Introduction
For a business to succeed internally, and compete in the external environment; the management needs to put in place corporate-level strategies and business-level stratagems. In this paper, I will explore how amazon has become a leader in its respective industry by examining the business-level policies and examine whether the tactic is the best for the success of the organization in the long term. I will also evaluate the strategy at the corporate level and determine whether the strategy is the most important for amazon, as well as the competitive situation to identify the greatest rival.
Business level approaches
Amazon is a renowned company that has earned itself a reputable brand name for its innovation and technological advancements. Amazon is one of the fortune 500 companies and has been ranked as one of the most innovative companies in 2017 by fast company magazine. In the same year, amazon was ranked as the 3rd most innovative company by Forbes. Such successes have not come without considerable efforts and strategic actions. There are five main business level approaches among them differentiation, cost leadership, integrated cost leadership/differentiation, focused differentiation, as well as focused cost leadership strategy. Amazon adopts a cost leadership business approach.
Amazon cost leadership approach is informed by the customer centric culture prevailing at amazon. Amazon operates one of the most customer centric cultures in the world as demonstrated by the company’s vision and mission statements. For instance, amazon the vision is to be the world’s most customer centered business where people can get and purchase whatever they may need to purchase virtually. The corporation’s mission is offering customs the least possible rates with the paramount obtainable assortment. These statements clearly indicate that the customer is at the heart of the business and providing goods and services to them at lowest prices is in line with the cost leadership strategy.
Amazon cost leadership at amazon is achieved by three essential components which are convenience, variety and price. Amazon sells a wide range of goods and services and operates on a thin margin, but when combined makes amazon one of the most profitable companies. To create convenience, amazon spends considerable time and resources on research and development to ensure that its products provide utmost convenience in accordance to the corporate mission statement.
The convenience aspect of business level is founded on the belief that the wide variety of products at low prices will yield the maximum benefits to users if they are conveniently delivered to customers at the right time. The modern customers are very demanding and want nothing less than quality, affordable products that can be obtained conveniently. The marketplace has become very competitive and customers will go to the company that will provide what they want. The growth of the internet and social media has resulted in a new breed of customers who want goods delivered at their doorsteps as part of customer service. Amazon is conscious of such sociocultural changes in the marketplace and has positioned itself as the provider of goods and services at just the click of a button.
Strategy important for the long term success
Although amazon uses a cost leadership business-level strategy, it is not the most important for the long-term success. Amazon operates with a very thin profit margin, which has a declining effect on cash flow. Profits are considered as net income and a significant part of cash flow from operations. Secondly, cost leadership is not significant for the long term success since amazon might be too obsessed with cost minimization strategies at the expense of quality. The company may fail to realize changes in customers’ needs. Customers’ needs and preferences keep on changing, and amazon’s approach of one size fits all does not offer unique products for a specific market segment. Thirdly, the cost leadership strategy is easily imitable. Major suppliers can come together to form a formidable competitor. The case of Netflix provides a vivid example of how key suppliers can overturn tables. AT&T and Walt Disney used to be key suppliers
Corporate level approaches
Hitt, Ireland, & Hoskisson (2020) define corporate-level tactics as companywide activities that an organization takes to obtain competitive merit by adopting and managing a collection of different trades in multiple product markets and industries. Amazon adopts a convergent diversification strategy that is based on leveraging technological competencies in pursuant to the cost leadership strategy. This strategy has seen amazon become the largest online retailer in the world. amazon commands leadership in the various markets and industries in which it operates. Amazon has employed several kinds of diversification such as diversifying customer segments, mergers and acquisition, as well as diversification from the core business into other industries.
One of the ways that amazon diversifies is through aggressive mergers and acquisitions. The corporation is known for deals aimed at acquiring firms to gain competitive advantage. Since 2016, amazon has closed more than 30 deals which have been successful. One of the most notable deals is the acquisition of Whole Foods Inc. at an estimated cost of $13.7 billion. Whole Foods Inc. was a major rival to Walmart, amazon’s fierce competitor, and the move is considered as a way of countering competition from Walmart. Amazon acquired Zappos in 2009 at a cost of $1.2 billion. Zappos was a successful online shoe retailer, and has continued to enhance amazon’s competitive advantage to date. Acquisition of Souq.com, a middle-east based company is amazon’s move to increase its presence in the Middle East and counter competition from the Asian giant Alibaba. Other notable deals are the acquisition of Zoox, harvest.ai, do.com among others.
