Amazon’s Strategic Issues

The SWOT framework, Porters Five Forces analysis, Vision and Mission and Balance card tools have been critical in conducting Amazon’s strategic audit and form recommendations for improvement. The analysis has established that the consumer-centric value proposition of the brand is attributed to its global success. Rather than focusing on the industry peers, Amazon’s efforts are on the target market with the intention of ensuring that the products and services are of high quality. The most overlooked competitive edge of the brand, which is the ability to drive customer traffic to the website, places Amazon above other players including War Mart and Target. The latter brands have large warehouse capacity but unlike the conventional model, consumers have the utmost power in the online marketplace and therefore dictate the profit margins. However, amidst a changing landscape and intense competition, Amazon is facing a number of strategic issues that may derail its progress. Some of the detrimental issues are; reduction in quality of the market place, the gradual rise of fake product and service reviews that threaten the reputation of the brand, increase in scammers, and problematic internationalization resulting from market diversity. The company should take advantage of its strengths including the large market share, financial strength and reputation to develop a vibrant innovative culture that stimulates the workers to develop stringent programs and strategies that counter the repulsive strategic issues. In addition, the company should decentralize decision making and empower the local markets and suppliers to cater for the needs of regional markets while at the same time reducing scams that the inability to authenticate supplier details.

Strategic Issues and Recommendations

Introduction

Amazon has strategically positioned its business model in the online market place as evidenced by the resilient growth. However, the rise of other large market players including Alibaba that have achieved great milestones in less than a decade and the potential of technology to further disrupt the industry may adversely affect growth prospects of the company. For example, initiatives such as Fulfilled by Amazon Program create quality issues that taint the reputation of the company to the buyers. As such, it implies that Amazon is not immune to internal and external threats that threaten the survival of other online retailers as discussed in the rest of the report.

An Overview of Amazon’s Competitive Advantage

Relative to the brick and mortar retailers, Amazon strategic initiatives are inclined to cost leadership. Although the profit margins are low, the firm’s focus on economies of scale, innovations of business activities, product and market development are attributed to its global success. From the audit of the company through the SWOT matrix, Porters Five Forces Model, Balanced Scorecard and value proposition, Amazon business strategy is based on four pillars; a focus on the target market rather than competitors, commitment to inventions, long-term strategic thinking, and operational superiority. The value addition pillars have sustained the firm’s sales revenue at approximately $100 billion per year. In many industries, a customer-centric and operational efficiency emphasis tend to be disparate but in the world of Jeff Bezos’s, Amazon’s CEO, the two principles are intertwined. The brand solutions are easy to access, seamless and convenient leading to the maximization of consumer value.

A survey by BloomReach reported that in America, more than 50% of the online shoppers begin their search with Amazon before reviewing other offerings (Onfro, 2015). Rather than relying on the large consumer base, Amazon goes further by developing an easy to use platform. The makes it easy for buyers to click on an item, read reviews and description, and ultimately adds to the cart implying that most of the visitors end the search on the site. The high consumer base attracts merchants who want to place their items on the virtual shelves of Amazon for sales. The retailer facilitates buyer-seller contact through the Fulfilled by Amazon Program. Owing to the success of the program, Amazon is rapidly building warehouses and distribution outlets to add value in the form of convenience of delivery. According to Levy (2016), the greatest competitive advantage for an online retailer is the ability to drive traffic to the company’s website. Relative to Wal Mart and Target that already have substantive production capacity, Amazon counters the competition through its extensive market share that is attributed to the consumer-centric strategies.

Strategic Issues Facing Amazon

Marketplace Quality Issues

According to Dobbs (2014), the power of suppliers greatly influences the capacity of an organization to maintain market leadership and sustain operations in the long term. Over the years, Amazon has resiliently acquired a large customer base by providing value added solutions to the clients. However, as the industry continues to grow, Jeff Bezos’s team deliberated on the Fulfilled by Amazon program that draws global suppliers to the site and distribution centers. Although the system increases catalogs that reduced prices for goods, the suppliers have gradually tainted the quality of the retailer. The suppliers have the power of private labeling that gives them room to provide substandard goods. Consumers have access to variety of products yet more than 50% are of low quality. The trend is damaging the reputation of the brand leading to corrosion of the market share essentially given that more retailers are penetrating the industry.

