covid-19.
Secondly, Amazon strategies are founded on technology, which is likely to win in the long-run. Technology has become a lifestyle in the twenty-first century, and Amazon is not leaving anything to chance. Amazon is leading in technological innovations such as Amazon drones, autonomous vehicles and cloud based services (Amazon, 2020). Amazon collaborates with Google Company in its various technology businesses, which makes it a leader by association. There is a common mantra that birds of feather flock together, and the association of Amazon with Google makes it a technology leader like Google Company is, as compared to Walmart that takes technological measures after others. For instance, Walmart introduced Walmart Pay, several years after Google Pay, Amazon Pay and Apple Pay, long after the first mover advantages have been exploited.
Market Cycles
Market cycle can be broadly divided into two, the fast cycle and the slow cycle markets. Slow cycle markets are known as markets ideal for monopolies because there is adequate time for strategy and diversification to give a firm competitive advantage over its competitors (Hoskisson, 2020). On the other hand, slow cycle markets are markets where players have little turnaround time to develop new products and sell them to the market before their competitors. In slow market cycles, time is of essence because competitors try to outdo each other through strategies like price reductions and discounts in a bid to get the as much market share as possible.
Although Amazon diversification strategy at the corporate level and cost leadership strategy has been considered as the most likely factors to bring success in the long run, the decision would differ depending on the type of market (Hoskisson, 2020). Diversification and cost leadership would be ideal in slow market cycles because there is adequate time to look or capital and invest in research and development to come up with unique products, and which require huge capital outlays. Therefore, these strategies would not be ideal for fast cycle markets. On the other hand, Walmart strategies of cost leadership and market development would be ideal in a fast cycle market because it entails the act of guarding the existing market share from going to competitors through strategies of discounts and low prices to appeal to large numbers of price sensitive customers.
Amazon deals with products and services for both slow cycle and fast cycle markets, which necessitate a combination of cost leadership and diversification strategies. The management of Amazon is well aware of the kind of environment in which it operates and makes strategies that are aimed at promoting competitive advantage for the online retailer in the short term and in the long term.
Business-Level Strategies
Amazon is considered as a cost leader and among the most customer centric companies in the world. Amazon business strategy is guided by cost leadership. The cost leadership is achieved by three main elements, price, convenience and range to give competitive advantage. Although Amazon is a huge global corporation, the company operates with a very thin profit margin, which is attributable to a combination of economies of scale, continuous innovation and relentless business diversification (Amazon, 2020). The business strategy is further guided by four principles of customer obsession as opposed to focusing on competitors, the drive for invention, discerning about the long term, as well as commitment to operative distinction.
The need to provide customers with cost effective products that are conveniently delivered is founded on creating convenience for customers. The modern customer has become very enlightened and informed about his rights. The twenty-first century marketplace has also become very competitive. The growth of the internet has led to a new breed of customers who demand quality products at low prices and with the most convenience. Amazon realized these socioeconomic shifts in the market place and stepped up to the retailer of choice that gives the utmost convenience for customers. Convenience in the digital age means that customers want goods delivered at their doorsteps, and the means of ordering such products is through the click of a button. When customers want to find products online, most probably they will visit Amazon.com to find if the product is available or not (Amazon, 2020). Walmart has successfully positioned itself as the retailer and seller who is only a button-click away.
The customer is at the center of Amazon’s cost leadership strategy. This is evidenced by the corporation’s mission and vision statement. The company’s vision is to be the earth’s most customer-centric business where individuals can find and realize whatever they might want to buy online. The vision statement speaks volumes about the Amazon’s emphasis on its customers not only in the short-run, but also in the long-run. There is a commonly held belief that during boardroom meetings, Amazon puts a chair to represent the customer as a reminder that the company needs to keep innovating on their behalf. Amazon’s mission is to provide goods and services for customers at the lowest possible prices with utmost convenience, and with the best available selection (Amazon, 2020). The mission statement demonstrates that Amazon strategy is about the customers and convenience.