Amazon has diversified its product offering from being on online book seller to a seller of nearly anything that can be sold online. Amazon has ventured into the autonomous vehicle industry following acquisition of Zoox. Amazon has made its mark in the entertainment industry through amazon prime music, amazon studios and amazon prime video. Amazon has emerged into the fintech industry by lending out small loans amounting to $1 billion in Brazil, Middle East and Indian markets. Amazon has invested in the technology industry for cost savings and for competitive advantage. For instance, the company adopted Amazon Go services in 2016 whereby payments are automatically added to the cart as customers pick products from the shelves. After the completion of purchase, the technology deducts the payment automatically from the customer’s digital wallet. Other technologies are such as the use of robotics for packing and picking process.
Strategy important for the long term success
Convergent diversification strategy by amazon is the most significant for the long term success. Relying on a single product market or a single industry has proved to be risky, especially following the outbreak of coronavirus disease. Covid-19 shook the world and brought the world to almost a standstill, and some industries such as the hospitality industry were greatly affected. If amazon was present in the hospitality industry for instance, it could be struggling to survive. Nevertheless, amazon has not felt the shocks of covid-19 as much, thanks to the convergent diversification. The investment in technology has paid off, especially through amazon drone delivery, and the Amazon Go technology that allows for contactless purchases, a measure considered effective for reducing the spread of coronavirus disease.
Competitive environment
As earlier retorted, the twenty-first century has become very competitive. Consumers have become more enlightened because of the seamless flow of information. Competitors on the other hand seek to outdo each other to become the leader in their respective industries. Amazon operates in various industries such as the retail industry, the autonomous cars industry, digital distribution industry, cloud computing among others. In the subscription industry, amazon competes with companies like Apple Inc., Google and Netflix while in the web services; amazon competes with giants like oracle, Microsoft and IBM. The retail industry cannot go unmentioned whereby amazon competes with great retailers like Costco, Target, Walmart, Home Depot, and Best Buy among others. Walmart is large in size and has broad product offering, making it the most significant competitor.
Walmart is a global retailer that operates a cost leadership strategy like amazon. The two companies are determined to provide goods and services at the lowest possible prices to capture the price sensitive market that makes the majority of the consumers in the marketplace. Walmart has been very aggressive and is venturing in nearly every area. Amazon uses technological innovations such as radio frequency identification (RFID) technology to monitor movement of inventory. Walmart also uses Endless Aisles to help customers purchase a product that is out of stock and have it delivered later to prevent customers from going to competitors and create loyalty. Amazon operates on almost a similar principle whereby utmost care and service is given to first time customers to make them repeat customers.
Both Walmart and amazon strategic actions seem to be moves to counter the other. For instance, Walmart has acquired several eCommerce companies such as shoes.com, jet.com, ModCloth, Vudu and the recent acquisition of FlipKart of India to get into online business like amazon. Amazon too is not leaving anything to chance. It has acquired many firms, with the acquisition of Whole Foods Inc. which was a key competitor to Walmart. The competition between the two is a battle of the mighty that seek to grab the market share of one another.
In the long term, the strategy of convergent diversification and cost leadership by amazon is likely to be successful. Convergent diversification is in line with the ‘do not put all your eggs in one basket’ mantra. An economic shock like one brought about by covid-19 affects industries differently. The technology industry was positively affected by covid-19 as most things were done online and virtually. Amazon drone delivery services gained prominence with restrictions of movement. Amazon Go services are also likely to see more customers as contactless measures for conducting businesses are enacted to curb the spread. Secondly, technology seems to be holding the future. Given that most of amazon’s business is founded on technology, there is hope at the end of the tunnel for amazon that is deeply entrenched in the technology industry.
Market cycles
According to Hoskisson, 2020, market cycles can be classified into two, fast market cycles and slow market cycles. Fast market cycles are market cycles with little turnaround times to develop new products and take them to the marketplace before competitors do. In Slow cycle markets, firms have adequate time to invest in strategy and product development to give firms competitive advantage over their competitors. Convergent diversification strategy and cost leadership strategy are successful in the long run for amazon, but the success would be dependent with the kind of market cycle. These strategies would be ideal or slow market cycles as there is enough time to look for financial resources and conduct research and development. Nonetheless, these strategies might not work for fast cycle markets. Walmart strategies of cost leadership and market development would be ideal in fast market cycles as the firm will jealously guard its market share from going to competitors.
Strategists at amazon well understand the kind of products that amazon deals with that is a combination of slow and fast market cycles. As such, the use of cost leadership is beneficial and applicable for products in the fast cycle markets while convergent diversification is ideal for products in slow cycle markets. Therefore, amazon is better placed to deal with competitors in the different product and industries in which it operates.
