Amazon has been a top performing company, thanks to its successful business and level strategies. This paper will look into the business-level and corporate-level strategies of amazon, and their impact on the business success, identify the most significant competitor and evaluation of the strategies in fast-cycle and slow-cycle markets.
Business-Level Strategies
A Business-level strategy refers to the competitive actions that businesses undertake to compete in individual product markets. There are three main types of business-level strategies; focus strategies, cost leadership and differentiation (Hitt, Ireland, & Hoskisson, 1). Cost leadership is the main business-level strategy that amazon adopts, and the strategy informs the choice of product range and convenience. Cost leadership informs the pricing decision at the online retailer whereby the company operates with narrow profits margins to sell the products at the lowest prices possible. Cost leadership is aimed at keeping the market share intact and ensuring that customers cannot get a better deal elsewhere. Amazon vends more than 12 million products ranging from books media, wine and other services (Coppola, 4). Amazon still makes huge profit because of the economies of scale. Cost leadership strategy is founded on customer centrism principle that amazon operates with. Creating convenience and satisfaction for the customer is of paramount importance, given that the contemporary consumer has become very demanding. The development of information and technology has bred a new generation of consumers who want convenience by shopping for goods at the comfort of their homes. Amazon has positioned itself as the retailer determined to match these customers’ demands by having customers purchase the products and have them delivered at the comfort of their homes.
Amazon uses technology as the principle way achieve cost leadership through cost minimization. Amazon has automated most of its services and operation to cut on human costs. Amazon uses robotics in the warehouse for loading and offloading shelves. Amazon is also embracing automation in the retail outlets such as the Amazon Go Services that automatically add payments to the cart as the client picks products from the shelve (SEC, 2). Once the customer has finished picking products, the technology automatically deducts the payment details from the client’s amazon Prime Account or the digital wallet.
In terms of success in the long term, the cost leadership is ideal for amazon’s success. Given the wide breadth of products that amazon sells, it makes economic sense to use cost leadership. In the corporate financial reporting, amazon highlights that it earns a thin profit margin, but it banks its profits on the large volumes of sales (SEC. 2). Another reason why cost leadership is important for the long term success is to guard its market share from going over to fierce rivals who also use cost leadership such as Walmart. If amazon abandons the cost leadership strategy, it is likely to lose market share to rivals adopting a cost-leadership strategy.
Corporate-Level Strategies
Corporate-level strategies refers to activities that businesses engage in to gain competitive advantage by managing different businesses in different product markets (Hitt, Ireland, & Hoskisson, 1). Concentric diversification is the main corporate-level that amazon adopts to enable it to compete in different product markets. Concentric diversification enable amazon to classify customers depending with their shopping habits and the types of products they purchase. For instance, amazon prime program is aimed at making customers loyal whereby prime customers are given exceptional privileges such as timely delivery of goods and reduced shipping charges.
Acquisition is the main tactic that allows amazon to harness the power of concentric diversification. Amazon is known for a series of successful acquisitions, and this tactic has helped it to compete in the various product markets. Some of the most notable acquisitions are such as the acquisition of zappos.com and Whole Foods Inc (SEC, 2). Whole Foods Inc. is a supermarket retailer and a vendor of fresh produce that was a Walmart competitor. Amazon made the strategic move to increase its market share and weaken Walmart competition in the grocery market. The acquisition of other ecommerce companies helps amazon to minimize competition, such as the acquisition of harvest.ai, zoox.com among others, while at the same time enlarging into the products base.
Concentric diversification has allowed amazon to sell anything can be sold online. Diversification has seen amazon move from the conventional core business of selling books and music online to completely different new products such as selling driverless vehicles, music, cloud computing, entertainment and music among others (SEC, 2). Amazon has also joined the field of financing whereby it is lending to help small businesses stand again following the destabilization after COVID-19 outside America such as in Middle East, Asia and Brazil (SEC, 2).