Ratings and Reviews Quality issues

In addition quality issues, the power of the sellers is detrimental to the organization since they are positioned to fake reviews to drive traffic to their substandard goods. The suppliers take advantage of Amazon high market share to drive individual sales at the expense of the brand. Research shows that sellers are engaging in unethical behaviors by paying online users and potential buyers to craft fake review for sales. Lack of substantive measures to prevent review creation is causing the brand a high stake in the market. In a competitive market, firms should strategically seal all loop holes for sustainability. Even though the sellers add catalog and bring in more consumers, the damage that is attributed to fake reviews will cost the firm a large market share if no measures are taken. The rating system is supposed to help consumers make informed choices before making a purchase. If the program is contaminated, it loses meaning with the result being lack of consumer confidence and a subsequent reduction in revenue.

Risk of Over Capacity

Relative to the traditional business model, the modern framework gives consumers a high purchasing power over the producers. Amazon realized the change leading to its consumer-centric value propositions that has positioned it top of the peers. The online platform has reduced brand value such that products are not indispensable or unique. Buyers can buy from other sellers when they receive goods that are below expectations. After development of the Fulfilled by Amazon program, one strategic mistake Amazon is making is taking consumers for granted. The brand is focusing on its growth prospects by developing more distribution centers. However, Panos (2014) reviewed the case of eToys, which after failing to meet customer demand on time resorted to building extra warehouses. The management of the firm failed to consider other market players and the power of the buyers to shift given that the goods were similar. However, after the creation of warehouses, the firm failed to attain sufficient orders to maintain eToy operations. A similar scenario may happen to Amazon given the recent issues with quality and fact that the firm will be forced to raise product prices. Too much capacity without unrivalled value propositions may lead to losses.

International Growth

Based on Amazon’s financial reports, most of the earnings come from international markets. The revenue growth is attributed to successful penetration in developed economies including Germany, France and Japan. The brand is also positioning its strategies to attract a substantive market share in emerging economies including India and Brazil. Adapting to foreign markets require an assimilation of the local culture to the model of the organization. However, according to Onfro (2015), adapting to new cultures is not easy. For example, most Indian buyers do not have credit or debit cards. The company had to utilize cash on delivery model which is risky and not available in some of the strategic places (Onfro, 2015). In china, the dominant player, Alibaba is aware of the local culture and needs of the people and as such, better positioned to drive sales to the brand. Alibaba leads the Chinese market with more than 80% making it difficult for other brands to penetrate. With more localized brands penetrating the market, the international growth prospects of Amazon are increasingly becoming difficult.

Hacking and Fraudulent Intrusions

One main issue facing most online firm is security. Although Amazon has invested in inbuilt software and programs that protect buyer’s information, fraudsters are getting into the system in the form of sellers and potential buyers. Given that sellers are able to obtain fake reviews, the chance of private label scammers penetrating the site and luring innocent buyers is at an alarming rate. Buyers pay through the Amazon platform but sellers lure shoppers with low priced or counterfeit products. In some situations, buyers pay but receive nothing. Such fraudulent schemes have created constant battles between the sellers and Amazon and the risk of losing potential and current customers as a result is high. Owing to the large number of sellers and buyers, Amazon notices a scammer after a complaint and by the time the profile of the scammer is removed, the damage is usually irreversible. Amazon absorbs the cost of the fraud through the A-t-Z guarantee program. The increase in the marketplace shows that the company will incur huge losses that may reduce the net income. A decline in financial position can be detrimental to the company that is operating amidst intense competition.