For a business to succeed internally, and compete in the external environment; the management needs to put in place corporate-level strategies and business-level stratagems. In this paper, I will explore how amazon has become a leader in its respective industry by examining the business-level policies and examine whether the tactic is the best for the success of the organization in the long term. I will also evaluate the strategy at the corporate level and determine whether the strategy is the most important for amazon, as well as the competitive situation to identify the greatest rival.
Business level approaches
Amazon is a renowned company that has earned itself a reputable brand name for its innovation and technological advancements. Amazon is one of the fortune 500 companies and has been ranked as one of the most innovative companies in 2017 by fast company magazine. In the same year, amazon was ranked as the 3rd most innovative company by Forbes. Such successes have not come without considerable efforts and strategic actions. There are five main business level approaches among them differentiation, cost leadership, integrated cost leadership/differentiation, focused differentiation, as well as focused cost leadership strategy. Amazon adopts a cost leadership business approach.
Amazon cost leadership approach is informed by the customer centric culture prevailing at amazon. Amazon operates one of the most customer centric cultures in the world as demonstrated by the company’s vision and mission statements. For instance, amazon the vision is to be the world’s most customer centered business where people can get and purchase whatever they may need to purchase virtually. The corporation’s mission is offering customs the least possible rates with the paramount obtainable assortment. These statements clearly indicate that the customer is at the heart of the business and providing goods and services to them at lowest prices is in line with the cost leadership strategy.
Amazon cost leadership at amazon is achieved by three essential components which are convenience, variety and price. Amazon sells a wide range of goods and services and operates on a thin margin, but when combined makes amazon one of the most profitable companies. To create convenience, amazon spends considerable time and resources on research and development to ensure that its products provide utmost convenience in accordance to the corporate mission statement.
The convenience aspect of business level is founded on the belief that the wide variety of products at low prices will yield the maximum benefits to users if they are conveniently delivered to customers at the right time. The modern customers are very demanding and want nothing less than quality, affordable products that can be obtained conveniently. The marketplace has become very competitive and customers will go to the company that will provide what they want. The growth of the internet and social media has resulted in a new breed of customers who want goods delivered at their doorsteps as part of customer service. Amazon is conscious of such sociocultural changes in the marketplace and has positioned itself as the provider of goods and services at just the click of a button.
Strategy important for the long term success
Although amazon uses a cost leadership business-level strategy, it is not the most important for the long-term success. Amazon operates with a very thin profit margin, which has a declining effect on cash flow. Profits are considered as net income and a significant part of cash flow from operations. Secondly, cost leadership is not significant for the long term success since amazon might be too obsessed with cost minimization strategies at the expense of quality. The company may fail to realize changes in customers’ needs. Customers’ needs and preferences keep on changing, and amazon’s approach of one size fits all does not offer unique products for a specific market segment. Thirdly, the cost leadership strategy is easily imitable. Major suppliers can come together to form a formidable competitor. The case of Netflix provides a vivid example of how key suppliers can overturn tables. AT&T and Walt Disney used to be key suppliers
Corporate level approaches
Hitt, Ireland, & Hoskisson (2020) define corporate-level tactics as companywide activities that an organization takes to obtain competitive merit by adopting and managing a collection of different trades in multiple product markets and industries. Amazon adopts a convergent diversification strategy that is based on leveraging technological competencies in pursuant to the cost leadership strategy. This strategy has seen amazon become the largest online retailer in the world. amazon commands leadership in the various markets and industries in which it operates. Amazon has employed several kinds of diversification such as diversifying customer segments, mergers and acquisition, as well as diversification from the core business into other industries.
One of the ways that amazon diversifies is through aggressive mergers and acquisitions. The corporation is known for deals aimed at acquiring firms to gain competitive advantage. Since 2016, amazon has closed more than 30 deals which have been successful. One of the most notable deals is the acquisition of Whole Foods Inc. at an estimated cost of $13.7 billion. Whole Foods Inc. was a major rival to Walmart, amazon’s fierce competitor, and the move is considered as a way of countering competition from Walmart. Amazon acquired Zappos in 2009 at a cost of $1.2 billion. Zappos was a successful online shoe retailer, and has continued to enhance amazon’s competitive advantage to date. Acquisition of Souq.com, a middle-east based company is amazon’s move to increase its presence in the Middle East and counter competition from the Asian giant Alibaba. Other notable deals are the acquisition of Zoox, harvest.ai, do.com among others.
