Amazoncom Case Analysis Essay Example

experienced significant customer growth. The number of customers went from 180,000 in 100 countries to an impressive 12 million people across 160 countries. In 1998, the company diversified its product range by adding music and videos to their offerings. This strategic move helped Amazon become the top online seller of books, music, and videos within two months. In the following year, Amazon expanded even further by including toys, video games, electronic greeting cards, electronics and software items, home improvement supplies, online auction services DVDs and zShops—an online shopping destination. Additionally,in recent times ,Amazon has also ventured into international markets through expansion initiatives. Now let's explore Amazon's mission statement.

A mission statement should include nine essential components: customers, products or services, markets, technology, concern for survival, growth, and profitability, philosophy, self-concept, concern for public image, and concern for employees.

Although Amazon doesn't have an official mission statement, the company's basic mission and goals are evident in the words of Mr. Bezos. He states that their strategy is to provide the customer with the best shopping experience and they aim to build the world's most customer-centric company by leveraging technology and expertise.

Combining these quotes from Mr. Bezos results in an effective mission statement for Amazon.com:

The mission of Amazon.com is to leverage technology and the expertise of our invaluable employees to provide the best buying experience on the Internet. Our goal is nothing short of building the world's most customer-centric Company capable of providing our customers with the best shopping experience online today and into the future.

An evaluation of this mission statement follows:

Essential Component
Evaluation
Justification for Evaluation


Customers
Strong
Customers are frequently mentioned and are clearly the focus of a "customer-centric" Company.

Products or

Services can be classified as Moderate which indicates that online shopping is regarded as a service.

MarketsModerateThe market is the online community.

The market is known as MarketsModerate and it constitutes the online community.

"Leverage technology" is a phrase that signifies the crucial role of technology in enabling Amazon to achieve success.

The text discusses concern for survival, growth, and profitability. It highlights that the concern for survival and growth is moderate, but does not mention the level of concern for profitability.

PhilosophyModerateClearly indicates that Amazon's goal is to be the top-ranking company.

Self-concept: Strong (desires to provide the "best shopping experience" and be recognized as the "world's most customer-centric Company").

Concern for public image: Moderate (Amazon clearly aims to establish itself as the "best" and prioritizes its image).

Amazon recognizes the importance of its employees and values them as crucial assets for ongoing achievements.

Amazon's mission statement effectively covers the nine essential components of a strong mission statement, as shown in the chart above. The Company received a strong evaluation for 4 out of the nine categories and a moderate evaluation for the remaining 5 categories. The mission statement also effectively appeals to emotions with phrases such as "best buying experience," "world's most customer-centric Company," and "best shopping experience," aiming to evoke strong feelings. Subsequently, an external evaluation will be conducted for Amazon.

The first step in the external evaluation process is to conduct an external factor evaluation (EFE) matrix for Amazon. This matrix outlines the opportunities and threats that the company faces. The EFE matrix includes critical success factors, their weights, ratings, and weighted scores.

One of the critical success factors is the increasing number of e-commerce bankruptcies, which has a weight

of 0.13 and a rating of 0.30. Another factor is the continued rise in the number of Internet users, with a weight of 0.15 and a rating of 0.45.

Expansion into international markets is also considered as a critical success factor, with a weight of 0.13 and a rating of 0.30. Additionally, there is potential for technological advancements to enhance productivity, with a weight of 0.05 and a rating of 0.10.

Anemic growth in the US BMV segment is another critical success factor, with a weight of 0.15 and a rating of 0.45. Minimal barriers to entry have a weightage score of 0 .14 along with Potential slowdown in consumer trend for e-commerce having just Weight .052

Based on this chart provided by the EFE Matrix score , it can be inferred that Amazon slightly outperforms its competitors in addressing existing opportunities and threats within its industry by scoring at `3` whereas minimal barriers to entry are identified as being at `.14`.

The online shopping industry is influenced by various factors to different extents, such as an increase in Internet users worldwide over time.From stats from1996 -1998 we had around `61` million & `147` internet users respectively while projections also suggest that there will be around `300` million worldwide internet user count by year `2002`.The significant growth in the online retail industry, which is represented by a weight of 0.15 in the EFE Matrix, has a major impact. Established companies like Amazon have the opportunity to generate revenue through partnerships with other companies like Toys "R" Us and Borders Group. For instance, Amazon could potentially become the online commerce partner for various brick-and-mortar partners such as Blockbuster, Ace Hardware,

Tower Records, Best Buy, and Circuit City. These partnerships have the potential to increase profitability and further expand steady-state profitability. The impact on the industry from this platform monetization is substantial, as evidenced by its weight of 0.15 on the EFE Matrix.