Justification
In consideration of the above business-level strategies, I do not think that Amazon use of cost leadership strategy is the most important to the company’s long term success. One reason why cost leadership is not the most significant is because Amazon might be too obsessed with keeping prices low and fail to detect changes in customers’ needs. Using cost leadership might seem like an approach of ‘one size fits all,’ yet fail to understand the competitive levels of differentiation. Secondly, using cost leadership is a model that can be easily copied by competitors through their own unique strategic actions. Competitors are likely to follow what the business does and adopt the same in their business with a little modification, thereby weakening Amazon’s position in the market. Alternatively, major suppliers could turn to be possible competitors like what happened to Netflix. Walt Disney, Comcast, and AT&T used to be major suppliers of content for Netflix, but they have turned to be fierce competitors launching direct-to-consumer streaming services (Sherman, 2019).
Corporate-Level Strategies
While business level strategies are competitive strategies that firms take to compete in individual product markets, corporate-level strategy refers to companywide actions that a firm takes to gain competitive advantage by adopting and managing a group of different businesses in various product markets and industries. Amazon adopts a concentric diversification strategy that is founded on leveraging technological capabilities for Amazon in pursuant of the cost leadership strategy (Sadq, 2018). The concentric diversification strategy has paid off from the fact that Amazon is the largest online retailer in the world, as well as in the various market segments in which it operates. At the company level, Amazon adopts specific measures to pursue the diversification strategy such as the Amazon prime program whereby regular members are given huge discounts, timely and sometime express delivery of goods and waiving shipping charges.
Amazon has been very aggressive in harnessing mergers and acquisition. Amazon has closed more than 30 deals since 2016. The acquisition of Zoox was one of the Amazon’s biggest acquisition, wholefoods Inc., do.com, harvest.ai, Zappos among others to strengthen its core e-commerce operations. Acquisition of whole Foods was made at a cost of $13.7 billion, and is considered as a strategic move to counter competition by Walmart. Acquisition of Walmart whole Foods has opened a door of opportunities for Amazon by taking the sale of grocery to a whole new level (Amazon, 2020). Amazon has also expanded the acquisition drive internationally whereby it has acquired Souq.com, a middle-east based company to take advantage of the growing e-commerce in the region.
Although Amazon was started as an online bookstore, its success has seen it diversify into selling anything that can be sold online. Amazon invests heavily in technologies like Amazon robotics for picking and packing process. It is possible for customers to walk in Amazon outlets without being served by a single employee. The Amazon Go services established in 2016 demonstrates the power of cost savings and technology that Amazon has adopted. There are no checkout points as payment may be automatically added to the cart as clients take products from the shelves. Once the purchase is complete, the payment automatically gets subtracted from the client’s account or the digital wallet. Amazon drones are used for same day delivery to ensure convenience for customers (Amazon, 2020).
Amazon deals with web services as part of related constrained diversification for cloud based computing. Acquisition of Zoox saw Amazon venture into the autonomous vehicles industry. Amazon is also present in the entertainment industry through Amazon prime video, Amazon studios, and prime music. Amazon is also present in the new and emerging businesses and emerging markets. Since 2016, Amazon has become a prominent player in the fintech segment and has lent out $1 billion in small loans, with most attention being focused on Indian markets, Brazil and the Middle East (Amazon, 2020).
Justification
The constrained diversification is the most important corporate-level strategy or the success of Amazon. Constrained diversification is in line with the old saying that one should not put all eggs in one basket. By diversifying in different industries and different product markets, Amazon ensures that its operations are shielded from shocks of relying on a single product market. For instance, the world is grappling with corona virus epidemic that has seen many governments issue movement restrictions. By investing in Amazon drones, Amazon has reaped big in the midst of crisis as people order for goods and have them delivered to their places safely without fears of contracting the deadly corona virus disease.
Competitive Environment
Amazon operates in a heavily competitive business environment. Related constrained diversification corporate-level strategy sees Amazon operate in different industries such as cloud computing, digital distribution, consumer goods, self- driving cars, retail industry among others. In the retail industry, Amazon competes with retailers like Costco, best buy, Walmart and target. Amazon competes with Netflix, Google and apple for subscription services while competitors in the web services are such as IBM, Microsoft and Oracle. From the many competitors that Amazon has to deal with, Walmart corporation is the most significant competitor (Izogo, 2015).
