Amazon Company: Internet Market Term Paper Example

Introduction

Amazon is one of the largest e-commerce retailers in the world. The company’s domination in the Internet-based market has mostly been attributed to a strong strategy, good decision-making, and its ability to rapidly respond to changes that occur in the business environment. Therefore, the paper will make emphasis on the company’s global business strategy and policy since its inception by examining its external and internal environment. The company’s strategy regarding decision-making and problem-solving processes will be analyzed carefully to articulate how Amazon responds to challenges within the business environment. Regarding product and services, the paper will focus on how Amazon manages different goods and services and its development of side services. Finally, the aspect of consumerism will be discussed in regard to how Amazon protects and promotes the interest of its consumers.

 

Historical Background of Amazon

Amazon.com is a multinational e-commerce company that was founded by Jeff Bezos (International directory of companies). Amazon began its business operations in 1995 as an online bookstore, but it diversified rapidly to become the leading Internet-based retailer in the world, offering items such as videos, CDs, and DVDs besides the books, which still account for about 70% of their sales (Cherry). Furthermore, Amazon offers different programs that enable retailers to sell their products and services and meet their consumers’ demands through the company’s online website. The company’s operation is divided into two segments: international and North American. The North American segment mostly deals with retail sales that are acquired through websites that are focused on North America, while the international segment deals mostly with operations done through its global websites (International directory of companies).

Company’s Vision

The main vision of Amazon.com is to develop and market its products in a way that is likely to create value that can be sustained over a long period by its employees, consumers, shareholders, the local community, and its business partners (Cherry).

Products

Amazon Company has been selling books since its inception in 1995(Cherry). In the process, the company diversified its operation and products beyond selling books by launching other products such as music store where it sold multimedia products, such as CDs, DVDs, and videos. Other products offered by the company include toys and electronics (International directory of companies). However, over the years, Amazon has continued to expand its product base. In September 2015, the company unleashed its new consumer tech products that included Kindles, Fire TV, kid’s tablets, and the cheaper version of Fire tablets. The new products have further solidified the company’s market stake through low-cost tablets (International directory of companies).

Services

The company’s main intention is to widen its business scope with the main objective of becoming the preferred destination for online shopping by customers. The company established Sage enterprise in 1998, which is an address book within the website, a Jungle Corp, and a reminder service (International directory of companies). The company has further continued to create platforms for expanding it services. Amazon recently launched its first ever brick and mortar retail store in Seattle after 20 years of online operation. The company aims to sell only bestseller books and books with high ratings from the customers, relying on Amazom.com data instead of operating like traditional stores. Other services offered by Amazon include:

Black Friday deals: The period after Thanksgiving when most companies massively reduce the price of their products and services base; their profit on annual financial returns is commonly referred to as the Black Friday in the US. Amazon is one of the online retail companies that offer its consumer new deals on their products throughout the Black Friday Week. The company offers reduced prices, especially on electronic products, such as computers and laptops, and other household accessories.

Shipping services: Free shipping service is one of the latest services that Amazon recently offered to their selling partners on their goods. Under this service, the Amazon sellers who offer third-party services and join the Amazon fulfillment program will acquire a tag that qualifies the goods that they offer as Amazon Prime, thus being subject to free shipping (Cherry). In order to join the service, the sellers forward their goods to the company which then stores them in one of its several warehouses for 45 cents per cubic foot on a monthly basis. The companies will then handle the packaging and shipping of the foods.

Package delivery services: Amazon has a variety of warehouses that are strategically set in different locations within the country. The warehouses are essential regarding delivering products to their customers at a convenient time depending on when the customer made the order. For Amazon members who have registered under the prime membership system, their products are delivered on the same day when the order is made. The company deploys trucks and other transport devices to deliver their packages at their customer’s doors.

Prime Membership: The membership program provided Amazons customers with an easy access to products that include videos, music, and other multimedia accessories. Even though the service is paid, it still provides advantages to those who shop in Amazon as they can easily access the shipment of goods through a free one-or-two-day mechanism.

Amazon Fresh: Amazon Fresh is a subsidiary service offered by Amazon. It offers grocery for sales and other items that are derived from the main company’s storefront. The items ordered by customers through Amazon Fresh are often available to be delivered to the customer's home on the same day or the next day, depending on the time when the order has been made and trucks availability.

Marketing Strategies

An economic theorist describes marketing strategies as the process that enables organizations to utilize their limited resources to increase sales, thereby achieving a competitive advantage that is sustainable (Mennen). Therefore, Amazon marketing strategies include the following.