According to Reamer (p.2), Amazon's revenue from the U.S. BMV category amounted to $410 million, representing 58% of their total sales. Although this sector has experienced slow growth with a meager 2% year over year increase, branching out into other online retail areas such as consumer electronics could counteract this unfavorable trend. Additionally, Patel (p.10) suggests that the increasing number of bankruptcies among pure-play e-commerce companies can ultimately benefit companies like Amazon by strengthening their competitive position. With fewer players in the industry, survivors like Amazon can capitalize on the potential for increased scale and reduced price competition over time, resulting in higher gross margins.

D'Eathe (p. 3) suggests that although the rapid growth of e-commerce may not be a durable trend, it doesn't imply the disappearance of e-commerce altogether. Rather, it indicates that the overall size of the e-commerce market might fall short of previous predictions.

Amazon is at risk from the easy access to the online retail market, as it requires low start-up costs and anyone can set up an Internet shop. Mr. Bezos explains that Amazon sets itself apart from potential rivals through its marketing and aggressive brand promotion efforts. He points out that people who only see the surface of Amazon.com might think it's just a bookstore without understanding the complexities of being an electronic merchant. To handle customer service, Amazon heavily relies on email, with 14 employees dedicated to responding to

inquiries. Since there are limited existing tools available to support their operations, Amazon had to develop their own technologies, including email management systems. This creates obstacles for competitors entering the market (Kotha, p. 10).

Online e-tailers are currently facing legal action due to shipping delays, despite the existence of certain lesser threats. The Federal Trade Commission (FTC) claims that some online stores failed to provide sufficient notice about impending shipping delays or continued to make delivery promises they couldn't keep during the holiday season (Farmer, p.2). Additionally, concerns about security are impeding the growth of online retailing. Although consumers often search the internet for product information, they hesitate to make online purchases because they worry about sharing their credit card and personal details. However, advancements in encryption technology have made it safer to provide credit card information on a website compared to disclosing it over the phone to a salesperson.

The following is a competitive profile matrix (CPM) comparing Amazon's performance to its competitors. The CPM includes the following:
Amazon.comBarnes &NobleBarnes &NobleeBay
Success FactorsWeightRatingScoreRatingScoreRatingScore
Market Share0.2040.8040.8040.80
Management0.1520.3030.4530.45
Financial Position0.2510.2520.5020.50
Product Quality0.1530.4530.4525 30
Consumer Loyalty 25%30%30%30 %< br /> With a CPM score of 2 .55, it can be seen that Amazon's performance is slightly worse than its competitors.The table above highlights market share, consumer loyalty, and financial position as the most critical success factors with weights of 20%, 25%, and 25% respectively.Among these factors, Amazon's financial position has the most negative impact on its long-term viability.However, it is important to note that despite this challenge, Amazon has solidified itself as the leading online shopping platform in terms of customer experience and

market share.It also possesses the potential to achieve high profitability by utilizing internet efficiencies.With a strong technological infrastructure and a user base of 30 million unique users, traditional offline retailers are attracted to Amazon as a "virtual storefront" (Legg,p3).A financial comparison between Amazon and its competitors reveals the following: Amazon has gained market share due to its focus on business development. Its sales growth is exceptional, with a staggering 5-year growth rate of 457.91%. In comparison to its rival group, Amazon has impressive turnover ratios. However, the Company's net profit margin is abysmal at (37.98%). According to D'Eathe (p.2), the Company's fulfillment costs as a percentage of revenues remain significantly high compared to traditional retailers, posing a long-term challenge for outbound distribution costs. Moody's suggests that management's focus on profitability and optimizing existing operations instead of investing in new ventures holds potential for positive cash flow in the medium term. During 1999, Amazon heavily invested in expanding its distribution capacity well in advance. Moody's predicts that Amazon is unlikely to achieve sales growth that will cover the expenses of maintaining its current infrastructure. Nevertheless, Moody's also believes that Amazon might be able to generate cash from sources other than retailing and use its reputation in fulfillment, bolstered by the successful alliance with Toys "R" Us, to generate high-margin fee revenues and absorb operating costs (Reamer, p.5).