Recommendations

Product Portfolio

The issue of quality and fake product reviews can be solved by misaligning the value chain process. The seller’s power over the brand has resulted to emergence of substandard goods. Given the complexity of the issue and the fact that the firm may not have the power to control input and output of the sellers from the system, an inbuilt quality assurance program is required. The company coordinates the distribution of products through the warehouses. As such, the management can avoid the quality issues by ensuring that each region has a convenient distribution outlet for the buyers.

Periodical reviews by the staff of the company to the supplier’s sites can be conducted. However, if the cost of such a procedure outweighs the benefits, the company can mandate all the suppliers to offer free samples to buyers as a way of marketing but ensuring that the shopper certifies the goods before making payment. It is also advisable for the company to limit the number of sellers by placing stringent quality control measures such as live reviews and videos of the products for the consumer to make informed choices.

Structure

Amazon utilizes the centralized and decentralized management practices to foster operations. The general organizational structure is however hierarchical. The senior management team is composed of various unit leaders who report to the CEO, Jeff Bezoz (Levy, 2016). The firm is structured to promote the overall vision by exhibiting certain characteristics: internationally-based functional teams, global hierarchy, and regional divisions. All the major business functions have a dedicated leader that oversees the tasks on behalf of the stakeholders.

However, the hierarchical element implies that the final decision is made by the group leader or the CEO. Such a factor can be attributed to the issues facing the internationalization of the organization. It may be difficult to adapt to the culture of the local people when the decision maker is not familiar with the values of the region. In addition, centralization limits accountability and aggressiveness of the junior employees who may find it difficult to propose ideas that may not be considered for implementation. However, the firm counters the localization problem through the regional divisions that constitute employees from the regional market. It is advisable for the company to consider devolving decision making to the local divisions. Such a consideration is practical when performance appraisal is formulated such that each regional manager has goals and objectives to accomplish on behalf of the firm at particular periods. Decentralization fosters creativity and innovation.

It is also worth considering the market capacity of a particular region before drafting and implementing a certain marketing or distribution strategy. The diversity of the target markets implies that the consumer’s perception of convenience and quality is different. Increase in product catalog and warehouse should result to lower prices and subsequent high revenue for the company. Localizing the payment method and delivery also reduces the impact of fraudsters since the regional buyers are familiar with the seller. By connecting global sellers with other local suppliers, value proposition in the form of easy and fast transactions is guaranteed.

Organizational Behavior

The culture of the company is based on the mission and vision statements. The mission of Amazon is focused on provision of high quality solutions to the buyers. The vision outlines the desire to dominate the global online market in the long term. The employees and other internal stakeholders are oriented to the goals of the company upon becoming members with the intention of establishing a standard behavior. The vision and mission clearly articulate the value proposition aspects of the organization implying that no issue should threaten the survival of the firm. Workers should amicably deal with their tasks and ensure that they deliver their assigned mandate adequately for the overall growth of the company.

As such, the fact that scammers are able to penetrate the site, and sellers can get fake reviews shows that there loophole within the organization. Some of the players particularly those dealing with the IT function have failed in their mandate. Investment in research and development to identify the core skills and knowledge required to create suitable systems to counter the activities of scammers is critical. The disruption of technology is rapid which implies that systems are constantly becoming obsolete for the market. Amazon should therefore devote its resources in tracking down the scammers by way of reviewing and updating the operational systems.

A culture of inspiration, participation, and teamwork is therefore important to foster knowledge sharing and creativity that are essential in invention. The reason that Apple Inc has resiliently maintained its market share is the establishment of an innovative culture among the workers. Each individual employee is motivated to bring in new informed ideas that may be utilized for market and product development. An innovative culture ensures that the firm is versatile and adaptive to environmental, social, and economic changes without adversely impacting operations. The result will be a reduction or maintenance of scams, improvement of the global growth prospects, and customer retention.

Value Chain Activities

Amazon value chain activities, including the inbound and outbound logistics, marketing and sales, and services are inclined to the mission and vision which are provision of quality and efficient service and global dominance respectively. For example, the marketing function concentrates on market positioning by identifying specific consumer groups so that the proposed products and services match their needs. Through market segmentation, the brand has positioned its activities to add value at an individual level.