Amazon has diversified its product offering from being on online book seller to a seller of nearly anything that can be sold online. Amazon has ventured into the autonomous vehicle industry following acquisition of Zoox. Amazon has made its mark in the entertainment industry through amazon prime music, amazon studios and amazon prime video. Amazon has emerged into the fintech industry by lending out small loans amounting to $1 billion in Brazil, Middle East and Indian markets. Amazon has invested in the technology industry for cost savings and for competitive advantage. For instance, the company adopted Amazon Go services in 2016 whereby payments are automatically added to the cart as customers pick products from the shelves. After the completion of purchase, the technology deducts the payment automatically from the customer’s digital wallet. Other technologies are such as the use of robotics for packing and picking process.
Strategy important for the long term success
Convergent diversification strategy by amazon is the most significant for the long term success. Relying on a single product market or a single industry has proved to be risky, especially following the outbreak of coronavirus disease. Covid-19 shook the world and brought the world to almost a standstill, and some industries such as the hospitality industry were greatly affected. If amazon was present in the hospitality industry for instance, it could be struggling to survive. Nevertheless, amazon has not felt the shocks of covid-19 as much, thanks to the convergent diversification. The investment in technology has paid off, especially through amazon drone delivery, and the Amazon Go technology that allows for contactless purchases, a measure considered effective for reducing the spread of coronavirus disease.
Competitive environment
As earlier retorted, the twenty-first century has become very competitive. Consumers have become more enlightened because of the seamless flow of information. Competitors on the other hand seek to outdo each other to become the leader in their respective industries. Amazon operates in various industries such as the retail industry, the autonomous cars industry, digital distribution industry, cloud computing among others. In the subscription industry, amazon competes with companies like Apple Inc., Google and Netflix while in the web services; amazon competes with giants like oracle, Microsoft and IBM. The retail industry cannot go unmentioned whereby amazon competes with great retailers like Costco, Target, Walmart, Home Depot, and Best Buy among others. Walmart is large in size and has broad product offering, making it the most significant competitor.
Walmart is a global retailer that operates a cost leadership strategy like amazon. The two companies are determined to provide goods and services at the lowest possible prices to capture the price sensitive market that makes the majority of the consumers in the marketplace. Walmart has been very aggressive and is venturing in nearly every area. Amazon uses technological innovations such as radio frequency identification (RFID) technology to monitor movement of inventory. Walmart also uses Endless Aisles to help customers purchase a product that is out of stock and have it delivered later to prevent customers from going to competitors and create loyalty. Amazon operates on almost a similar principle whereby utmost care and service is given to first time customers to make them repeat customers.
Both Walmart and amazon strategic actions seem to be moves to counter the other. For instance, Walmart has acquired several eCommerce companies such as shoes.com, jet.com, ModCloth, Vudu and the recent acquisition of FlipKart of India to get into online business like amazon. Amazon too is not leaving anything to chance. It has acquired many firms, with the acquisition of Whole Foods Inc. which was a key competitor to Walmart. The competition between the two is a battle of the mighty that seek to grab the market share of one another.
In the long term, the strategy of convergent diversification and cost leadership by amazon is likely to be successful. Convergent diversification is in line with the ‘do not put all your eggs in one basket’ mantra. An economic shock like one brought about by covid-19 affects industries differently. The technology industry was positively affected by covid-19 as most things were done online and virtually. Amazon drone delivery services gained prominence with restrictions of movement. Amazon Go services are also likely to see more customers as contactless measures for conducting businesses are enacted to curb the spread. Secondly, technology seems to be holding the future. Given that most of amazon’s business is founded on technology, there is hope at the end of the tunnel for amazon that is deeply entrenched in the technology industry.
Market cycles
According to Hoskisson, 2020, market cycles can be classified into two, fast market cycles and slow market cycles. Fast market cycles are market cycles with little turnaround times to develop new products and take them to the marketplace before competitors do. In Slow cycle markets, firms have adequate time to invest in strategy and product development to give firms competitive advantage over their competitors. Convergent diversification strategy and cost leadership strategy are successful in the long run for amazon, but the success would be dependent with the kind of market cycle. These strategies would be ideal or slow market cycles as there is enough time to look for financial resources and conduct research and development. Nonetheless, these strategies might not work for fast cycle markets. Walmart strategies of cost leadership and market development would be ideal in fast market cycles as the firm will jealously guard its market share from going to competitors.
Strategists at amazon well understand the kind of products that amazon deals with that is a combination of slow and fast market cycles. As such, the use of cost leadership is beneficial and applicable for products in the fast cycle markets while convergent diversification is ideal for products in slow cycle markets. Therefore, amazon is better placed to deal with competitors in the different product and industries in which it operates.