Despite the aforementioned opportunity, there are challenges that Amazon must face. The primary competition for the company includes Barnes & Noble, Inc. (BKS) and eBay Inc. (EBAY). According to Lund, eBay is rapidly becoming known as "The Place To Find Anything", but lacks the simplicity associated with Amazon. On the

other hand, eBay is taking steps towards creating simplicity. Both eBay and Barnes & Noble are financially capable of competing with Amazon. Although Amazon has excelled in aggregating products and providing a simple experience, its debt has weakened its position.

In contrast, Barnes & Noble benefits from being a "bricks-and-clicks" or "clicks-and-mortar" establishment, which mitigates security concerns. Customers who are not comfortable purchasing online can visit physical store locations to make their purchases. However, Amazon's "virtual storefronts" allow the company to avoid the high overhead costs associated with physical sites. Therefore, there are advantages and disadvantages to solely operating online.

We will now perform an internal factor evaluation (IFE) matrix to assess and summarize the strengths and weaknesses of Amazon's functional areas of business. The IFE matrix is presented below:

Critical Success Factors Weight Rating Weighted Score

Distribution and technology infrastructure 0.15 4.60

Distribution and technology infrastructure 0.13 0.30

Seasonal dependence on strong 4th quarter sales 0.05 0.10

Board of Directors' lack of independence 0.05 0.10

Declining repeat rate and increased customer churn 0.12 0.20

Management lacks retail experience 0.05 0.10

The IFE score of 2.60 indicates that Amazon has a robust internal position to thrive in its operations.However, it is important to note that these matrices should not be solely relied upon for precise measurements.Understanding the factors included holds more significance than the actual numerical values themselves.Amazon deserves recognition for effectively utilizing its powerful brand name, management experience, distribution, and technology infrastructure to establish leadership positions across various markets.The company's brand name is renowned globally as an e-commerce pioneer, thus enabling Amazon to swiftly gain dominance in new markets

(Becker, p1).Amazon has a significant advantage as one of the pioneers in online retailing. While many of their competitive advantages are temporary, they have a few that are more enduring, such as proprietary software, reputation, the sense of community, and being a first mover. Replicating mechanisms on Amazon's website is not an easy task for competitors. To protect itself from competition, Amazon has been collecting comprehensive purchasing histories and customer profiles over the past year. This has resulted in a vast and unique database of customer preferences and buying patterns linked to their email and postal addresses. According to Alberto Vitale, chairman of Random House, Inc., Amazon is creating a one-of-a-kind database that can't be found elsewhere. Publishers who have had limited access to market data about readers are eager for a glimpse into Amazon's files (Kotha, p.16) (Economist 1997a) (Wall Street Journal 1996).

Amazon.com has established a strong reputation for its exceptional senior management team, as noted by the Balanced Scorecard. The company has successfully attracted highly motivated and intelligent individuals who are eager to make an impact in the e-commerce industry. A key contributing factor to this is their compensation packages, which heavily rely on stock options and a stock that has garnered significant media attention.

However, there is increasing criticism towards Amazon's board regarding their apparent failure to question CEO Bezos on matters related to strategy, judgement, and finance. This can be attributed to the board's small size, close-knit nature, and lack of independence, making it difficult for them to provide substantial interventions or judgements in the company's affairs. Additionally, concerns have been raised about the board prioritizing short-term gains over possessing sufficient retail

experience.

In addition, Bezos' significant ownership stake in Amazon—accounting for around 32% of the company's stock—creates a major obstacle for anyone seeking to bring about change within the board. Despite their collective intelligence, the board remains relatively small compared to managing thousands of employees and a market capitalization totaling $4 billion.

There is a concerning trend of increasing customer churn and declining repeat business. D'Eathe (p.3) suggests that most e-tailers are experiencing significant slowdown in sequential revenue growth in recent quarters. This implies that the rise in customer churn and decrease in repeat business may be more due to the overall decline in the U.S. economy rather than a weakness specific to Amazon. Reamer (p.1) believes that if Amazon can capitalize on even half of the retailing opportunities available, it can dominate the market. However, the company needs to successfully execute its profitability plan and overcome early signs of a potential slowdown in U.S. online commerce activity.