However, more needs to be done to fill the cultural diversity gap. Alibaba sustains its leadership in China due to the ability of the management to situate brand within the cultural values of the local market. Amazon’s largest market share is North America given that the top management is aware of the specific needs and expectations of the market.

Apart from building warehouses and establishing convenient warehouse, the company should localize the logistics function such that buyers are not subjected to the demands of the foreign market. Such an initiative can be achieved by developing localized sales and marketing prospects and ensuring that there are enough suppliers to cover the regional market. The company should focus on programs that allow local transactions as long as quality of service and product is maintained.

Performance Measures

Buyer power and suppliers are strategic drivers to the performance of an organization. As a result, Amazon builds its brand by mandating the private label to offer quality services failure to which they are removed from the website. Consumer needs and expectations are the foundation for the sales and marketing prospects. Buyer satisfaction is therefore critical in ensuring that the company meets its performance obligations. To measure performance, the company uses the review system such that consumers can give feedback on services and rate the service of the seller. An increase in the number of positive reviews is therefore indicative of the goal actualization by the brand with respect to providing value added goods and services.

As such, the company is obliged to address the rating system that has given room for fake reviews. A consistent update of the system is critical. The company should establish a workforce that reviews that the rates so that any suspicious activities are dealt with. A programs that is reviewed constantly will discourage the culpable sellers from spending on reviews that will not last for a long period.

Conclusion

Based on the above analysis, it is evident that the strengths and market opportunities available for Amazon far outweigh the threats and weaknesses. However, considering the rampant changes taking place in the online marketplace and the gradual evolution of technology, strategic issues are imminent. The company operates under an intense competitive environment and the ability to sustain operations and retain market leadership depends on the success of the aforementioned recommendations.

References

E. Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.

Levy, A. (2016). Amazon’s Most Overlooked Competitive Advantage. Retrieved from https://www.fool.com/investing/2016/11/27/amazons-most-overlooked-competitive-advantage.aspx

Onfro, J. (2015). One of Amazon’s Biggest Challenges for the New Year. Retrieved from http://www.businessinsider.com/one-of-amazons-biggest-challenges-for-2015-2015-1?IR=T

Panos, M. (2014). Is Amazon Making a Big Strategic Mistake? Retrieved from https://www.forbes.com/sites/panosmourdoukoutas/2014/02/18/is-amazon-making-a-big-strategic-mistake/#2f21baed2158

Appendix

1. Market Position Analysis

Amazon. Com, Inc. is an American cloud computing and electronic commerce institution established in Seattle, Washington. Amazon is one of the greatest internet retailers in the world measured by both market capitalization and revenue. The company’s website commenced as an online bookstore, but later diversified to the selling of videos, MP3, and audiobooks. The information collected from an interview with one of Amazon’s senior manager revealed that the company offers a wide range of brands with a different product portfolio to consumers globally. The main product category provided by the company is Amazon retail goods. The collection entails items and services such as books, DVDs, videotapes, apparels, beauty products, software, Music CDs, and baby products. Other categories include Amazon Art, Amazon video, Amazon Drive, Amazon Prime, and Amazon Games.

The company has remained successful over the last 20 years owing to the strategic marketing adopted by the management. Marketing strategy is based on the organization’s global plan of getting people to like and buy the products it offers. The marketing policy developed by Amazon encompasses its value proposition, information regarding the customers, and major approaches to reach the clients in the global market. The most successful business units of the company are Amazon Prime, Amazon’s third-party marketplace, and Amazon Web Services. The marketing strategy of the company considerably relies on six pillars, which include;

i. Presenting the biggest range of items

ii. Using an interface that is user-friendly to customers

iii. Exploiting associated products and services

iv. Utilizing the currently existing system of communication to reach the potential consumers

v. Using universal mentalities and behavior

The marketing strategy adopted by Amazon has witnessed an increase in its annual expenses over the last few decades. 7Ps of the company’s marketing principally focuse on the place and product of the marketing mix. Amazon offers approximately 480 million items in the United States alone with services ranging from offline to online retailers. Additionally, it has been able to provide most of its merchandise for competitive prices owing to the online feature of cost-effective selling approach. It should be mentioned that the company’s segmentation positioning and targeting practices focus on reaching the most extensive customer segment, which is achieved by utilizing multi-segment and adaptive positioning tactics. For instance, the communication strategies used by Amazon in marketing incorporate media and print aspects such advertising, public relations, sales promotion, and direct marketing, which are aimed at meeting the needs of different buyers.