The corporate-level strategy of concentric diversification is likely to be successful in the long term. The success is due to the fact that amazon does not put its eggs in one basket. By investing in different industries, amazon shields itself from economic risks. An economic upheaval in one industry might not affect another industry in the same way. The outbreak of COVID-19 in 2019 brought this arching reality whereby some industries were positively impacted while others were negatively affected. Industries that are related to technology such as companies dealing with video conferencing like Zoom and Microsoft Teams experienced tremendous demand of such products. Amazon also experienced significant growth, thanks to the amazon drone delivery system that enabled speedy delivery of goods and services when customers needed them the most when there were restrictions of movement to curb the spread of the deadly disease (Sadq, 3). Perhaps, amazon would have been badly hit it did not operate a concentric diversification strategy such as businesses in hospitality industry that were severely hit by the COVID pandemic. Restaurants were severely affected given that movement restrictions were imposed, social gatherings became prohibited and other measures reducing the number of customers in a business dwindled the prospects further.
Competitive Environment
The marketplace is a dynamic place where competition and rivalry between firms competing is bloody. Amazon operates in many industries such as cloud computing, retail industry, entertainment among others, which are characterized by fierce competition. In the eCommerce industry, amazon battles it out with local rivals such as eBay, BestBuy and target while it competes with global retailers like the Chinese Alibaba (SEC, 2). In the retail and consumer goods industry, amazon competes with retailers like Walmart, target, Costco, and home depot. In the entertainment industry, amazon is not spared either to the likes of Netflix, Apple and Google while amazon battles it out with tech giants like apple Inc., Microsoft and IBM in web services. From the many competitors, Walmart poses a significant threat to amazon because they have similar business-level strategy and it is huge in size (SEC, 2).
Walmart is huge in size and sells many products just like amazon, given that it sells 75 million products. Amazon is known as the Walmart of the internet, which implies that these two are regarded as synonymous because of their extensive breadth of products. Walmart also uses a cost-leadership strategy and it has also made a series of eCommerce acquisitions such as flipkart.com, jet.com, shoes.com among others in a bid to counter amazon. Walmart uses a market penetration strategy as the main corporate-level strategy with the intention of safeguarding its market share.
In the long term, the business-level strategy of cost leadership and the constrained diversification corporate-level strategy by amazon is likely to be successful in the long-term. Diversification strategy makes the firm to withstand different economic trends, which is synonymous to the common saying that one should not put all eggs in one basket. Another reason why amazon is likely to be successful is its state of the art technology and its immersion in the technology industry. As earlier highlighted, COVID-19 pandemic has brought the arching reality that technology indeed holds the future. Technology is defining and redefining the way people interact and how business is done. Amazon has positioned itself for the twenty-first century reality by embracing technological innovations lie drone delivery and robotic automation.
Market Cycles
Hitt, Ireland, & Hoskisson (1) highlight two kinds of market cycles; the fast cycle markets and the slow cycle markets. Fast cycle markets are characterized by little turnaround time and market players have little time for innovation. Rather, fast-cycle markets are characterized by intense competition an actions aimed at safeguarding the market share. Imitation threat is imminent and firms engage in price wars to get a large market share as possible by appealing to price sensitive customers. On the other hand, slow-cycle markets are characterize by considerable time that allows firms to innovate and shield their innovations to gain competitive advantage.
Concentric diversification along with cost leadership would be ideal in a slow-cycle markets as there would be ideal time to innovate and diversify product offerings that are unique. Cost leadership would be ideal for fast-cycle markets. Thus, concentric diversification would be ideal if amazon was operating in slow-cycle markets while Walmart’s cost leadership and market penetration would be ideal in fast-cycle markets because it entails attracting a large pool of price sensitive customers and using market penetration to guard the achieved market share (Sadq, 3). Therefore, whether amazon or its competitor would be successful in the long-term would be dependent on whether the cycle is fast-cycle or slow-cycle market.
In view of the above, the strategic management at Amazon Corporation is conscious of the kind of market in which it operates. Its presence in several industries makes amazon a player in both fast-cycle and slow-cycle markets, making cost leadership strategy at the business-level and concentric diversification strategy at the corporate-level strategies.