Amazon plans to leverage its competitive advantages - such as its strong brand, managerial expertise, and robust distribution and technology infrastructure - in order to achieve its goals. Currently, the company has two main objectives: 1) Prioritizing customer satisfaction by utilizing the internet to provide the fastest, easiest, and most enjoyable book buying experience possible; and 2) Marketing any product that can be sold online. While these objectives are considered reasonable, it is crucial for them to be specific and measurable. To this end, some alternative objectives may include allocating company resources towards achieving profitability by the end of 2000 (an annual objective), as well as increasing profitability by an annual rate of 5% over the next three years (a long-term

objective). These targets would provide management with tangible benchmarks for evaluation. Failure to meet these goals would necessitate a reassessment of either the company's objectives or its strategy for attaining them.

The Company must establish a strategy to achieve its objectives. Prior to choosing the actual strategy, it is crucial to assess alternative strategies. The SWOT or TOWS, SPACE, Grand Strategy, IE, and QSPM Matrices are tools that aid in this assessment and selection process. These matrices indicate that Amazon holds a strong competitive position and should continue to expand and develop.
Despite its financial status, the Company possesses distinct advantages in a high-growth or unstable industry. Strategies such as backward, forward, and horizontal integration, market penetration, market development,
product development, and joint venture are appropriate for companies fitting this profile. One strategy falling into these categories is international expansion which involves introducing current products or services into new geographical areas.
According to the Balanced Scorecard (p.6), Amazon.com is well-positioned as the global leader in e-commerce strategy and implementation.
Selecting this strategy offers various advantages because Amazon has made significant investments in product development within the United States resulting in an advanced website recognized widely as the top e-commerce platform.
The Company has successfully applied this highly scalable technology to every new market it enters.In addition, a significant amount of personalization technology and U.S content has already been created and can be shared across markets. Amazon has effectively utilized the existing technology and infrastructure to keep product development costs low.

Amazon benefits from centralized costs that can be used across multiple markets, saving them from having to hire new engineers for each market they enter. This gives them an advantage over e-tailers

in single countries (Becker, p. 5).

However, expanding internationally also has its downsides. While Amazon successfully built its brand for free in the US through public relations and word-of-mouth advertising, Europe has not experienced the same level of e-commerce growth. Thus, Amazon will never be able to recreate the excitement it received during the 'Internet bubble.'

In addition, media audiences do not easily cross borders, forcing Amazon to aggressively spend in each country (Becker, p. 9). Unfortunately, Amazon is not financially capable of spending aggressively to generate additional revenue. Moreover, even if they were able to do so, additional revenue alone would not help them achieve their profitability goal.

Therefore, an alternative strategy was chosen for implementation.

The chosen strategy for Amazon was a combination of product development and joint venture. As mentioned earlier during the evaluation of the EFE Matrix, Amazon has a great opportunity to monetize its platform by selling access to its customer base, brand, inventory management, or customer service and order fulfillment infrastructure (or all of them at once). This could greatly improve the profitability of the Amazon.com business model, surpassing its current 2-3% margin. With time, the operating margin could even reach double digits, leading to a higher valuation compared to other retailers (Reamer, p.6).

Amazon has recently made two agreements, one with Toys "R" Us and the other with Borders Group. The collaboration between Amazon and Borders involves Amazon taking care of fulfillment and inventory for the jointly branded Borders.com website. Amazon.com will be in charge of selling, providing inventory, fulfilling orders, managing site content, and handling customer service for the joint website. Despite this partnership, the new website will still provide exclusive content

specific to Borders.com such as store location information and in-store event calendars (Legg, p.3).

Amazon's e-commerce partnership with ToysRus.com last year marked the launch of an innovative e-business services model. This model benefits both Amazon and its retailer customers by leveraging core assets to provide three essential components of a successful e-commerce strategy: a scalable and proven e-commerce technology platform, access to 30 million e-commerce buyers through marketing capabilities, and outstanding back-end product fulfillment capabilities. These fulfillment capabilities set Amazon apart from competitors in the e-commerce distribution space.