Walmart is a giant corporation and a global retailer known or its cost leadership strategy. In terms of the business level strategy, Walmart operates a cost leadership strategy, just like Amazon. Both companies are determined to provide goods and services at the lowest possible prices. Amazon is regarded as the Walmart of the internet, which implies that the two corporations are giants in their respective industries (Izogo, 2015). Just like Amazon, Walmart adopts a “one size fits all” approach by venturing in nearly every area. Walmart uses technological innovations as means of maintaining low cost such as use of RFID technology to monitor inventory movement, use of Endless Aisles to make customers order and pay for goods, even if the goods are out of stock to ensure that customers do not have to look or the out-of-stock product from the competitors. To create convenience or customers, Walmart has adopted Home Free, same day delivery and Pick up Today services similar to Amazon’s drone and express delivery services.
Walmart is determined to guard its market share from Amazon, and perhaps take some of Amazon’s business from the ecommerce channels. Walmart has been aggressive in acquiring ecommerce companies such as jet.com, Indian’s flip kart, shoes.com, Vudu, ModCloth among others for both related and unrelated diversification. On its part, Amazon acquired whole foods Inc.; a fierce competitor of Walmart in a bid to venture into Walmart’s market share. Competition between Walmart and Amazon is a battle of titans and every firm is determined to take the day. Although each company contends that its focus is on the customer, they seem to be making similar approaches with the intention of grabbing the market share of each other .
Amazon’s strategy of cost leadership at the business-level and constrained diversification at the corporate level is most likely to be successful in the long term. Diversification spreads risks because different industries are affected by the same economic shocks differently. For instance, Amazon robotics and drone delivery have added into Amazon’s competitive advantage in 2020 following the outbreak of coronavirus pandemic as people ordered for goods and had them delivered in accordance to government restrictions on movement (Amazon, 2020). If Amazon was relying on a single product market such as in the fintech segment that entails lending out small loans, Amazon could have been severely affected by the crisis. However, diversification has made Amazon resilient in the difficult economic times brought about by covid-19.
Secondly, Amazon strategies are founded on technology, which is likely to win in the long-run. Technology has become a lifestyle in the twenty-first century, and Amazon is not leaving anything to chance. Amazon is leading in technological innovations such as Amazon drones, autonomous vehicles and cloud based services (Amazon, 2020). Amazon collaborates with Google Company in its various technology businesses, which makes it a leader by association. There is a common mantra that birds of feather flock together, and the association of Amazon with Google makes it a technology leader like Google Company is, as compared to Walmart that takes technological measures after others. For instance, Walmart introduced Walmart Pay, several years after Google Pay, Amazon Pay and Apple Pay, long after the first mover advantages have been exploited.
Market Cycles
Market cycle can be broadly divided into two, the fast cycle and the slow cycle markets. Slow cycle markets are known as markets ideal for monopolies because there is adequate time for strategy and diversification to give a firm competitive advantage over its competitors (Hoskisson, 2020). On the other hand, slow cycle markets are markets where players have little turnaround time to develop new products and sell them to the market before their competitors. In slow market cycles, time is of essence because competitors try to outdo each other through strategies like price reductions and discounts in a bid to get the as much market share as possible.
Although Amazon diversification strategy at the corporate level and cost leadership strategy has been considered as the most likely factors to bring success in the long run, the decision would differ depending on the type of market (Hoskisson, 2020). Diversification and cost leadership would be ideal in slow market cycles because there is adequate time to look or capital and invest in research and development to come up with unique products, and which require huge capital outlays. Therefore, these strategies would not be ideal for fast cycle markets. On the other hand, Walmart strategies of cost leadership and market development would be ideal in a fast cycle market because it entails the act of guarding the existing market share from going to competitors through strategies of discounts and low prices to appeal to large numbers of price sensitive customers.
Amazon deals with products and services for both slow cycle and fast cycle markets, which necessitate a combination of cost leadership and diversification strategies. The management of Amazon is well aware of the kind of environment in which it operates and makes strategies that are aimed at promoting competitive advantage for the online retailer in the short term and in the long term.