Offline Advertisement: Research studies have found that billboards and TV advertisement are often ten times less effective compared to online or direct marketing regarding customer acquisition costs. Therefore, Amazon has engaged in a massive reduction in costs spent for offline advertisement, especially during holiday periods. The company spent $80 million for offline advertisement in 1999, which eventually dropped to $9.4 million in the year 2006 after cutting the budget for offline advertisement (Mennen). However, the reduction of resources spent on offline advertisement has not affected the company’s success since its main strategy is based on online advertisement as most of his customers shop online.

Email marketing: For a company that is conscious of money like Amazon, the temptation to utilize the free Internet is one that is difficult to resist. The company has effectively created a platform whereby a consumer in need of a given product or information can give them permission to forward emails showing the details of the products that he or she requires (Day). The strategy has provided Amazon.com with a huge following in the global online market.

Streamlined ordering services: One of the areas that Amazon has successfully managed to establish as a company is a streamline, the process that their consumers undergo while making an order. Amazon has made ordering of its products and services easy through the development of technologies that has allowed its customers to navigate easily and explore their products within the company’s retail malls online. Amazon has further made it easy for the consumers to buy products online with a simple mouse click. Furthermore, the customers can make one payment after making all the purchases needed, and the orders get processed.

Competitive Strategy

Amazon has dominated the online retail market, especially in the United States, so that there is no competitor capable of overtaking its market share (Kotha 216). Competitors are only able to nibble the edges of the market share by improving certain aspects of their products and services, but they cannot face Amazon in direct competition. The company’s competitive advantages include the following.

Shipping down: Since the company has no physical storage facility, it has maximized its efficiency level regarding delivery business. The delivery business includes various warehouses that are situated in strategic locations throughout the world. Besides the warehouses, Amazon developed advanced software that aids in establishing the inventory level and initiate packing orders based on an algorithm that predicts the process (Mennen). The shipping edge of the company is further enhanced by the progressive deal that Amazon has initiated with the United States Postal Service.

Credit card base: The big number of users with a credit card on file is one of the biggest aspects that have given Amazon an almost insurmountable competitive advantage over its competitors and potential market rivals. One of the competitors, Apple, strives to have more registered credit card users than Amazon, but the company lacks several aspects that Amazon possesses. In other words, while Amazon easily accesses their customer’s credit cards information, its competitors are faced with the hurdle of convincing people to provide their credit card information (Kotha 218).

Amazon External Environmental Analysis

The external environmental analysis will majorly focus on the company’s SWOT, PESTEL, and Porter’s five forces.

Amazon Strength-Weakness-Opportunity-Threats (SWOT) Analysis

Strength

Efficient delivery network: In collaboration with its strategic partners and fulfillment centers, Amazon has established a structured and deep network that has seen its products readily available even to customers residing in remote locations. Furthermore, the company tends to offer free service delivery to certain locations.

Strong background: Amazon has been built on its earlier success in dealing with books and has diversified to other product categories that include toys, electronics, home and kitchen accessories, and other goods which have seen the company evolve to the e-commerce giant in the whole world.

Weakness

High debt: The company is still struggling to establish profitability in some developing nations, resulting in the company’s high debt status within those countries.

Shrinking margins: The aspect of price wars and wide delivery networks has shrunk the company’s margins, resulting into losses. For example, the issue of delivery services saw the company make $359 in the 2013-14 financial years (Mennen).

Opportunity

Global expansion: Expanding the business into developing economies and Asia will provide the company with an opportunity to increase sale since the markets have low competition in e-commerce industries and are not saturated with competition from other developed countries.

Backward integration: The company can establish in-house brands that cover categories of different products. Product differentiation is another aspect that will make them achieve profit in the online market that is highly competitive.

Threats

Government regulations: Lack of clarity on matters that are related to FDI has been a major hurdle in the success of online retail players in many developing nations.

Low entries barriers: There are low barriers to entries that have been set within the industry. Therefore, it affects the current players as more companies join, meaning that the competition level increases.

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Political, Economical, Social, Technological, Environmental, and Legal (PESTEL) Analysis

Political factors: Global policies have been a great hindrance to the growth of Amazon (Mennen). The company is further facing difficulties in expansion due to tough regulations by some countries on online purchases.

Economical factors: Fluctuations in currency rates can greatly affect multimedia sales online since Amazon uses U.S. dollars (Mennen). Amazon recorded low sales due to the recent economic struggle in the U.S., but it is expected to rise with the improvement of the economy.