The customers of Amazon majorly belong to the upper and middle classes of the society and thus have a high proclivity to utilizing e-commerce portals, thus feeling comfortable while doing shopping online. A significant number of the consumers are entrepreneurs and professionals, who are busy and therefore do not have time to visit the physical stores to make their purchases. Consequently, the general consumer habits of Amazon customer include the inclination to online shopping. These buyers spend most of their free time online either purchasing, streaming, or checking new items in the company’s stores. Moreover, they declare that online shopping in the 21st century has become a necessity, while it has become boring for them to visit physical stores, which may be located miles away.

Some of the reasons that have made the company’s products successful in the market and kept the level of loyalty among the consumers include high quality and consistency in service provision over the years. The satisfaction and friendliness of the consumers towards the products have contributed to the promotion of the sales of Amazon Inc. goods and services in the global market. Moreover, handling the customers in the right way has allowed the company to be one of the most successful firms in the world due to selling more than millions merchandizes in one year.

Through its marketing mix policies, the company has met the requirements of its customers regarding the quality of products and services, positioning, and promotion of the merchandise by using a cost-effective method, which permits low prices. Consequently, the company’s marketing strategies have supported its success through realization of global sales and reducing expenses associated with marketing.

Amazon has positioned itself successfully as a Go global Act local (Glocal) e-commerce oversize store, where buyers can get anything they want at any time and get it delivered regardless of the geographical region (Bhasin, 2017). The positioning has increased the performance of the company as compared to its competitors in the online retail market. Given that Amazon operates in three segment, namely media, electronics, and other merchandise, it has several global competitors. Some of the main competitors of the company include Netflix, Time Warner Cable, Apple, Walmart, Alibaba Group, Overstock.com, and CDW. The products offered by Amazon have suitable features designed to meet the demands of consumers in the 21st century, especially the Y-generation kids. Additionally, their functions, quality, and price reflect the capacity and class of the modern buyer.

Amazon Inc. has established a pricing strategy that enables everyone to afford products and services. For instance, it gives loyal customers the opportunity to enjoy low prices by getting coupons on particular merchandise. The company has realized that the customers give quick delivery and convenience priority when they place an order, and hence, the company has invested in the distribution system to meet the desires of clients. Moreover, it has recognized a reflective and structured system, which facilitates the availability of merchandizes in remote regions at a relatively lower cost globally. Differentiation of products segmentation and service quality are essential factors, by following which the company can develop the appropriate marketing strategies to meet the demands of each segment of the consumers in the market. Furthermore, such approach is significant to the customers because the business can design different adverts for different customer demographics. In addition, it helps Amazon to improve services offered to various customers they serve in the market.

The company has differentiated itself to maintain a competitive advantage over its competitors by acquiring many IT and e-commerce start-ups such as pets.com, IMBD.com, audible.com, and Junglee.com. The acquisition policy has allowed the company to provide high value to their clientless globally by using present and advanced technology at relatively lower cost (Dudovskiy, 2017). Besides, extensive merchandise offerings, which encompass toys, electronics, apparels, and games, have enabled the company to realize the economies of scale. These provisions have supported the business in keeping the prices low and passing the benefits to the final users. The source of competitive advantage is sustainable to Amazon since most of the company’s products are cheap as compared to the competitors’ ones.