Similarly, retailers bring their own core competencies to the table, such as merchandising, pricing control, and inventory risk management. Both Amazon and ToysRus.com capitalize on the strengths of their respective business models to share the costs of conducting e-commerce. ToysRus.com can potentially reduce its time to breakeven earnings in the e-commerce business, while Amazon can increase the number of e-commerce orders through its fixed-cost distribution network, improving the likelihood of achieving breakeven earnings by the fourth quarter of 2001 (Patel, p.7).

The QSPM Model gave the platform monetization strategy a higher attractiveness score of 6.30 compared to the international expansion strategy, as previously mentioned. The only drawback is that consumers view Amazon as mainly selling media products rather than a variety of items like kitchenware and furniture. However, the advantages of the strategy outweigh the disadvantages. If Amazon forms more deals with traditional retailers, their financial performance should improve. The implementation of this strategy is already underway on a small scale and should be relatively easy, with minimal management conflicts or resource allocation issues. If executed properly, this strategy should help Amazon achieve profitability by the fourth quarter of 2000

and increase profitability by 5 percent annually for the next three years.

Bibliography:
Kotha, Suresh. November 1997. "Competing on the Internet: The Case of Amazon.com" European Journal of Management; pages 1-27.

Bartlett, Phillip and David, Fred. "Amazon.com, Inc.-2000." Business Case from Strategic Management Concepts and Cases, 8th ed., Fred. R. David, 2001; pages 21-27.

"Amazon.com: Balanced Scorecard" can be found at http://www.killerstrategy.com/amazon/azbsc.htm, written by an unknown author. It consists of pages 1-6.

The article titled "Amazon.com: Our Delicate Bullishness Rests on Platform Monetization" by Reamer, Scott and Smith, Allyson was published in SG Cowen Perspectives on May 1, 2001. The article spans from pages 1 to 12.

Patel, Jeetil J., and McCluskey, Neil. "Amazon.com, Inc." Deutsche Banc Alex. Brown Equity Research. April 23, 2001; pages 1-16.

The authors D'Eathe, Sara and Bernstein, Debra (2001) from Thomas Weisel Partners Merchant Banking argue that Amazon.com's current business model is not consistent with profitability. According to an article in Fast Company (1996), there is still much to learn about the book on Web business, as mentioned in Kotha's essay.

The article "Amazon-Toysrus.com Deal Signals Strategy Shift" by Farmer, Melanie A. and Junnarkar, Sandeep on c|net News.com (http://news.cnet.com/news/0-1007-200-2486883.html) discusses the implications of the deal between Amazon and Toysrus.com and how it signifies a shift in strategy.

Legg, Michael F., Amoroso, Louis P., and Bilanin, Jared A. "AMZN: Alliance With Borders A Positive, Expands Presence Offline." Jeffries ; Company, Inc. April 12, 2001; pages 1-16.

"Market Guide - Comparisons for amazon.com, Inc. (AMZN)." http://yahoo.marketguide.com/mgi/ratio/A13EF.html ; pages 1-5. Author unknown.

Lund, Brian. "eBay vs. Amazon" The Motley Fool. April 3, 2001. http://www.fool.com/portfolios/rulebreaker/2001/rulebreaker010403.htm ; pages 1-4.

Becker, Holly, Gross, Michael, and Leichter, Stephanie. "Amazon.com Inc.: Amazon's International Challenges."

Lehman Brothers Global Equity Research. May 3, 2001; pages 1-16.

The text below is a citation taken from The Economist (1997a) survey on electronic commerce. It includes the author unknown and states that it is sourced from the Kotha essay. The text is enclosed within

tags and also includes a line break tag
.

The Wall Street Journal (1996) reported on how a Wall-Street Whiz discovered a unique opportunity to sell books on the internet. The article, titled "Reading the Market: How a Wall-Street Whiz Found a Niche Selling Books on the Internet", was published on May 16, on page 1. The author of the article remains unknown. This information was obtained from an essay written by Kotha.

The article titled "Why Amazon's Board is Part of the Problem" written by Stefani Eads can be accessed at http://www.businessweek.com/bwdaily/dnflash/apr2001/nf2001044_127.htm on BusinessWeek online. It was originally published on April 4, 2001 and spans five pages.

Sandeep Junnarkar rated Amazon as "underperform," resulting in a decline in the company's shares. This information was reported on c|net News.com, found at http://news.cnet.com/news/0-1007-200-2478430.html. The article was published on August 9, 2000 and spans three pages.