Social factors: Ethical and religious factors in some countries restrict the use of the Internet because they believe that the Internet contains contents that may damage the country's ethical, social, and cultural beliefs. There is an outstanding growth of the Internet with increasing amount of users every year, thereby giving Amazon the opportunity to increase further its online market share (Day). The boom in social networks also offers Amazon an opportunity to create awareness.

Technological factors: Since the company is an online retailer, it is often forced to develop new methods so as to overcome competitions. The breakthrough in the Internet access whereby people can access the Internet through their handheld devices has provided a platform for Amazon to pull more customers into their stores by offering competitive prices (Day).

Environmental factors: The aspect of online shopping is environmentally friendly since there is no pollution from vehicles as many deliveries can only be made by one vehicle. The company is further offering cloud computing and cloud storage that removes the need for hardware and storage devices for the general public (Mennen). However, Amazon needs to work toward achieving a greener solution for their sales shipment.

Legal factors: Companies like Amazon that engage in overseas sales need to be conversant with the international laws that govern their business. The sales of multimedia over the Internet will at the same time require one to acquire certain rights.

Porter’s Five Forces Analysis

Bargaining power of buyers: Since there is a variety of e-commerce services that consumers can choose from, the suppliers bargaining power is relatively high in the industry. The absence of a physical store has enabled Amazon to offer low prices and good customer service. Therefore, it utilizes the buyer’s power to its advantage (Azadi 59).

Bargaining power of suppliers: Amazon does not have the ability to compete with its suppliers, thereby giving more powers to suppliers over the company.

Competitive rivalry: Competition is very intensive and strong in the e-commerce industry. Despite the dominance over the online retail market and an extensive offer of products to its consumers, Amazon still faces rivalry from companies such as eBay, Barnes, and Noble (Azadi 59).

Threat of substitutes: The company faces huge threats from substitute products. The only aspect of the company that is difficult to find an alternative for is the ordering service that requires a consumer to use a single click. Most companies in the developed worlds have established both online stores and physical stores for their products that are a great challenge to Amazon products (Azadi 62).

Threats of new entrants: Amazon as a dominant company offers a lot of different products to consumers and has been in the market for a long time. Therefore, it will be impossible for a new company to reach the level that Amazon has accomplished.

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Consumerism

There are several definitions that have been put forward to explain consumerism. Most economists define consumerism as the act of promoting and protecting the interest of the consumer. Others define it as a theory that explains the economic desirability of an increase in goods consumption.

Protection and Promotion of Consumer Interest

In this context the discussion will focus much on how Amazon promotes and protects its consumers’ interests. Since the consumers mainly transact business online, they are often at risk to be exposed to the Internet hackers who might manipulate the credit card information, addresses, and personal data stored on the account for their advantage (Day). Therefore, Amazon has developed a two-step authentication mechanism to protect a customer account. The mechanism has been used by consumers mainly to protect online accounts such as emails, Twitter accounts, and even bank accounts. The main idea is to ensure that the account is only accessible to its rightful owner. For this reason, Amazon will require its consumer to undergo two processes when logging into the account. The first process will be to enter the password and a sensitive time-limited pin which is sent to the user’s phone number or email address. In the same respect, Amazon main policy restricts the sharing of consumer’s personal information with other irrelevant parties. Third parties who conduct delivery services are given the personal information of the customer but only that which they can use for the given purpose and not any other unspecified purpose. Furthermore, the aspect of introducing the Amazon Dash Button by the company has been touted as future consumerism since it promotes consumer interest by ensuring that the consumers do not run out of their preferred products fast (Day).

Conclusion

In conclusion, both the external and environmental factors can be attributed to Amazon’s rapid growth in the e-commerce industry. The company’s marketing and competitive strategy offers a wide overview on how Amazon has managed to be one step ahead of its competitors both regarding redefining its product to meet the consumer demands and making a strategic decision that pulls customers toward its products and services. Regarding the external environmental analysis, the major observation is that much of the company’s strength is derived from its efficiency in providing services such as delivery of goods and services to the consumer on the same day and the global coverage regarding the number of people who can access their products internationally. Other aspects such as the good political relation between the U.S. and other countries have significantly enhanced Amazon’s expansion into other countries. Finally, the aspect of consumerism has critically analyzed various means through which Amazon protects and promotes the interests of its consumers since the Internet is full of hackers who might manipulate their personal information.

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