2. External Environmental Scan

Amazon.com is an internet, electronic commerce company which is located in Washington. The firm encounters many opportunities as well as threats. However, the dangers are not a significant issue to the company since they are still in a market which has not developed sufficiently. To thrive more, Amazon.com has to address all the threats that are threatening the well-being of the firm. Moreover, Amazon.com needs to embrace all the opportunities that present to the business.

Amazon.com should remain resilient amid the dynamic state of the online shopping and buying. Here is a five forces analysis of Amazon.com incorporation which shows how different factors change the retail industry. The bargaining power of Amazon’s suppliers is not low nor is it high. The suppliers of the company are many, but there are rules set by the company to make them comply with the company’s set of rules. The company has focused mainly in areas such as health and safety in the production environments, paying their clients appropriately regarding overtime work as well as ethical treatment to their workers.

The threat of new participants in the e-commerce and cloud computing industry is low. There are several firms which have entered in the e-retail business venture, but it is still difficult to make a brand like that of Amazon (David, 2011). The difficulty is as a result of the high expense and marketing strategy of building such a brand. Amazon has a huge rivalry in the industry because of the growth of some new participants in the business venture including Walmart and other worthy competitors. Small retail shops, as well as foreign brands, are also trying to get a share of the market thus posing an unimaginable threat to Amazon in future. Moreover, there is also the issue of Amazon’s buyers whose bargaining power is medium but sometimes is high. The bargaining power of the company’s customers is as a result of the many participants in the industry. Amazon work to satisfy their customers’ needs to retain them as their buyers.

The company needs to partner with other business entities in a way that will increase their revenues levels higher than their current state. For long Amazon.com has not partnered with significant players in the business and have failed to gain more partners as well (Smith, Rupp & Offodile, 2017). It is clear that whatever the company is involved in concerning its customers, developers and sellers turns to be successful. However, an opportunity which is evident in this scenario is the possibility of collaborating with a large manufacturing company dealing with goods of their taste. The idea will enable the firm to become the only online platform consumers can buy goods. Another opportunity is the idea of reducing the cost of their products. Lowering the value of their product in a way to suit the well-being of the company as well as that of their consumers will help increase the company’s share of the market.

Another opportunity Amazon.com may opt to address is the idea of creating a website and branching into other market niches in the world. Some of the possible market opportunities which clear present themselves to suit the market needs of the company are in South Africa and some parts of South America. Creating the websites and branches in other countries which potential consumers will use will help the company increase its revenues significantly (Smith, Rupp & Offodile, 2017). Thus, Amazon.com need to start operating at an international level fully and not partially. Performing at that level the firm will be able to expand its economies of scale.

However, apart from the opportunities that Amazon.com has, there are also several threats which prevail in any business entity. The company’s primary threat comes from the many competitors who are in the electronic commerce and cloud computing industry. Some of its worthy competitors include Overstock.com, Wal-Mart, and Buy.com. The competitors’ main threat to Amazon.com is the possibility of capturing a share of the company’s market.

Amazon.com main threat comes from the possibility of its consumers to revert from online shopping to buy their goods from brick-and-mortar stores. However, the option of returning to shopping in such stores may only occur if consumers feel that their information is not secure when ordering goods online (McGrath, 2010). The feeling of consumers’ data being insecure comes just if there is an incidence across the web which threatens their well-being.

In general, Amazon.com has a lot of opportunities in that the market, the electronic commerce, and cloud computing industry is dynamic (Smith, Rupp & Offodile, 2017). The company needs to focus on its competition and find a way in which they can address its weaknesses. They can improve their economies of scale by venturing into other countries in the world. Furthermore, Amazon.com may enhance their automated distribution centres an act which may increase customers’ satisfaction. Concerning the company’s threats, Amazon.com may study the demographics of the firm thus giving the idea of knowing how to prevent any situation which may lead to their failure.

Moreover, Amazon.com may need to improve their web design in a way that they will appeal to their consumers both locally and internationally. More partners may also be required to help in the utilization of the firm’s software. In an attempt to further develop the company, Amazon.com may focus on the reduction of buying cost